Aberdeen tables proposals for rescue of High Income split-cap trust

Aberdeen Asset Management yesterday pressed ahead with plans to rescue one of its stricken split capital investment trusts by asking debt holders to vote for a strategy that will save the fund from liquidation.

Debenture stockholders will vote on a plan to run the Aberdeen High Income fund in such a way that any income from the fund will be paid to its banks. The debenture stockholders will also receive an income because their shares rank as a type of debt.

Aberdeen has come up with the plan after Aberdeen High Income announced in March that it had breached its banking covenants with the Bank of Scotland.

If shareholders vote for the deal on 10 June, the company will begin annual repayments of bank debt and loan stock. If they vote against it, Aberdeen High Income will be forced into liquidation. This would mean it would have to sell its holdings at a time which would be highly unfavourable for its shareholders.

The fund invests in the income shares of other split capital trusts, and has been hit hard by the fact that many in the sector have suspended their dividend payments. It would also find it very difficult to offload these shares at the moment to other investors.

As a split capital fund, Aberdeen High Income also contains zero preference shareholders and income shareholders. Both see no prospect at the moment of getting a return on their investment, as they rank below debt holders. But Aberdeen argues they are more likely to return to the black if the fund is kept going until a time when the market in income shares may pick up.

About 40 trusts have been forced to suspend or cut dividends to income shareholders, pay back debts and restructure.

Thousands of savers who invested in a small number of trusts, which borrowed heavily and invested in each other's shares, have seen their savings wiped out and are demanding compensation.

The Financial Services Authority has said that most split caps have proved to be decent investment vehicles. But it is investigating possible mis-selling of some classes of split caps and allegations of collusion by a small number of fund managers to prop up falling share prices.

If accepted the Aberdeen deal would see the company use cash reserves to pay back £10m of bank debt and debenture stock.