Circ re. General Meeting and Prospectus

RNS Number : 6648Y

Aberdeen Diversified I&G Trust PLC

06 March 2017

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA OR ANY JURISDICTION FOR WHICH THE SAME COULD BE UNLAWFUL. THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION, INCLUDING IN THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA

6 March 2017

Aberdeen Diversified Income and Growth Trust plc (the "Company" or "ADIGT")

(formerly BlackRock Income Strategies Trust plc)

Legal Entity Identifier (LEI):  LEI - 2138003QINEGCHYGW702

Publication of Circular including Notice of General Meeting and Prospectus

Introduction

On 1 August 2016, the Board announced that it was considering, in detail, the Company's investment objective and policy in the context of the prevailing market conditions and uncertain investment outlook. As part of this review the Board undertook a detailed analysis of the Company's investment performance and carried out a detailed strategic review of the Company's investment objective and policy including their impact on the level and structure of the Company's dividends, capital preservation and gearing. On 28 September 2016, the Board announced that it was undertaking a strategic review of the existing management arrangements and performance including considering a number of proposals from fund management groups as well as consulting with a number of Shareholders.

On 30 November 2016, the Board announced that it had concluded its strategic review with a decision to recommend the appointment of Aberdeen Fund Managers Limited (which took effect on 11 February 2017) as the Company's investment manager and to recommend the following additional proposals to make the Company more attractive to new investors and existing Shareholders:

1.    that the investment policy and strategy of the Company be amended to enable the portfolio to be diversified across a range of geographical regions, sectors and asset classes, including equity driven assets, alternative diversifying assets (including, but not limited to, high yield bonds and loans, emerging market debt, alternative financing, asset backed securities, property, social, economic, regulated and renewable infrastructure, commodities, absolute return investments, insurance linked, farmland and aircraft leasing) and low return assets such as gold, government bonds, investment grade credit and tail risk hedging. The Board is therefore proposing to amend its investment objective to target a total portfolio return of LIBOR plus 5.5 per cent. per annum (net of fees) over rolling five year periods;

2.    that the dividend policy be revised to include a reduction in the current annual dividend level of approximately 20 per cent. and to enable a sustainable dividend to be paid that recognises the current low yield environment;

3.    to enlarge the Company by merging with Aberdeen UK Tracker Trust plc ("AUKT") which, subject to the satisfaction of a number of conditions, is to be effected by way of a scheme of reconstruction under section 110 of the Insolvency Act 1986 and voluntary winding-up of AUKT. Under the Scheme the AUKT Shareholders are being offered the opportunity to elect to receive New Ordinary Shares issued by the Company and/or cash (with cash limited to 60 per cent. of the AUKT  Cash NAV). In exchange for the issue of these New Ordinary Shares AUKT is expected to transfer cash to the Company under the Scheme; and

4.    to offer Shareholders the opportunity to tender their Ordinary Shares pursuant to a tender offer for up to 20 per cent. of the Ordinary Shares in issue at a tender price equal to NAV (cum income with debt at fair value) less 4 per cent. and less the costs and expenses of the Tender Offer allocated pro rata between the tendered Ordinary Shares (including stamp duty, commission and portfolio realisation costs).

On 13 February 2017, the Board also announced following further consultation with Shareholders subject to normal market conditions, prevailing gearing level and the composition of the Company's portfolio, it intends to implement a discount control mechanism to maintain the Company's share price discount to net asset value (ex income, debt at fair value) at no wider than 5 per cent., by repurchasing Ordinary Shares in the market. In addition to this the Board has resolved to put forward a continuation vote to Shareholders at the annual general meeting in 2020 and at every annual general meeting thereafter.

At the General Meeting Shareholders will be asked to consider and, if thought fit, approve (i) the adoption of the new investment objective and policy; (ii) the allotment of New Ordinary Shares to the AUKT Shareholders pursuant to the Scheme; (iii) the disapplication of pre-emption rights in respect of the issue of such New Ordinary Shares to AUKT Shareholders; (iv) the grant of authority to make market purchases of Ordinary Shares pursuant to the Tender Offer; and (v) the adoption of new articles of association to include the proposed continuation vote.  All resolutions in relation to (ii) to (v) are subject to Shareholder approval of the change in investment objective and policy.

The General Meeting will be held at 11.30 a.m. (or if later as soon as the AGM has concluded) on 30 March 2017 at Drapers' Hall, Throgmorton Avenue, London EC2N 2DQ. At the AGM, Aberdeen will present to Shareholders their intentions and proposed strategy in relation to managing the Company going forward should the Resolutions be passed at the General Meeting (including a presentation from the new Lead Portfolio Managers).

