TIDMAEMC
RNS Number : 9913G
Aberdeen Emerging Markets Inv Co Ld
30 July 2021
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30 July 2021
Aberdeen Emerging Markets Investment Company Limited
LEI: 213800RIA1NX8DP4P938
Proposals for a change of investment policy to an All China
investment mandate, combination with Aberdeen New Thai Investment
Trust and tender offer
The Board of Aberdeen Emerging Markets Investment Company
Limited (the "Company" or "AEMC") is pleased to announce a
comprehensive set of proposals as set out below (the "Proposals")
which it believes will benefit the Company's Shareholders going
forward. The proposals include a change of investment policy from
investing in emerging markets on a fund of funds basis to investing
directly in the equities of Chinese companies, a merger with
Aberdeen New Thai Investment Trust ("New Thai"), and a tender offer
for up to 15% of the Company's shares.
Key benefits of the Proposals
-- Move to investing directly in Chinese equities, which the
Board sees as underserved despite China being the world's second
largest economy;
-- Access to the highly successful Aberdeen Standard
Investments' equities team specialising in China, locally based in
Shanghai and Hong Kong;
-- Move away from a fund of funds structure to direct investment
in equities, which the board expects to improve the attractiveness
of the Company's shares to its core investor base;
-- Merger with New Thai to help improve liquidity and free float
and, reduce fixed costs per share;
-- Tender offer to provide an opportunity for shareholders
seeking to realise all or part of their investment.
Background to the Proposals
As was discussed in the recent interim results, the Board has
been actively considering changes to the Company. Whilst the
Company's investment performance has been very commendable over a
long period of time, in the well-populated emerging markets
investment funds sector, the attractiveness of the Company's shares
has been adversely affected by the current aversion to fund of fund
structures and consequent look-through costs, particularly amongst
wealth managers. This has resulted in an overly concentrated share
register with limited free float, presently calculated at
approximately 16%. One consequence of this has been the Board's
inability to undertake a determined buy back campaign to address
the discount to net asset value at which the shares have traded in
the stock market. In preparing these Proposals the Board has sought
to address these issues comprehensively and so secure a sound
long-term future for the Company.
Proposals
Change of investment policy to an All China mandate
The Board has noted that, although China now ranks as the second
largest economy in the world, there are relatively few listed
closed end fund offerings in the UK specialising in investment into
companies based, or with substantial operations, in China.
The Board conducted a thorough selection process before deciding
to appoint Aberdeen Standard Investments ("ASI") to manage the
Company under this proposed investment mandate.
With over GBP4 billion invested in Chinese equities as at 31
March 2021, ASI has a strong record of performance (both absolute
and relative) witnessed in its Aberdeen Standard Luxembourg
registered SICAV I China A and All China equity funds. ASI has been
investing in China for almost 30 years, and has a large team based
in Shanghai and Hong Kong, supported by team members in Singapore.
ASI also brings a strong record of ESG integration into its
investment processes and engagement with investment managers
supported by on-desk ESG specialists, together with a very strong
track record of investment in China. ASI's Chinese equities team of
thirteen is complemented by three on-desk ESG specialists and
underpinned by ASI's global footprint with its central ESG team of
20+ based in Edinburgh. ASI is acknowledged as industry leading
with an A+ ESG rating from UN PRI.
ASI believes that several key themes are providing interesting
opportunities in China:
-- rising affluence is leading to fast growth in premium
consumption in areas including education, travel, and food and
beverage;
-- growing integration amid the widespread adoption of
technology means a bright future for plays on e-commerce, gaming,
cybersecurity and data centres supporting cloud services;
-- growing prosperity means structural growth for consumer
finance, increasing investor participation on stock exchanges, and
a need for financial protection - especially given the
under-penetration of life insurance;
-- rising disposable incomes are driving demand for healthcare products and services;
-- policy makers globally are committing to a greener and lower
carbon world and China, presently the world's largest emitter of
greenhouse gases, is expected to have a transformational role to
play. Plays on renewable energy, batteries, electric vehicles,
related infrastructure, and environmental management all have a
bright future. 'Grid parity' will be game-changing.
