Under a new COVID-related proposal from the Swedish Finance Ministry, the big four buffer funds behind the country’s state pension are to be given permission to hold larger stakes than usual in the companies they invest in for the next few years.
The ministry’s Financial Markets division published the draft legislation yesterday, as a temporary change to the investment rules for AP1-4 contained in the General Pension Funds Act (AP Funds) – specifying in the title that it was being made due to COVID-19.
The cap on votes the individual AP funds may hold in any single listed company is being raised temporarily to 15% from 10% – as long as the excess equity is acquired via a new share issue.
Explaining the background to the proposal, the Financial Markets division said COVID-19 and measures taken to counteract its spread had resulted in sharply reduced revenues for many Swedish companies.
Besides the blow dealt to cashflows, the fall in income was also reflected in losses in company income statements, the government department said in the proposal, which it said had dented the businesses’ long-term ability to repay loans.
“It is primarily up to existing owners to inject new capital themselves or with other private financiers,” it said.
The legislative amendment is scheduled to take effect on 1 November this year and expire at the end of June 2021.
According to the proposal, if AP funds 1-4 end up with more than 15% of the voting capital in any company as a result of a share issue, the excess portion must be liquidated “as soon as appropriate taking into account the market conditions”.
However, this sale of shares also has to take place when it can be done without loss to the AP fund, the proposal goes on.
The part of a holding over and above the current limit of 10% of voting rights will have to be wound up no later than seven years after the acquisition of shares through a rights issue, according to the draft, which is now out for consultation until 10 August.