TIDMAEMC
RNS Number : 9532N
Aberdeen Emerging Markets Inv Co Ld
04 October 2021
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constitute inside information as stipulated under the UK version of
the EU Market Abuse Regulations (EU) No. 596/2014. Upon the
publication of this announcement, this information is considered to
be in the public domain.
4 October 2021
Aberdeen Emerging Markets Investment Company Limited
LEI: 213800RIA1NX8DP4P938
Publication of Prospectus and Circular
Aberdeen Emerging Markets Investment Company Limited (the
"Company" or "AEMC") announced on 30 July 2021 a number of
proposals for the future of the Company. These included, inter
alia, a change of investment policy, a combination with Aberdeen
New Thai Investment Trust PLC ("ANW") to be implemented through a
scheme of reconstruction of ANW (the "Scheme") and a tender offer,
together the "Proposals". The Board announces that the Company has
today published a prospectus (the "Prospectus") in relation to the
issue of new Ordinary Shares in the Company pursuant to the Scheme
("New Shares"), together with a circular to provide the Company's
shareholders (the "Shareholders") with further details of the
Proposals and to convene a general meeting of the Company (the
"General Meeting") to seek approval from Shareholders for the
implementation of the Proposals (the "Circular").
INTRODUCTION AND BACKGROUND
Following consultation with Shareholders who manage or control
78.7% of the Company's issued share capital, the Board is proposing
to take a number of steps and make various changes to the Company's
investment policy and operations which it believes will benefit the
Company and its Shareholders as a whole going forward.
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
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 per cent and in respect of which the
FCA has agreed to modify the relevant Listing Rule for an initial
period to 6 March 2022.
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 the Proposals, the Board has sought to address
these issues comprehensively and so secure a sound long-term future
for the Company.
Key to the Proposals is the adoption of a new investment policy
(the "New Investment Policy"), which will change the Company's
current policy of investing in emerging markets on a fund of funds
basis to one of investing directly in the equities of Chinese
companies. Terms have also been agreed for the combination of the
Company with ANW, to be implemented through the Scheme.
Prior to adoption of the New Investment Policy and the
combination with ANW under the Scheme, the Board intends to make a
Tender Offer for up to 15 per cent. of the Shares in issue, in
order to provide an opportunity for Shareholders seeking to realise
a proportion of their investment in the Company to do so.
Subsequently, the Board intends to take, where possible, further
opportunities to grow the enlarged Company through the
implementation of a placing programme of up to 25 million Ordinary
Shares (the "Placing Programme").
The Proposals are outlined below and further details are
included in the Circular.
THE PROPOSALS
Proposed changes to the Company's investment policy
The Board has noted that there are relatively few listed
closed-ended fund offerings in the UK specialising in investment
into companies based, or with substantial operations, in China. The
New Investment Policy has been proposed to take advantage of this
opportunity and the Board conducted a thorough selection process
before deciding to appoint abrdn to manage the Company under the
proposed revised investment mandate. abrdn have been investing in
China for over 30 years and have a large team based there. abrdn
also brings a strong record of ESG integration into its investment
process and engagement with investment managers supported by
on-desk ESG specialists together with a very strong track record of
investment in China.
The wording of the New Investment Policy is set out below.
In connection with the proposed adoption of the New Investment
Policy, the Company is also seeking shareholder approval to change
the Company's name to "abrdn China Investment Company Limited".
A description of the market opportunity for the New Investment
Policy, as provided by arbdn, is set out below:
Why China?
China's equity markets have grown into the second largest
financial market in the world, after the US. This is a US$17
trillion market that is both deep and liquid. There are more than
5,000 Chinese companies listed onshore in mainland China and
offshore, mostly in Hong Kong and the US, presenting vast
opportunity.
Chinese markets are also becoming large and growing components
of major global indices. For instance, Chinese equities now make up
33% of the MSCI Emerging Markets Index. If China A Shares were
included fully (from the current 20%), this would push the overall
weighting of Chinese equities to 53%.
A big driver of growth has been the Stock Connect programme,
which was launched in 2014. This opened direct trading links
connecting Shanghai and Shenzhen with Hong Kong, making A Shares
more accessible to institutional investors outside the mainland.
These days, any investor with a brokerage account in Hong Kong can
invest in over 2,000 companies listed in Shenzhen and Shanghai.
Two-way investor flows between mainland China and Hong Kong have
flourished as a result.
