Equitable investors shun buyback

STRUGGLING pensions and insurance group Equitable Life has extended an offer to buy in up to £260m of its own bonds after investors gave the cold shoulder to its terms.

Sources said it has lengthened the offer period by two days to 3pm on 8 December after a tepid response from bondholders.

Equitable had originally offered to buy back every £1,000 worth of bonds in a price range of £800-£920. It is understood to be prepared to raise its offer, though it is unlikely to pay a premium.

The cost of extending and increasing the offer is thought to be relatively small. The bonds are trading at 93.5p in the pound.

A buyback will secure an immediate improvement to its finances by bringing a large saving on its £28bn interest bill. It would also boost the insurer's solvency by between £23m and £65m. The group has £350m of bonds outstanding.

Regulator the Financial Services Authority recently gave the green light to the buyback, a signal that the mutual insurer's solvency has improved.

But it has backfired to some extent because bondholders now believe Equitable is more financially secure and therefore good for more money - though finances could still be hit by extra compensation bills for late joiners.

Only £300,000 of bonds had been tendered by the original deadline. The society could buy the bonds back at their face value in 2007. Equitable declined to comment.