The Board believes that the Proposals are in the best interests of both new investors and existing Shareholders as they are expected to provide:

-      access to an investment portfolio managed by the highly experienced Aberdeen Diversified Multi-Asset Team;

-      an attractive overall investment proposition, offering exposure to a wide range of asset classes, which aims to deliver an above market target dividend yield and lower volatility than equity markets*;

-      increased assets, a reduction in the gearing ratio and increased liquidity in the Ordinary Shares as a result of the enhanced scale from the merger of the two companies^** ; and

-      a discount control policy to maintain the discount to net asset value per Share (ex income, debt at fair value) at no wider than 5 per cent.

The Board considers these Proposals to be in the best interests of Shareholders as a whole and recommends that Shareholders vote in favour of all of the Resolutions at the General Meeting.

* There is no guarantee that the Company will be able to pay the dividends referred to above or any dividends. The value of an Ordinary Share may go up as well as down.

** Subject to the approval of the Scheme by Shareholders at the General Meeting and AUKT Shareholders at the AUKT General Meetings.

Amended Investment Objective and Policy

The Company's existing investment objective is, over the medium term (5 to 7 years), to aim to preserve capital in real terms and to grow the dividend at least in line with inflation. Since the appointment of BlackRock, the Company has targeted a total portfolio return of UK Consumer Price Index plus 4 per cent. per annum (before ongoing charges) over a 5 to 7 year cycle.

The Company currently pursues this objective by investing, pursuant to the current investment policy, in a portfolio typically consisting of UK quoted income equities, overseas equities, quoted alternatives, pooled investment funds and exchange-traded funds.

The Board's strategic review concluded that the Company should not continue to seek to deliver this objective in the prevailing low yield environment as it would have required the Company take on an imprudent level of risk for Shareholders. The Company's existing dividend policy has impacted the Company's capital reserves as well as necessitated exposure to higher risk assets which would be likely to lead to more unstable returns and increased NAV volatility.

The Board is therefore proposing to change the Company's investment objective. The Company's proposed new investment objective will target a total portfolio return of LIBOR (London Interbank Offered Rate) plus 5.5 per cent. per annum (net of fees) over rolling five year periods.

Alongside this change in investment objective, after consulting with Aberdeen, the Board is also proposing to adopt a new investment policy which targets a flexible multi-asset approach to generating attractive long-term income and capital returns. The Company's portfolio will include (but will not be limited to) equity driven assets (being developed equity, emerging market equity and private equity), alternative diversifying assets (including, but not limited to, high yield bonds and loans, emerging market debt, alternative financing, asset backed securities, property, social, economic, regulated and renewable infrastructure, commodities, absolute return investments, insurance linked, farmland and aircraft leasing) and low return assets such as gold, government bonds, investment grade credit and tail risk hedging.

If the new investment policy is adopted there will be no set maximum or minimum exposures for any geographical regions or sectors and the Company will achieve an appropriate spread of risk by investing in a diversified portfolio of securities and other assets. Government and investment grade corporate bonds are not currently expected to feature in the Company's portfolio given the low returns and the better opportunities that are available elsewhere.

The Manager envisages having a significant proportion of the Company's portfolio reshaped within approximately three months although some investment commitments in relation to certain unquoted illiquid alternative assets will be drawn down over 12 months or more. Pending these draw downs, the Lead Portfolio Managers will seek to minimise the effect of cash drag (the dampening of portfolio performance through a proportion of a portfolio being uninvested and as such not participating in the market) by investing in quoted alternative closed-end funds offering exposure to these intended similar asset classes. The new portfolio is expected to be approximately 60 per cent. invested in Aberdeen funds or direct investments and approximately 40 per cent. in third party manager funds selected by Aberdeen, but these proportions may vary over time (as investment opportunities become available).

The amended objective and policy is subject to the approval of Shareholders at the General Meeting. Resolution 1 which will be proposed as an ordinary resolution seeks approval for the new objective and policy. If the amended objective and policy does not receive the necessary Shareholder support the Company's assets will continue to be invested in accordance with its current investment policy by Aberdeen while the Board consults with Shareholders regarding the future of the Company.

Benefits of and reasons for the amendments to the investment policy and objective

Your Board believes that the recommended changes to the Company's investment objective and policy are in the best interests of the Company for the following reasons:

-      the intended new portfolio will reduce the Company's current reliance on equities, bonds and derivative strategies and should make it less susceptible to public market downturns;

-      the revised investment objective, together with the rebasing of the dividend as proposed, should allow the Company to pay a target dividend yield above market yields with lower volatility for the reshaped portfolio than equities, whilst protecting existing capital reserves. In contrast, seeking to continue to deliver the Company's existing investment objective and dividend policy would have required the Company to take an imprudent level of risk for Shareholders given prevailing market conditions^***; and

-      the Company's structure allows the Manager to invest in multi-asset opportunities, particularly illiquid asset classes, which offer generally attractive returns and cannot easily be invested in by open-ended funds.