Another draw is the low correlation between Chinese equities and
other asset classes. In other words, A Shares provide a great
opportunity to diversify portfolio risk and potentially enhance
returns.
Investing in both the onshore and offshore markets offers an
extensive range of opportunities in these markets. With the onshore
market, investors gain greater exposure to unique sectors such as
baijiu (a popular liquor), as well as the faster growing new
economy ones like electric vehicles and batteries, specialist
technology and niche industrial areas. As for the offshore market,
investors gain more access to internet and e-commerce companies,
along with investment opportunities in telecoms.
More broadly, China's financial reforms continue to improve the
accessibility and liquidity of the domestic market. With more
international investors' participation in the A-share market, it
could shine a light on global best practice and help to raise
governance standards of local companies over time.
Why now?
abrdn sees tremendous opportunity in China, and the portfolio is
well positioned to capitalise on key areas of structural
growth.
-- Aspiration: As incomes increase and living standards improve
in China, rising affluence is leading to fast growth in premium, or
higher value, goods and services in areas including cosmetics,
travel and food and beverage. The consumer story is attractive
because boosting domestic spending forms a central component of
China's reform agenda.
-- Digital: Growing integration amid the widespread adoption of
technology means a bright future for plays on e-commerce,
cybersecurity and data centres supporting cloud services.
-- Green: Policy makers globally are committing to a greener and
lower carbon world and China is expected to have a transformational
role to play. Investments in renewable energy, batteries, electric
vehicles, related infrastructure, and environmental management all
have a bright future. Grid parity will be game-changing.
-- Health: Rising disposable incomes are driving demand for
healthcare products and services. The opportunity set is diverse.
The proposed holdings include a leading hospital, contract research
providers and an internet healthcare platform.
-- Wealth: Growing prosperity means structural growth for
consumer finance, such as wealth management and insurance
protection, as well as increasing investor participation on stock
exchanges.
In China, standards of disclosure, reporting and access to
management are increasingly moving towards international norms.
Many Chinese companies are also moving up the quality curve
steadily. China is already the leading global manufacturer of solar
panels and wind turbines.
This quality aspect extends to the environment, social and
governance ( ESG) front as well. abrdn is finding that more and
more Chinese companies are beginning to understand and appreciate
the importance of, and value that can be created by, engaging with
long-term investors and becoming more cognisant of ESG issues.
Increasingly they are aware of their carbon footprint. They are
realising that implementing sustainable practices can improve brand
perception, customer loyalty and, ultimately, the share price. It
can also help to guard against catastrophes that can have legal
ramifications. abrdn is also engaging companies on social factors,
such as how they interact with employees, vendors and society,
explaining how supporting employee well-being can lead to a more
productive workforce and help them to recruit and retain
talent.
In all this, abrdn remains positive about the long-term
prospects for Chinese equities and believes the private sector
retains a critical role in ensuring that the Chinese economy
continues to innovate and prosper and that China reaches its goal
of being a moderately prosperous nation by 2035.
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 (as defined below) per
Share.
Further details and the terms of the Tender Offer, including an
explanation of how Eligible Shareholders may tender their Eligible
Shares should they wish to do so, are set out in the Circular.
Combination with Aberdeen New Thai Investment Trust PLC
The board of ANW, like that of the Company, has been considering
a move to an 'All China' investment mandate and consequently the
boards of the two companies, following discussions with
shareholders representing 53.1 per cent. of the companies' combined
shares in issue (as at 31 August 2021), consider that it would be
beneficial for both companies to combine. The combination, if
approved by Shareholders, will be implemented through the Scheme,
resulting in the voluntary liquidation of ANW and the rollover of
its assets into the Company in exchange for the issue of new Shares
("Scheme Shares") to ANW Shareholders.
The number of Scheme Shares to be issued to ANW Shareholders
will be based on the formula asset values ("FAVs") of the Company
and of ANW. FAVs will be calculated based on the Net Asset Values
(cum income, debt at fair value) of a Share (the "FAV per Share")
and of an ANW Share (the "FAV per ANW Share"). The FAV per Share
and the FAV per ANW Share will be calculated as at 6.00 p.m. on the
Calculation Date using each company's respective accounting
policies and will take into account the following adjustments:
-- the FAV per Share will be adjusted to take into account: (i)
the costs and expenses of the Proposals; (ii) any dividends of the
Company to which ANW Shareholders who elect for the Rollover Option
will not be entitled; and (iii) the benefit to Shareholders who do
not tender their Shares pursuant to the Tender Offer of the two per
cent. discount applied under the Tender Offer; and
-- the FAV per ANW Share will be adjusted to take into account:
(i) the costs and expenses of the Scheme; (ii) a pre-liquidation
dividend to be paid to ANW Shareholders to reflect a distribution
of a majority of ANW's revenue reserve; (iii) subject to the
requirements of the Liquidators, the withholding of an amount (not
expected to exceed GBP100,000) in respect of the Liquidation Pool;
(iv) the write down of any remaining illiquid investments; and (v)
the benefit to continuing ANW Shareholders of the two per cent.
discount applied under the Cash Option.
