AMP shares jumped back up by 7% after investors were informed of news that the company has entered a new capital management plan to strengthen its financial position.

On Thursday shares closed at $12.23 after acting CEO Andrew Mohl announced that AMP will underwrite its dividend reinvestment plan for the next 18 months.

The move to underwrite the DRP enables AMP to secure its capital by keeping it in shares rather than paying it out as dividends to its shareholders.

“This is an established capital management practice, utilised by many Australian companies,” Mr Mohl said. “It will provide AMP with additional capital management flexibility and reinforces the company’s financial strength,” he said.

He said he intends to keep investors fully informed about AMP’s capital situation. “One of my key priorities right now is to ensure the market is very clear about AMP’s capital management initiatives and how they work,” he said.

The company also intends to provide more detail about the $1 billion allocated to its British financial services operation in June. It said this had involved a three-stage process to ensure compliance with regulatory requirements.

The first stage was completed in July and involved the use of short-term debt to purchase $1 billion of inadmissible assets from the Pearl fund.

The second stage is the $750 reset preferred securities issue. The funds from this will be lent to AMP (UK) Finance Services plc and used to repay short-term debt, with the balance held in reserve.

The final stage involves the re-transfer into Pearl of the previously inadmissible assets. AMP said that once these assets are transferred, they will be recognised as admissible by the UK Financial Services Authority.

Standard & Poor’s has placed a BBB- rating on the securities issue. However, it has given it a positive creditwatch, which means the issue could be upgraded to a BBB rating.

S&P’s Associate Director Kate Thomson said the upgrade would occur when further share capital is raised. “Should the preference share capital be successfully raised, and pending no deterioration in AMP’s credit profile during the intervening period, a BBB rating could ultimately be assigned,” she said.