*** There can be no guarantee that the current or amended investment objective of the Company will be achieved and that any dividends will be paid in respect of any financial year or period.

Dividend policy

The Board recognises the importance that many investors attach to the Company's dividend; determining the best way forwards with regards to the Company's dividend policy has thus been a critical component of the Board's strategic review.

The Company's current dividend policy is to continue to pay dividends at least at the current level and to grow the dividend at least in line with inflation. The Board expected that the Company's investment strategy would have provided an attractive level of income which would have enabled the Company to pay dividends at the current level of 6.54 pence per Ordinary Share per annum and to grow the dividend at least in line with inflation. However, there has been a significant change in market conditions leading to increased volatility in the equity markets and an overall decline in the yield of many investments, notably instruments issued by governments (including gilts). As part of its strategic review the Board considered these changes in market circumstances, together with the resultant increased risk to capital of continuing the current dividend level (6.54 pence per Ordinary Share for the year ended 30 September 2016). The Board concluded that the Company's dividend policy required amendment.

As part of the Proposals therefore, the Board has announced that it is proposing that the dividend policy be revised to include a reduction in the current annual dividend level of approximately 20 per cent. and enable a sustainable dividend to be paid that recognises the current low yield environment. By way of illustration, had this 20 per cent. cut been applied to the 2016 full year dividend of 6.54 pence per Ordinary Share this would have resulted in a dividend payment of 5.23 pence per Ordinary Share, a yield of 4.6 per cent based on the closing share price of 113.25 pence per Ordinary Share on 28 February 2017. The Board believes this still represents an attractive yield for Shareholders in the current environment.

As a result of the timing of the payment of the Company's quarterly dividends, the Company's Shareholders are unable to approve a final dividend each year. In line with good corporate governance, the Board therefore proposes to put the Company's dividend policy to Shareholders for approval at the AGM and on an annual basis thereafter.

The Company's dividend policy shall be that dividends on the Ordinary Shares are payable quarterly in relation to periods ending March, June, September and December. It is intended that the Company will pay quarterly dividends consistent with the expected annual underlying portfolio yield. The Company has the flexibility in accordance with its Articles to make distributions from capital. There is no guarantee that the Company will be able to pay the dividends referred to above or any dividends.

Gearing

The Board considered the level and structure of the Company's gearing as part of its strategic review. The Board concluded that the cost of repayment of the Bonds 2031 at this time would have had a significant adverse effect on the then NAV. Therefore, under the Proposals, it is the Board's intention to retain the existing 6.25 per cent. Bonds 2031. However, as a result of the Proposals, the size of the Company's asset base will increase which should simultaneously reduce the Company's current gearing level. For the purposes of calculating the NAV per Share under the Scheme and in the future the Bonds 2031 will be valued at fair value. Early repayment of the Bonds 2031 is subject to a Spens penalty clause (being a 'make whole' penalty cost), the timing and payment of which could impact adversely on the Company's Net Asset Value.

Proposed merger with Aberdeen UK Tracker Trust plc

The Scheme

As part of the Proposals, the Board is recommending that the assets of the Company be enlarged by way of a merger with AUKT. The AUKT Board is recommending this merger to the AUKT Shareholders and the necessary resolutions to approve the Scheme will be put to AUKT Shareholders at general meetings to be held on 29 March 2017 and 6 April 2017. Through the merger, the AUKT Shareholders will have the opportunity to gain exposure to a diversified multi-asset investment company which will be managed by Aberdeen. The AUKT Board is therefore recommending that AUKT Shareholders who want exposure to the Aberdeen Diversified Multi-Asset Team can roll over their shareholding in AUKT into the Company. The merger is to be effected by way of a scheme of reconstruction under section 110 of the Insolvency Act 1986 and a voluntary winding up of AUKT and is subject to the approval of AUKT Shareholders.

Under the terms of the Scheme, AUKT Shareholders may elect to receive New Ordinary Shares and/or cash. The Scheme will be effected on a formula asset value to formula asset value basis with each of the Company and AUKT bearing its own costs. For the purposes of calculating the FAV per ADIGT Share under the Scheme the Bonds 2031 will be valued at fair value. The cash exit offered to AUKT Shareholders as part of the Scheme will be limited to 60 per cent. of the AUKT Cash NAV. AUKT is expected to transfer cash to the Company under the Scheme.