ANW Shareholders who elect for the Rollover Option will be
issued Scheme Shares based on the ratio of the FAV per Share to the
FAV per ANW Share, multiplied by the number of ANW Shares
owned.
The combination with ANW is expected to help improve the
Company's liquidity for all Shareholders as well as spread 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.
Due to the greater number of Shares that will be in issue following
implementation of the Scheme, the Board intends to renew its
existing authority to make market purchases of the Shares so that
it may buy back up to 14.99 per cent. of the Company's issued share
capital immediately following the Scheme's completion.
The Company has today published a prospectus dated 4 October
2021 (the "Prospectus") in relation to the issue of shares to ANW
Shareholders pursuant to the Scheme, which is available on the
Company's website at www.aberdeenemergingmarkets.co.uk under "Key
Literature", or in hard copy on request to
operationalsupportteam@linkgroup.co.uk .
Board structure
Following completion of the Scheme, it is intended that the
Board will consist of six directors, comprising four directors from
the current Board and two directors from the board of ANW.
Consequently, Anne Gilding and Sarah MacAulay, currently directors
of ANW, will be appointed as non-executive directors of the Company
with effect from 9 November 2021, and William Collins will retire
from the Board at the Company's annual general meeting in 2022. It
is also expected that Mark Hadsley-Chaplin will retire from the
Board at the Company's annual general meeting in 2023.
Management Agreement
Following completion of the Scheme, the Company will enter into
a new management agreement (the "Management Agreement") with
Aberdeen Standard Fund Managers Limited ("ASFML"), pursuant to
which the management fee payable by the Company to ASFML will be
calculated by reference to the market capitalisation of the
Company, rather than its net assets (as is the case currently). The
new management fee will be structured on a tiered basis, with the
first GBP150 million of market capitalisation being charged at 0.80
per cent., the next GBP150 million being charged at 0.75 per cent.
and amounts thereafter being charged at 0.65 per cent. The Board
believes that this will align ASFML 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.
Furthermore, ASFML has agreed to make a contribution to the
costs of implementing the Proposals by means of a waiver of the
management fee for the first six months following the completion of
the Scheme, which will be for the benefit of all remaining
Shareholders of the enlarged Company.
Entry into the Management Agreement will be classifiable as a
related party transaction under the Listing Rules. However, in
light of the quantum of the proposed changes to the management fee,
the Board has been advised that its entry into the Management
Agreement will constitute a 'smaller related party transaction' for
the purposes of Listing Rule 11.1.10 and will therefore not require
the approval of Shareholders. Shore Capital, in its capacity as
sponsor to the Company, has accordingly provided written
confirmation that the terms of the Management Agreement are fair
and reasonable so far as the Shareholders are concerned.
Approval as an investment trust
The Company intends to apply to HMRC for approval as an
investment trust under Chapter 4 of Part 24 CTA 2010 and Chapter 1
of Part 2 of The Investment Trust Tax Regulations with effect from
the effective date of implementation of the Scheme which is
currently scheduled for 9 November 2021 . Further details of the
implications of obtaining investment trust status are set out in
Part V of this Circular.
Placing Programme
Following completion of the Scheme, and provided that the Shares
trade at a premium to Net Asset Value, the Board intends to
undertake the Placing Programme, pursuant to which the Company will
issue up to 25 million Ordinary Shares in one or more placings
prior to 3 October 2022.
Shareholders are referred to the Prospectus for full details of
the Placing Programme, which is available on the Company's website
at www.aberdeenemergingmarkets.co.uk under "Key Literature", or in
hard copy on request to operationalsupportteam@linkgroup.co.uk
.