The Company's portfolio will be high conviction with an
estimated 30 to 60 holdings, with exposure to small companies. The
model portfolio has approx. 60% invested in the China A Shares
market and will evolve over time. The same portfolio reflects ASI's
ESG strengths, with a higher rating and lower carbon profile than
the MSCI China All Shares Index (in Sterling terms), with this
being the Company's proposed benchmark (both as measured by
MSCI).
The Managers will manage the Company's portfolio so that it does
not include any company currently sanctioned under the Chinese
Military-Industrial Complex Companies, or CMIC, list as per
Executive Order 14032. ASI will monitor the position for any future
developments associated with this list of companies, any change to
compliance with this approach would be communicated to the
market.
Combination with New Thai
The Board is also delighted to announce that terms have been
agreed for a combination of the Company with New Thai. New Thai's
Board, like that of the Company, has been considering a move to an
All China investment mandate and consequently the boards, following
discussions with major shareholders, consider that it would be
beneficial for both companies to combine. The combination, if
approved by each company's shareholders, will be implemented
through a scheme of reconstruction pursuant to section 110 of the
Insolvency Act 1986 ("section 110 scheme"), resulting in the
voluntary liquidation of New Thai and the rollover of its assets
into the Company in exchange for the issue of new shares in the
Company to New Thai shareholders.
New shares in the Company that are issued to New Thai
shareholders will be issued on a formula asset value ("FAV")-to-FAV
basis. FAVs will be calculated using the respective net asset
values of each company, adjusted for the costs of implementing the
Proposals, any dividends and distributions declared by each party
which have a record date prior to the effective date of the
combination, an allowance for the costs of liquidation (for New
Thai), the cash exit option (for New Thai) and the tender price
pursuant to the tender offer referred to below (for the
Company).
The combination with New Thai is expected to help improve the
Company's liquidity for all shareholders as well as spreading the
fixed costs of the Company over a larger pool of assets. In
addition, it should increase the level of the Company's free float.
The Company's Board has noted the current consultation process
launched by the FCA to review elements of the listing rules for
companies, including potentially reducing the free float
requirement from 25% to 10%. There can be no certainty that this
reduction will be codified and, in any event, should the Company
wish to undertake share buyback operations in future, the Board
believes a significant headroom above the free float requirement
will be desirable. Whilst expected to be clearly favourable, the
initial impact of the Proposals on the Company's free float will
not be known until after the conclusion of New Thai's section 110
scheme including the combination with the Company and the outcome
of the Company's tender offer, as referred to below.
Tender offer
The Board expects that many shareholders will wish to continue
with their investment in the Company and would encourage them to do
so. Nevertheless, given the proposed change of investment policy,
the Board believes it is appropriate to offer those shareholders
wishing to realise part, or potentially all, of their investment in
the Company a chance to do so through a tender offer for up to 15
per cent. of the shares in issue (excluding shares held in
treasury) at a two per cent. discount to FAV per ordinary
share.
Similarly, as part of its section 110 scheme, New Thai will
offer a cash exit for up to 15% of its shares in issue at a two per
cent. discount to formula net asset value ("FAV") per ordinary
share. Those New Thai shareholders making no election will default
to the rollover option.
Board structure
Anne Gilding and Sarah MacAulay, two current New Thai directors,
have been invited to join the Board of the Company from the date of
completion of the transaction. At the annual general meeting of the
Company expected to be held in April 2022, William Collins, who has
completed nine years of service on the board, will step down. Mark
Hadsley-Chaplin, who has also completed nine years of service, has
been requested by the Board to stay on as Chairman to oversee the
transition and initial period of the Company following the
implementation of the Proposals. Accordingly, Mark will stay until
the annual general meeting in 2023, at which point he also will
step down.
