News Release
Gilt-Edged Conversion Offer From 12% Exchequer Stock 2013-2017 Into 8% Treasury Stock 2015
12 November 96
The Bank of England announced on 29 October 1996 an offer to convert holdings of 12% Exchequer Stock 2013-2017 into 8% Treasury Stock 2015 on 12 December 1996 at a rate of conversion to be announced on 12 November 1996. The Bank of England has announced today that holders of 12% Exchequer Stock 2013-2017 may convert all or part of their holdings into 8% Treasury Stock 2015 at the rate of £136.55 nominal of 8% Treasury Stock 2015 per £100 nominal of 12% Exchequer Stock 2013-2017. Holders who do not wish to convert any part of their holdings should do nothing.
Interest payment arrangements
Registered holders of 12% Exchequer Stock 2013-2017 at the close of business on 5 December 1996 who have exercised the option to convert on 12 December 1996 will be entitled to the full interest payment, with or without deduction of income tax as appropriate to the holder, due on 12 December 1996, the next interest payment date. However, an amount equal to 5 days gross accrued interest on new holdings of 8% Treasury Stock 2015 (in respect of the period from 7 December 1996, the previous interest payment date of this stock, to the date of conversion) will be deducted from the payment made, as consideration for the purchase of the gross accrued interest. 8% Treasury Stock 2015 issued as a result of the conversion will qualify for the full six months' interest payment due on 7 June 1997, will be fungible in all respects with the existing stock from the date of conversion and will be subject to the provisions of the prospectus dated 17 January 1995.
Method of acceptance
(i) For holdings on the Bank of England Register
Copies of the notice of the offer of conversion and acceptance forms for completion are being sent by post to holders of 12% Exchequer Stock 2013-2017. Holders who wish to convert all or part of their holdings should complete the acceptance form. In the case of holders who are not members of the Central Gilts Office ("CGO") Service, completed acceptance forms with stock certificate(s) must be sent to the Registrar's Department, Bank of England, Conversions, Southgate House, Southgate Street, Gloucester, GL1 1UW to arrive not later than 12.30 P.M. ON TUESDAY, 3 DECEMBER 1996; or lodged at the Central Gilts and Moneymarkets Office, Bank of England, Threadneedle Street, London EC2R 8AH not later than 12.30 P.M. ON TUESDAY, 3 DECEMBER 1996; or lodged at any of the Branches or Agencies of the Bank of England not later than 3.00 P.M. ON MONDAY, 2 DECEMBER 1996.
The Bank of England will acknowledge receipt of acceptance forms. In the case of holders who are members of the CGO Service, completed acceptance forms must be lodged at the Central Gilts and Moneymarkets Office, Bank of England, Threadneedle Street, London EC2R 8AH not later than 12.30 P.M. ON TUESDAY, 3 DECEMBER 1996.
(ii) For holdings on the Bank of Ireland, Belfast, Register
Copies of this notice are being sent, by post, to holders of 12% Exchequer Stock 2013-2017 on the Belfast Register. In the case of joint accounts, the forms are being sent to the first-named holder. Holders who wish to convert all or part of their holdings should so indicate in writing and enclose their stock certificate(s) and send the documents to arrive no later than 12.30 pm on Tuesday, 3 December 1996 at the Registration Department, Bank of Ireland, 20 Callender Street, Belfast, BT1 5BN.
(iii) For holdings on the National Savings Stock Register
Copies of the notice of the offer and National Savings acceptance forms for completion are being sent to holders of 12% Exchequer Stock 2013-2017 on the National Savings Stock Register. Holders who wish to convert all or part of their holdings should complete the acceptance form and send it with investment certificates for at least the amount of stock specified on the acceptance form to National Savings, Bonds and Stock Office, Mythop Road, Blackpool, FY3 9YP to arrive not later than 12.30 P.M. ON MONDAY, 2 DECEMBER 1996.
Arrangements for conversion
Up to and including 11 December 1996, holdings in respect of which the conversion option has been exercised will be described on the register as 12% Exchequer Stock 2013-2017 "Assented"; the SEDOL code to be used for this stock is 0-324-131. 8% Treasury Stock 2015 issued on conversion will immediately be amalgamated on the register with existing holdings of the stock. Certificates for the new holdings of 8% Treasury Stock 2015 will be issued as soon as possible after 12 December 1996.
Up to and including 9 December 1996, CGO account balances in respect of which the conversion option has been exercised will be described as 12% Exchequer Stock 2013-2017 "Assented". 8% Treasury Stock 2015 issued on conversion will be credited to CGO accounts on 10 December 1996 and will immediately be amalgamated with existing CGO account balances of the stock.
Transfers of 12% Exchequer Stock 2013-2017 for which stock transfer forms are lodged for registration up to 12.30 p.m. on Tuesday, 3 December 1996 will carry the option to convert into 8% Treasury Stock 2015 on 12 December 1996.
Where the conversion option has been exercised, any instructions for the payment of interest registered in respect of a holding of 12% Exchequer Stock 2013-2017 will be applied to the new holding of 8% Treasury Stock 2015. As announced on 13 August 1996, interest due to be paid on 7 June 1997 and thereafter on gilts intended to be strippable when the proposed official strips facility is introduced will be paid to all holders without deduction of United Kingdom income tax. This includes 8% Treasury Stock 2015. Her Majesty's Treasury issued on 13 August 1996 the requisite direction under Section 50 of the Income and Corporation Taxes Act 1988 in respect of this stock.
