Notice of AGM

RNS Number : 1289V

Aurora Russia Limited

28 October 2010

 



28 October 2010

Aurora Russia Limited ("Aurora" or the "Company")

Changes to the Manager's incentivisation arrangements

Aurora Russia Limited, the AIM-quoted investment vehicle established to make equity or equity related investments in small and mid-sized private companies in Russia, announces that it has today sent out a notice of Annual General Meeting ("AGM") to its shareholders (the "Notice") to be held on 3 December 2010.

The Notice contains, inter alia, proposed changes to the composition of the Board and to the structure of the Manager's incentivisation arrangements which will be implemented subject to the passing of the continuation resolution at the AGM (the "Continuation Resolution").

Composition of the Board

The Company continues to review its compliance with best corporate governance practice, part of which is to review the composition of the Board of Directors.  The Directors believe that it is right to strengthen the Board where possible.  The Directors also believe that it is appropriate to reduce the number of representatives of the Manager on the Board from two to one. 

Earlier this year, the Directors appointed Alexandr Dumnov to the Board to strengthen its understanding of the Russian economic and business environment. In addition, the Directors are committed to appointing two new Independent Directors with the appropriate skills to represent Shareholders as soon as practicable. 

John McRoberts has agreed that, if all directors standing for re-election at the Annual General Meeting are elected as directors and the Continuation Resolution described in is passed, he will retire as a director immediately after the AGM.  If one person standing for re-election is not elected, or if the Continuation Resolution is not passed, then John McRoberts will not retire as a director at the meeting. If John McRoberts retires as a director, he will continue to provide his skill and expertise to the Company from within the Manager.  Following John's retirement, James Cook will remain as the sole representative of the Manager on the Board.

Proposed amendments to the Management Agreement

The current management agreement (the "Management Agreement") provides that the Company shall pay to the Manager a semi-annual management fee of an amount equal to 1% of the net asset value of the Company as at each valuation date of 31 March and 30 September in each calendar year, payable in advance following such valuation date.

Additionally, under the current option deed (the "Option Deed") the Manager has an option to acquire new shares ("Option Shares") representing 20% of the share capital of the Company (on a fully diluted basis, i.e. post the issuance of the Option Shares), such option to be exercised at a price of £1.00 per share in respect of 18,750,000 Option Shares and at a price of £0.40 per share in respect of 9,375,000 Option Shares (related to the additional Ordinary Shares issued in the December 2009 placing), provided the relevant performance condition has been satisfied. 

The Directors believe that if the Continuation Resolution is passed, the Manager remains best placed to continue to act as Manager of the Company and to improve the performance of the Company's portfolio investments, subject to a reduction in the management fees payable to the Manager.  However, the Directors also consider that the Manager should be properly incentivised to maximise the value of the Company's shares, by being incentivised to sell the Company's investments over a sensible period, which would not necessarily be the case if the existing option arrangements remain in place.   

Following extensive consultation with the Company's major institutional shareholders, it is proposed to put in place a new management incentivisation arrangement as set out below:

New Manager incentivisation arrangement

Accordingly, if the Continuation Resolution is passed, the Directors and the Manager intend to enter into an amended management agreement (the "Amended Management Agreement") and to terminate the Option Deed.  The Amended Management Agreement would amend the management fees and performance fees payable to the Manager as follows:

(a)        reducing the semi-annual management fee from 1% to 0.75% of the net asset value of the Company;

(b)        replacing the existing performance fee arrangements comprising the issue of the Option Shares with performance fees calculated as follows:

§ 2.5% of the value of any disposals realised by the Company would be payable to the Manager, calculated on the value of assets of the Company realised up to £45 million, i.e. £0.40 per share (the "2.5% Tranche");

§ 7.5% of the value of any  disposals realised by the Company would be payable to the Manager, calculated on the value of assets of the Company realised between £45 million and £99 million, i.e. £0.40 per share to £0.88 per share (NAV) (the "7.5% Tranche"); and

§ 20% of the value of any disposals realised by the Company would be payable to the Manager, calculated on the value of assets of the Company realised over £99 million, i.e. over £0.88 per share (the "20% Tranche"),

such performance fees to decline by 20% per annum from December 2011 (for the 2.5% Tranche) and by 20% per annum from December 2012 (for the 7.5% Tranche and the 20% Tranche).

Should the discount of the share price to NAV be less than 20% for a period of six months and the Directors wish to make additional investments, then in respect of those additional investments the Manager will receive a performance fee of 20% of the value of any amounts realised on the disposal of such investments in excess of the amounts so invested.

The Directors consider that this combination of a reduced management fee and more achievable performance fee will allow and encourage the Manager to achieve better returns for Shareholders. 

Entry into the Amended Management Agreement and termination of the Option Deed is classified as a related party transaction under the AIM Rules for Companies and the Manager is the related party for the purposes of the Transaction.  The Independent Directors, having consulted with the Company's nominated adviser, Investec, consider that entry into the Amended Management Agreement and termination of the Option Deed is fair and reasonable so far as the Shareholders are concerned.  In providing advice to the Independent Directors, Investec has taken into account the Independent Directors' commercial assessments.

Enquiries:

Aurora Russia Limited

John McRoberts                      [phone]

Investec Investment Banking

Martin Smith                           [phone]

Patrick Robb                          

 

END

 

 

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