Your Board believes that the recommended merger with AUKT and the increase in the size of the Company's asset base is in the best interests of the Company for the following reasons:

-      it will reduce the relative gearing level and spread the fixed costs across a larger asset base;

-      it is expected to  improve the liquidity of the Ordinary Shares in the secondary market; and

-      it is expected to introduce new investors to the Company.

Aberdeen cost contribution

The AIFM has agreed to make a contribution of £849,211 to the Company in relation to the costs the Company has or will incur in implementing the Scheme. The costs and expenses of the Issue payable by the Company net of this contribution are expected to be nil. In addition, the Company has agreed with the AIFM that no management fees will be paid for the transitional period from the date of appointment until the implementation of the Scheme and for a period of six months following the implementation of the Scheme (or if the Scheme is not implemented for whatever reason for a period of six months from 7 April 2017) which will also be for the benefit of AUKT Shareholders who rollover into the Company. For the purposes of calculating entitlements under the Scheme the financial value of the cost contribution in relation to the costs the Company has or will incur in implementing the Scheme will be credited to the FAV per ADIGT Share.

Board Composition

The Board and the AUKT Board have considered the appropriate future composition of the Board following the merger with AUKT.

It has been agreed that the Board will comprise of seven directors: four directors from the current Board and three directors from the current AUKT Board. James Long will continue as Chairman and Kevin Ingram (current Chairman of AUKT) will become the Senior Independent Director of the Company. Tom Challenor and Paul Yates will also join the Board from AUKT. Lynn Ruddick and Jimmy West will stand for re-election at the upcoming AGM but they will retire from the Board if the merger is approved by Shareholders and AUKT Shareholders.

Tender Offer

The Board is proposing a tender offer for up to 20 per cent. of the Ordinary Shares currently in issue, excluding any Ordinary Shares in treasury (or, if less, the number of Ordinary Shares representing 20 per cent. of the Ordinary Shares in issue at the Record Date).  The tender price will be equal to the NAV per Share (cum income with debt at fair value adjusted for declared but unpaid dividends) less 4 per cent. and less the costs and expenses of the Tender Offer allocated pro rata between the tendered Ordinary Shares (including stamp duty, commission and portfolio realisation costs). The FAV per ADIGT Share will be adjusted to take account of the Tender Offer.

The Tender Offer will be available to all existing Shareholders except those in Restricted Territories. Under the terms of the Tender Offer Shareholders (other than Restricted Shareholders) will be entitled to tender up to their Basic Entitlement, being 20 per cent. of the Shares they held as at the Record Date, provided they still hold a sufficient number of Ordinary Shares at the implementation date of the Tender Offer. Shareholders may also tender additional Shares up to a maximum of the number of Shares held at the Record Date, provided a sufficient number of Ordinary Shares are still held at the implementation date of the Tender Offer but any such excess tenders above the Basic Entitlement will only be satisfied, on a pro rata basis, to the extent that other Shareholders tender less than their aggregate Basic Entitlements. Tender Offer applications will be rounded down to the nearest whole number of Shares. Tendered Shares will either be cancelled or held in treasury.

The Tender Offer is subject to Shareholder approval at the General Meeting.  The Tender Offer will be available to all Shareholders on the register on 7 March 2017 who still hold their Ordinary Shares at the implementation of the Tender Offer except those in Restricted Territories.

Your Board believes that given the recent performance of the Company and the proposed changes to the investment objective that it is only right to offer those Shareholders who wish to exit an opportunity to sell part of their shareholding pursuant to the Tender Offer.

Each Director has confirmed that he or she does not intend to participate in the Tender Offer.

Discount control policy and continuation vote

Discount control policy

The Board intends to renew its authority to buy back up to 14.99 per cent. of the Ordinary Shares currently in issue at the upcoming AGM and on an annual basis as appropriate. The Board intends, subject to normal market conditions, prevailing gearing level and the composition of the Company's portfolio, to implement a discount control mechanism to maintain the Company's share price discount to net asset value (ex income, debt at fair value) at no wider than 5 per cent., by repurchasing Ordinary Shares in the market. Any buy back of Ordinary Shares will be made subject to the Act and the Listing Rules and within guidelines established by the Board from time to time and the timing and quantum of any buy backs will be at the discretion of the Board. It should be noted that this is a target only and there is no guarantee that such maximum discount will be maintained or that any Ordinary Shares will be bought back.