Continuation vote and future performance linked tender
The Company is currently required to hold a continuation vote
every five years with the last vote held at the Company's AGM in
April 2018. If the Proposals put to shareholders are approved, it
is the intention that the requirement for this vote will be reset
with the next continuation vote put to shareholders at the
Company's AGM to be held in 2027.
In addition, the Board intends that, if the Company's NAV total
return over five years ending December 2026 does not exceed the
total return of the MSCI China All Shares Index (in Sterling
terms), the Company will undertake a tender offer for up to 25 per
cent. of the Company's issued share capital (excluding any shares
held in treasury), any such tender offer will be at a price equal
to the then prevailing FAV less two per cent.
Management arrangements
Aberdeen Standard Fund Managers Limited ("ASFML") has agreed to
make a contribution to the costs of implementing the Proposals by
means of a waiver of the management fee otherwise payable by the
Company to ASFML for the first six months following the completion
of the s.110 scheme, which will be for the benefit of all remaining
shareholders of the enlarged Company. In addition, in future the
fee for the management of the Company will be calculated with
regards to the market capitalisation of the Company, rather than
net assets. This aligns the manager with shareholder aims such that
it is better incentivised to ensure that the share price discount
to net asset value is kept close to zero. The annual management fee
will be structured on a tiered basis, with the first GBP150 million
of market capitalisation being charged at 0.80%, 0.75% on the next
GBP150 million and 0.65% thereafter.
City Code
In accordance with customary practice for section 110 schemes,
the City Code on Takeovers and Mergers is not expected to apply to
the combination of the Company and New Thai.
Approvals
Implementation of the Proposals is subject to the approval,
inter alia, of the shareholders of the Company as well as
regulatory and tax approvals and, as regards the combination with
New Thai, the shareholders of New Thai. A circular providing
further details of the Proposals and convening a general meeting to
seek the necessary shareholder approvals, together with a
prospectus in respect of the issue and admission of new shares in
connection with the Combination with New Thai, will be published by
the Company as soon as practicable. It is anticipated that the
Proposals will be implemented in Q4 2021.
The Company has consulted with a number of its major
shareholders who have indicated support for the Proposals. These
shareholders manage or control 78.7% of the Company's issued share
capital.
Mark Hadsley-Chaplin, Chairman of the Company, commented:
"The headwinds referred to above, which have strengthened over
recent years, have led the Board to this proposal which we
recommend to shareholders. After a very thorough selection process
we concluded that Aberdeen Standard Investments (ASI) is extremely
well-equipped to deliver highly competitive performance with this
exciting new mandate. As we have seen this week, China's equity
market can be volatile, but over the medium and long term, we
believe it will generate tremendous opportunities for an expert
investment team with feet on the ground. I would also note that the
closed-ended structure is well-placed to withstand short term
market volatility and to capitalise on longer term opportunities
that arise from it. We expect that the combination with Aberdeen
New Thai will enhance the liquidity of the Company's shares, with
fees set at competitive levels. This should help to attract retail
and wealth management investors, thereby diversifying the
shareholding base. I would like to pay tribute to Andy Lister and
Bernard Moody who, in spite of those headwinds, have been first
class managers of AEMC during their time at ASI (and before) and I
wish them every success in the future "
Andrew Lister, Senior Investment Manager at Aberdeen Standard
Investments, commented:
"It has been a privilege to be involved with the management of
the Company for over 20 years. The only constant in emerging
markets over this period has been change, and the emergence of
China as a global engine of growth and an attractive investment
destination has epitomised this. Bernard and I are optimistic that
the change of strategy being proposed puts the company in a strong
position to thrive in the future, as in the past, and to remain
relevant in a constantly changing investment landscape."
Enquiries
Aberdeen Emerging Mark Hadsley-Chaplin Via ASI
Markets Investment
Company Limited
Shore Capital Robert Finlay/Rose Ramsden T: 020 7408 4090
Henry Willcocks/ Fiona
Conroy
Aberdeen Standard William Hemmings T: 020 7463 6223
Investments
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