Section 471 of the Income and Corporation Taxes Act 1988 shall not apply to exchanges of securities arising from this offer. Under the new tax rules for taxing debt assets of companies introduced by the Finance Act 1996, Section 471 would confer special tax treatment on financial traders, in comparison to non-financial traders, in the event of an exchange of debt assets with the Government, contrary to its original purpose.
Copies of the conversion notice and forms for the acceptance of the conversion offer may be obtained by post from the Registrar's Department, Bank of England, Conversions, Southgate House, Southgate Street, Gloucester, GL1 1UW; from National Savings, Bonds and Stock Office, Mythop Road, Blackpool, FY3 9YP; at the Central Gilts and Moneymarkets Office, Bank of England, Threadneedle Street, London, EC2R 8AH; at the Bank of Ireland, Moyne Buildings, 20 Callender Street, Belfast, BT1 5BN; or at any office of the London Stock Exchange.
Members of the CGO Service may obtain further guidance about the arrangements set out above in relation to their CGO accounts by contacting the Central Gilts and Moneymarkets Office, Bank of England.
STOCKHOLDERS UNCERTAIN AS TO THE BEST COURSE TO FOLLOW SHOULD CONSULT THEIR STOCKBROKER, SOLICITOR, ACCOUNTANT OR OTHER PROFESSIONAL ADVISER.
Government Statement
Attention is drawn to the statement issued by Her Majesty's Treasury on 29 May 1985 which explained that, in the interest of the orderly conduct of fiscal policy, neither Her Majesty's Government nor the Bank of England or their respective servants or agents undertake to disclose tax changes decided on but not yet announced, even where they may specifically affect the terms on which, or the conditions under which, the further amount of 8% Treasury Stock 2015 is issued or sold by or on behalf of the Government or the Bank; that no responsibility can therefore be accepted for any omission to make such disclosure; and that such omission shall neither render any transaction liable to be set aside nor give rise to any claim for compensation.
Notes to Editors
This conversion offer, first announced on 29 October 1996, is the second conversion offer this year. In August, an offer was issued to holders of 13 1/2% Treasury Stock 2004-2008 to convert into 8 1/2% Treasury Stock 2005; approximately 92.4% of the amount of 13 1/2% Treasury Stock 2004-2008 outstanding was converted.
The latest conversion offer, like the last one, is being undertaken with a view to building up a pool of strippable stock ahead of the introduction of the gilt strips facility. Such offers were foreshadowed in the Debt Management Report 1996-97.
For those stockholders who exercise the option to convert, the payment made in respect of the interest payment due on 12 December 1996 on 12% Exchequer Stock 2013-2017 will be reduced by the amount of gross accrued interest on 8% Treasury Stock 2015 from 7 December 1996, the previous interest payment date of this stock, to the date of conversion.
For example, assume that a holder of £100 nominal of 12% Exchequer Stock 2013-2017, who receives interest payments without deduction of income tax, opts to convert. The interest payment due on 12 December 1996 relating to 12% Exchequer Stock 2013-2017 is £6.00 for every £100 nominal of stock. (A net holder would pay tax at the normal rate on this amount). The gross accrued interest on the 8% Treasury Stock 2015 is £0.10959 for every £100 nominal of converted stock. The conversion rate is £136.55 and therefore £100 nominal of 12% Exchequer Stock 2013-2017 is converted into £136.55 nominal of 8% Treasury Stock 2015. An amount of £0.14965 (i.e. £0.10959 x £1.3655) is paid by the stockholder in respect of the gross accrued interest on the 8% Treasury Stock 2015 (i.e. from 7 December to the conversion date), in order to entitle him to receive the full next interest payment on 8% Treasury Stock 2015 on 7 June 1997. Therefore, the special payment for this holder due on 12 December 1996, per £100 nominal of 12% Exchequer Stock 2013-2017 converted, will be £6.00 - £0.14965 = £5.85035.
8% Treasury Stock 2015 issued as result of the conversion will be fungible with the existing stock from the conversion date, and will also qualify for the full interest payment due on 7 June 1997. The stock will be strippable when the gilt strips facility is introduced. The prospectus for this stock includes provision for exemption from United Kingdom taxation in favour of non-residents. As announced on 13 August 1996, with effect from 7 June 1997, interest payments will be paid to all holders of this stock without deduction of income tax.
Application of Section 471 provides that for tax purposes where a financial trader carries out an exchange of debt for debt with the Government, his holdings of gilts should be treated as if the exchange had not taken place - ie there should be no premature realisation of a capital profit on the source stock. Under the 1996 rules for taxing debt assets of companies, both financial and non-financial traders are liable to tax on capital profits on holdings of gilts. Therefore, exchanges of debt should have the same tax consequences for both. In these circumstances, application of Section 471 would have the effect of granting special tax treatment to financial traders as compared to non-financial traders rather than levelling the tax playing field, which was its original intention.
| Amounts outstanding | Total | of which, in market hands |
| 12% Exchequer Stock 2013-2017 | £1,000 million | £993 million |
| 8% Treasury Stock 2015 | £12,500 million | £12,423 million |
