Skinflint's City Diary
What is the main problem confronting British industry at the moment? Even the mythical ignorant man in the street, between dodging the traffic, would reply: liquidity (cash shortage), any fool knows that. Well, not any fool it seems. Not the associations of unit trust or pension fund managers.
Coats Patons, the Scotlandbased textile company, reacted to its need over the last year for £30 million worth of extra borrowings to cover the ravages of inflation by passing its final dividend. The chairman made it quite clear that he felt it silly to deplete resources further, and felt he could not borrow yet more money to pay out the £7 million needed for the final dividend. Very prudent long term policy, one would have thought, not to borrow more to pay dividends, and though shareholders• would be upset at losing the revenue, they would applaud the management decision to put the long • term safety of the company first, especially as CF was at the same time offering a 1 for 25 scrip issue.
Not so. Ignoring the longer term logic the institutions complained loudly about their loss of revenue and explained that the scrip helps less in view of their favourable tax position. The Stock Exchange obviously understood and expected this long entrenched predilection for short term advantage by knocking 12 per cent of the share price on the day of the CP announcement. That of course made the scrip issue less attractive still.
The Church Commissioners did point out that since their constitu
tion precluded selling capital for income, clergymen would actually suffer as a result of the Coats decision. But few institutions are quite so strictly circumscribed. And if they had not reacted to the news with such hootings of indignant outrage, perhaps the Stock Exchange would have taken a more rational view of the rigorous Scottish logic, and notslashed the price of shares on the announcement. And for DaVid Hopkinson, chairman of M&G unit trusts and of the unit trusts managers' investment protection committee, to get up at the Glasgow general meeting and say that decisions based on "the metaphysics of cash flow" are "invariably wrong" shows a worrying insulation from reality. One hopes that not all institutions look on cautious management, careful accounting, and economic realities with such myopia.
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