Your Board believes that discontinuing the existing 'nil discount policy' and replacing it with the above mentioned discount control policy, is in the best interests of the Company for the following reasons:

-      it reflects the more illiquid nature of the Company's portfolio going forward; and

-      it will provide more flexibility to the Company around the constraints of the covenants in relation to the Bonds 2031.

Continuation vote

Subject to approval at the General Meeting, the Articles will be amended to provide for a continuation vote at the annual general meeting to be held in 2020 and at every annual general meeting thereafter. The Board believes that the introduction of the continuation votes is in the best interest of the Company as it provides Shareholders with an opportunity to decide on the Company's future at regular intervals.

Shareholder support

Aviva Investors Global Services Limited, as agent on behalf of its underlying clients, has discretionary management control over approximately 13.1 per cent of the Ordinary Shares and approximately 24.6 per cent. of the AUKT Shares and has given the Company and AUKT each a non-legally binding letter of intent to vote in favour of any shareholder resolutions in connection with the Proposals, should it remain a Shareholder or AUKT Shareholder, as appropriate, at the time of the relevant shareholder general meetings.

1607 Capital Partners, LLC, as agent on behalf of its underlying clients, has discretionary management control over approximately 18.9 per cent of the AUKT Shares and has given the Company and AUKT each a non-legally binding letter of intent to vote in favour of any shareholder resolutions in connection with the Proposals, should it remain an AUKT Shareholder at the time of the relevant shareholder general meetings.

Board Recommendation

The Board considers that the Proposals and the Resolutions are in the best interests of Shareholders as a whole.  Accordingly, the Board unanimously recommends Shareholders to vote in favour of the Resolutions being proposed at the General Meeting. The Directors, who in aggregate have an interest in 366,899 Ordinary Shares (being 0.14 per cent. of the Company's issued share capital), intend to vote their entire beneficial holdings in favour of the Resolutions. Each Director has also confirmed that he or she does not intend to participate in the Tender Offer.

The General Meeting

The Proposals are subject to Shareholder approval. Accordingly, a notice convening the General Meeting of the Company to be held at Drapers' Hall, Throgmorton Avenue, London EC2N 2DQ at 11.30 a.m. (or if later as soon as the annual general meeting convened for 10.30 a.m. the same day has concluded) on 30 March 2017 is included in the Circular being posted to Shareholders. 

Publication of Prospectus and Circular

Further details of the Proposals can be found in the Circular, which will shortly be posted to Shareholders.  In addition, the Company has published a Prospectus which is being sent to AUKT Shareholders and will be available on the Company's website www.aberdeendiversified.co.uk.

Copies of the Prospectus and Circular have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm or on the Company's website www.aberdeendiversified.co.uk.

All capitalised terms in this announcement will have the same meaning as defined in the Circular.

Expected Timetable
General Meeting of the Company
Proxy Form or Form of Direction Deadlines:
BlackRock Savings Scheme Participant Deadline	5.00pm on 21 March
Shareholder Deadline	11.30 a.m. on 28 March
Annual General Meeting at Drapers' Hall,	10.30 a.m. on 30 March
Throgmorton Avenue, London EC2N 2DQ
General Meeting at Drapers' Hall, Throgmorton Avenue, London EC2N 2DQ	11.30 a.m. on 30 March (or if later as soon as the Annual General Meeting has concluded)
Tender Offer for existing Shareholders of the Company
Record Date for the Tender Offer	5.00 p.m. on 7 March
Tender Form Deadlines:
BlackRock Savings Scheme Participant Deadline	5.00 p.m. on 21 March
Shareholder Deadline	11.30 a.m. on 28 March
Calculation Date for the Tender Offer	5.00pm on 4 April
Result of Tender Offer and Tender Price announced	6 April
Issue of New Ordinary Shares to AUKT Shareholders
Record Date for the Scheme	28 March
Calculation Date for the Scheme	5.00 p.m. on 4 April
Results of the Scheme announced	6 April
Effective date for the implementation of the Scheme	6 April
and the commencement of the liquidation of AUKT
Admission to listing and dealings commence in the New	8.00 a.m. on 10 April
Ordinary Shares issued to AUKT Shareholders pursuant to the Scheme

Notes:

(i) All references to times in this announcement are to London time.

(ii) Each of the times in the above expected timetable (other than the general meetings) may be extended or brought forward. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notified to Shareholders by announcement through a Regulatory Information Service.

For further information, please contact:

Aberdeen Fund Managers Limited

William Hemmings         020 7463 6223

Cenkos Securities

Sapna Shah                         020 7397 1922

Will Rogers                         020 7397 1920

Oliver Packard                  020 7397 1918

 

END

 

 

CIREAKDKESXXEFF