The Guernsey stock exchange has dealt a blow to Neil Woodford's attempt to reduce unquoted holdings in his Equity Income fund by suspending dealing in three of the stakes in private companies he recently listed on the Channel Island.
The International Stock Exchange Authority, which regulates the exchange, suspended the listing of Woodford's stakes in unquoted companies Benevolent AI, Industrial Heat and Ombu yesterday evening, amending the measure to a suspension of dealing this afternoon.
In separate announcements for each company, the authority said it had 'suspended dealings in the following securities with effect from 11 April 2019 at 18:00'.
Mark Nicol, The International Stock Exchange Authority managing director, said: 'This is a regulatory matter which is confidential in nature and therefore, I am unable to make any further comment at this time.'
The Guernsey authority's shock move is a significant setback for Woodford, who had listed his stakes in the companies in the Channel Islands as a means of remaining within the City regulator's rules on the amount of unquoted company stocks a fund can hold, as Citywire revealed last month.
The three stocks account for around 7.2% of his £4.7 billion Woodford Equity Income fund and the dealing suspension risks the fund committing a passive breach of the Financial Conduct Authority's (FCA) 10% limit on funds' unquoted company exposure.
Should the Guernsey authority ultimately cancel the listings, the Woodford Equity Income fund's unquoted exposure would rise above 12%, based on the fund's current weightings.
Woodford's stake in artificial intelligence provider Benevolent AI is his largest unquoted company holding, representing 4.1% of the Woodford Equity Income fund.
His controversial stake in cold fusion specialist Industrial Heat is a 2.3% position while Ombu, an early stage company investor, is a 0.77% position.
The only Woodford holding listed in Guernsey that has escaped a suspension of dealings is Sabina Estates, the Ibiza property developer.
While dealing on the three shares has been suspended, it is understood this will not have an immediate effect on the Woodford Equity Income fund and its unquoted company exposure in relation to the regulatory limit.
As with suspensions to trading of shares on the UK stock market, Link, the Woodford Equity Income fund's authorised corporate director, is likely to continue classifying the holdings as quoted until the suspension is resolved.
Should the holdings ultimately be deemed unquoted, any passive breach by Woodford's fund would require the manager to bring the fund back below the 10% limit, with the FCA likely to impose a deadline of up to six months.
Options available to the manager would include selling unquoted stakes to rival investors or to other funds he runs, such as the Woodford Patient Capital (WPCT) investment trust, which took five stakes in an £79 million share swap that saw the fund take a 9% holding in the trust. Woodford's Equity Income fund also sold a £48.8 million stake in Benevolent AI to the Patient Capital trust in late 2017.
The news is understood to have come as a shock to Woodford Investment Management, which is not involved in the listing application process. It is seeking clarification from Guernsey.
Belasko Corporate Finance, which acted as sponsor for all of Woodford's stakes placed on Guernsey's International Stock Exchange, is understood to be in discussions with the stock exchange authority following the suspensions.
'We are surprised by the decision,' said director Jonathan Gray. 'We were not consulted in advance and have been given no clear justification for it. The companies concerned have complied fully with The International Stock Exchange listing rules at every stage.'
A Woodford spokesman said the fund group remained committed to the companies.
'Many of the businesses are maturing companies and at some stage we would expect a crystallisation event,' he said.
'We want to maintain our exposure to these businesses and they want us to remain an investor.'