Continuation Resolution and future performance linked tender
offer
Under the current Articles, the Board will be required to
propose a Continuation Resolution at the Company's annual general
meeting in 2023. In connection with the proposed adoption of the
New Investment Policy, the Board considers that it would be
appropriate to amend the Articles so that the next Continuation
Resolution is postponed until the Company's annual general meeting
in 2027. Further details of the proposed amendments to the Articles
are set out in the Circular.
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 per Share less two per cent.
Benefits of the Proposals
The Board believes that the Proposals will have the following
benefits for Shareholders:
-- The New Investment Policy will involve the Company moving to
investing directly in Chinese equities, which the Board sees as an
underserved sector despite China being the world's second largest
economy.
-- The Company will have access to the highly successful abrdn
equities team specialising in China, locally based in Shanghai and
Hong Kong.
-- The Company will 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.
-- The combination with ANW and, subsequently, the Placing
Programme, will allow the Company to grow and result in a greater
number of Shares in issue, which should improve liquidity and free
float and reduce fixed costs per Share.
-- The Tender Offer will provide an opportunity for Shareholders
seeking to realise a proportion of their investment to do so.
-- The disapplication of pre-emption rights will, in relation to
the Placing Programme, give the Company the ability to issue new
Ordinary Shares tactically, so as to continue to support orderly
trading of the Company's Ordinary Shares and to grow the Company's
share capital in an efficient and timely manner.
NEW INVESTMENT POLICY
The proposed New Investment Policy has been approved by the
Financial Conduct Authority, subject to Shareholder approval.
The New Investment Policy will be as follows:
Investment Objective
To produce long-term capital growth by investing predominantly
in Chinese equities.
Investment Policy:
The Company invests in companies listed, incorporated or
domiciled in the People's Republic of China ("China"), or companies
that derive a significant proportion of their revenues or profits
from China operations or have a significant proportion of their
assets there. In furtherance of the investment policy, the
Portfolio will normally consist principally of quoted equity
securities and depositary receipts although unlisted companies,
fixed interest holdings or other non-equity investments may be
held. Investments in unquoted companies will be made where the
Investment Manager has a reasonable expectation that the company
will seek a listing in the near future. The Portfolio is actively
managed and may be invested in companies of any size and in any
sector.
The Company is expected to have an ESG rating equal to, or
better than, the MSCI China All Shares Index and have meaningfully
lower carbon intensity than the Index.
The Portfolio is actively managed and the Company aims to
outperform the MSCI China All Shares Index (GBP). This index is
used as a reference point for portfolio construction and as a basis
for setting risk constraints, but does not incorporate any
sustainability criteria. In order to achieve its objective, the
Company will take positions whose weightings diverge from the index
or invest in securities which are not included in the index.
Investments may deviate significantly from the components of, and
their respective weightings in, the MSCI China All Shares Index.
Due to the active nature of the management process, the Company's
performance profile may deviate significantly from that of the
index.
The Portfolio is expected normally to comprise between 30 and 60
securities (including any unlisted securities held) but may hold up
to 100. No individual issuer will represent a greater weight in the
Portfolio than the lower of (i) 10% or (ii) its weight in the MSCI
China All Shares Index (in Sterling) plus 5%, as measured at the
time of investment. The maximum permitted exposure to a single
group is 20% of the Company's total assets, as measured at the time
of investment.
The Company may continue to hold certain illiquid assets which
were acquired prior to adoption of this policy pending their
orderly disposal. These assets are not expected to represent a
significant proportion of the portfolio.
Risk Management
The Company will at all times be invested in several sectors.
While there are no specific limits placed on exposure to any one
particular sector, the Company will at all times invest and ensure
that the Portfolio is managed in a manner consistent with spreading
investment risk.
The Company may invest in unquoted securities and/or securities
with lock-up periods provided that such investments, in aggregate,
are limited to 10% of the Company's net assets at the time any such
investment is made.
With prior approval of the Board, the Company may use
derivatives for the purposes of efficient portfolio management in
order to reduce, transfer or eliminate investment risk in the
Company's portfolio. Derivative instruments in which the Company
may invest may include foreign exchange forwards, exchange-listed
and over-the-counter options, futures, options on futures, swaps
and similar instruments. The Company does not intend to enter into
derivative or hedging transactions to mitigate against wholesale
general currency or interest rate risk.
The Company may invest no more than 10% in aggregate, of its
gross asset value at the time of acquisition in other listed
closed-ended investment funds, but this restriction will not apply
to investments in such funds which themselves have stated
investment policies to invest no more than 15% of their gross asset
value in other closed-ended investment funds.
