Scottish Mortgage’s net borrowings are set to surge above the £1.5bn mark as the trust’s assets continue to balloon.
The Baillie Gifford trust, fronted by James Anderson (pictured) and Tom Slater, said it had issued more long-term private placement debt, raising an additional £200m.
The new sterling denominated debt, which includes a £100m 15-year note with a fixed coupon of 2.03% and a £100m 25-year note with a fixed coupon of 2.3%, represents “attractive rates,” according to senior independent director Justin Dowley.
Gearing in the portfolio was 6.8% or £1.4bn at the end of June, meaning the latest issue will bring net borrowings to £1.6bn.
The board said it increased the absolute level of borrowings for the company in order “to maintain what it believes to be the appropriate level of gearing of the portfolio” as the trust’s assets continue to climb.
Scottish Mortgage’s total assets had more than doubled from £9.2bn to £18.3bn in the year to its final results at the end of March. Despite the rotation into value stocks at the start of the year, assets have grown further and currently stand at £20bn, according to Trustnet.
‘Scottish Mortgage clearly remain positive on the future’
Independent wealth expert Adrian Lowcock said raising more debt makes sense and reflects the fact the trust has expanded rapidly.
“The timing is good as the interest paid on such loans is very low making it an easier bar for the trust outperform,” he said.
It is also a “vote of confidence” that Scottish Mortgage believes there are still plenty of opportunities to invest in, which offer long-term growth, Lowcock added. “Scottish Mortgage, clearly, remain positive on the future.”
Raising capital pivotal for Scottish Mortgage to invest in ‘next generation of innovative companies’
Corporate strategy director Catherine Flood said raising new capital was pivotal for Scottish Mortgage to continue to invest in the “next generation of innovative companies” without being forced to sell existing investments it still finds attractive.
“Over the last decade, Scottish Mortgage’s portfolio has included many companies positioned well for the long term shifts in the way we live, work and travel, benefitting from the explosion of social media, online shopping and electric transport,” Flood said.
“The computing power behind this disruption is accelerating and now reaching other industries where we expect the advances to be even larger and more meaningful – such as healthcare, transport, space exploration and biological manufacturing.
“The exciting progress we are seeing is reflected in the changing shape of our portfolio,” she continued. “Today we no longer invest in Alphabet or Facebook, and Illumina and Moderna are our two largest holdings, rather than Amazon or Tesla.”
Last year Scottish Mortgage issued its first ever debt in euros.
See also: Scottish Mortgage borrowings near £1bn as it issues first debt in euros