Review of Subscription Rights and Redemption Fa...
15 September 2017
ATLANTIS JAPAN GROWTH FUND LIMITED
Review of Subscription Rights and Redemption Facility
Introduction
The Board announced on 2 August 2017 that it was reviewing the appropriateness of continuing with the Company's annual subscription rights mechanism following the 2017 subscription date (2 October 2017) and/or its semi-annual redemption facility following the 30 September 2017 redemption point. The Board is pleased to announce the outcome of its review.
Subscription Rights Mechanism
The annual subscription rights mechanism enables shareholders to subscribe for one new ordinary share for every five ordinary shares held on 1 October in each year, commencing in 2015 and ending in 2019, at a price equal to the undiluted net asset value (NAV) per share on 2 October one year prior (or, if that is not a business day, the next business day).
One of principal reasons for introducing the subscription rights mechanism in 2014 was to facilitate increasing the Company's net assets and market capitalisation, which should widen its appeal to new investors thus increasing demand for the ordinary shares which, in turn, could have a positive effect on the Company’s share price and the price at which the ordinary shares trade relative to their NAV.
The 2016 subscription rights ended "in the money" as at the 2016 subscription date (3 October 2016), resulting in a 20% increase in the Company's then issued share capital and an increase of approximately £11 million in the Company's net assets. The exercise price payable in respect of the 2017 subscription rights at the 2017 subscription date (2 October 2017) is £1.7279, which, as at close of business on 14 September 2017, represented:
- a discount of 17.7% to the diluted NAV of 209.83p per ordinary share; and
- a discount of 8.6% to the middle market price of 189.0p per ordinary share.
Accordingly, the 2017 subscription rights are currently "in the money" and, if fully exercised on 2 October 2017, will increase the Company's then issued share capital by 20% and increase the Company's net assets from £95.9 million to £111.1 million (based on its net assets as at close of business on 14 September 2017) and its market capitalisation from £84.5 million to £101.4 million (based on the closing mid-market price on 14 September 2017).
On the assumption that the 2017 subscription rights are exercised in full, the annual subscription mechanism will have achieved an internal target set by the Board (namely, exercise of the subscription rights in at least two of the five years of the life of the mechanism). Whilst the Board is aware of the importance of continuing to increase the size of the Company as this can assist in improving liquidity in the ordinary shares, based on feedback from investors the Board has concluded that the subscription rights mechanism complicates the Company's capital structure and, accordingly, makes the Company less attractive for investment.
The Directors also recognise the importance of investment performance to investors when making an investment decision and believe that, ultimately, strong investment performance will be the key driver to narrowing the discount at which the Company's ordinary shares currently trade. Subscription rights (when "in the money" and on any exercise) have a dilutive effect on reported investment performance (market practice is to report investment performance on a diluted NAV basis) and can mask the strength of the underlying portfolio performance. By way of illustration, for the period from 1 May 2016 (when the Company's lead fund adviser was changed) to 13 September 2017 and in sterling terms:
- the diluted NAV total return per ordinary share was 41.4%, resulting in the Company being the second best performing trust in its peer group (the best performing investment trust in the peer group delivered a diluted NAV total return of 45.3%); but
- the undiluted NAV total return per ordinary share was 50.8%, resulting in the Company being the best performing trust in its peer group (the second best performing investment trust in the peer group delivered an undiluted NAV total return of 45.3%).
Against the backdrop of the above, the Board believes that it is in the best interests of shareholders as a whole to discontinue the subscription share mechanism following the subscription date for the 2017 subscription rights. In order to discontinue the subscription share mechanism, it will be necessary to make certain changes to the Company's articles of association, which will require shareholder approval. A circular convening a general meeting at which such shareholder approval will be sought will be posted to shareholders shortly.
Semi-annual Redemption Facility
The semi-annual redemption facility, which is operated at the discretion of the Board, enables shareholders to redeem all or part of their holding of ordinary shares at 31 March and 30 September each year, subject to total redemptions at each redemption point being limited to 5% of the Company's issued share capital at that time. The Board has decided that it is appropriate to continue with the semi-annual redemption facility.
Enquiries
| Richard Gittus | Tiburon Partners LLP | T: +44 (0) 20 7747 5778 Email: investorservices@tiburon.co.uk |
| Sue Inglis | Cantor Fitzgerald Europe | T: +44 (0) 20 7894 8016 |
| Tony Sharpe | Northern Trust International Fund Administration Services (Guernsey) Limited | T: +44 (0) 1481 745 736 |
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