Gearing
The Company may employ gearing and may in aggregate borrow
amounts equalling up to 20% of gross asset value, although the
Board expects that borrowings will typically not exceed 15% of
gross asset value at the time of drawdown.
While it is intended that the Company will be fully invested in
normal market conditions, the Company may hold cash on deposit or
invest on a temporary basis in a range of cash equivalent
instruments. There is no restriction on the amount of cash or
cash-equivalent instruments that the Company may hold.
Shareholders should note that the approval of all of the
Resolutions at the EGM (and the implementation of all of the other
Proposals, whether or not the subject of a Resolution) shall be
conditional on Shareholder approval of the New Investment
Policy.
EXTRAORDINARY GENERAL MEETING
The Proposals are subject to Shareholder approval. The EGM
Notice convening the Extraordinary General Meeting, to be held at 2
p.m. on 26 October 2021 at 11 New Street, St Peter Port, Guernsey,
GY1 2PF, is set out in the Circular.
RECOMMATION
The Board considers that the Proposals are in the best interests
of the Company and of Shareholders as a whole. Accordingly, the
Board unanimously recommends that Shareholders vote in favour of
the Resolutions to be proposed at the EGM. The Directors intend to
vote (or, as the case may be, procure the voting of) their
beneficial holdings in favour of the Resolutions in respect of
their aggregate holding, including persons closely associated, of
46,800 Shares.
EXPECTED TIMETABLE
All times are UK times. Times and dates are subject to
change.
Extraordinary General Meeting
Posting of Circular, Forms of Proxy and Forms of Direction 4 October
Latest time and date for receipt of Forms of Direction for the Extraordinary General 1 p.m. on 19 October 2021
Meeting
Latest time and date for receipt of Forms of Proxy for the Extraordinary General Meeting 1 p.m. on 22 October 2021
Extraordinary General Meeting 2 p.m. on 26 October 2021
Announcement of results of the Extraordinary General Meeting 26 October 2021
Change of Investment Policy
New Investment Policy to take effect 26 October 2021
Tender Offer
Posting of Circular, Tender Form and Savings Scheme Tender Form 4 October 2021
Latest time and date for receipt of Savings Scheme Tender Forms 1 p.m. on 25 October 2021
Latest time and date for receipt of Tender Forms and TTE Instructions 1 p.m. on 1 November 2021
Record Date for Tender Offer Close of business on 1 November 2021
Announcement of results of Tender Offer 2 November 2021
Calculation Date Close of business on 4 November 2021
Announcement of Tender Price 9 November 2021
Distribution of Tender Consideration and crediting of CREST accounts 10 November 2021
Despatch of cheques, balancing Share certificates and TFE messages in respect of Week commencing 15 November 2021
any unpurchased
Eligible Shares
Scheme
Publication of this Circular 4 October 2021
First General Meeting of ANW in relation to the Scheme 10 a.m. on 26 October 2021
Extraordinary General Meeting of the Company 2 p.m. on 26 October 2021
Record date for entitlements under the Scheme 6 p.m. on 4 November 2021
Calculation date for the Scheme Close of business on 4 November 2021
Second general meeting of ANW in relation to the Scheme 10 a.m. on 9 November 2021
Announcement of results of Scheme and respective FAVs per Share 9 November 2021
Admission and dealings in Scheme Shares commence 8 a.m. on 10 November 2021
CREST accounts credited to ANW Shareholders in respect of Scheme Shares in 8 a.m. on 10 November 2021
uncertificated
form
Certificates despatched by post in respect of Scheme Shares week commencing 15 November 2021
Placing programme
Publication of Placing Price in respect of each Placing as soon as practicable following the closing of each
Placing
Subsequent Admission and crediting of CREST accounts in as soon as practicable following the closing of each
respect of each Placing Placing
Share certificates in respect of Shares issued pursuant to as soon as practicable following any Subsequent Admission
the relevant Placing despatched
(if applicable)
Last date for Shares to be issued pursuant to the Placing 3 October 2022
Programme
Enquiries
Aberdeen Emerging Markets Investment Company Limited:
Mark Hadsley-Chaplin
Via abrdn: T: 020 7463 6223
Abrdn
William Hemmings/Evan Bruce-Gardyne
T: 020 7463 6223
Shore Capital
Robert Finlay/Rose Ramsden Henry Willcocks/ Fiona Conroy
T: 020 7408 4090
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