Proposed tender offer,changes in investment pol...

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, NEW ZEALAND, AUSTRALIA OR JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.

15 December 2016

BARING EMERGING EUROPE PLC

Proposed tender offer, change in investment policy and change in discount control mechanism

Baring Emerging Europe PLC (the “Company”) is today announcing proposals to return capital to shareholders through a tender offer of up to 10 per cent. of the issued share capital of the Company at a 2.5 per cent. discount to net asset value per share as at 24 January 2017 (“Tender Offer”). The Company is also proposing a change of its investment policy (the “Investment Policy”) (the Tender Offer and the change in Investment Policy being referred to as the “Proposals”) and has approved certain changes to the Company’s approach to discount management (subject to the shareholders’ approval of the Proposals and certain other proposals).

A circular (the “Circular”) setting out the full details of the Proposals and the changes to the Company’s approach to discount management and containing a notice of general meeting convened for 3.00 pm on 24 January 2017 (or as soon thereafter as the annual general meeting of the Company on that date (the “Annual General Meeting”) is concluded or adjourned) (the “General Meeting”) is being published today.

Background

In 2013, the board of directors of the Company (the “Board”) set out a discount management target of maintaining the “Discount to NAV” (the calculation of which is set out in further detail in the Circular) for any given financial year at an average of under 12 per cent., failing which a tender would be offered to shareholders. During FY16, despite the Board’s efforts to manage this process, the Discount to NAV has averaged 14.4 per cent, which means that the conditions for a tender offer have been triggered. Through the course of FY16, the shares have traded at a Discount to NAV in a range between 18.8 per cent. and 7.9 per cent. The Company has repurchased and cancelled 1,364,512 shares over the same period, for a net consideration of just under £7.5 million. The repurchase and cancellation of those shares has added approximately six pence per share to NAV, accounting for just under one per cent. of the opening NAV during FY16. In accordance with the intention set out in 2013, the Board now intends to offer shareholders the opportunity to receive a return of capital closer to NAV through the implementation of the Tender Offer (and associated repurchase) as detailed in the Circular.

Notwithstanding the proposed implementation of the Tender Offer (and associated repurchase), the Board also believes that it is in the Company’s interest that it takes certain steps to address the long term viability of the Company’s approach to discount management. It is the Board’s view that the current approach to discount management diverts the Company’s resources into liquidity management in order to finance buy-backs, and gives the Company’s investment manager an implicit time horizon, which is shorter than that of its natural investment process. Furthermore, the Board recognises that the shrinking of the Company through repeated tenders and large buybacks risks reducing liquidity for shareholders and restricting the investor audience for the shares. The Board believes that this could lead to the Company becoming less relevant for its shareholders and in turn increase the difficulty of controlling Discount to NAV going forward. In order to address these problems, the Board has approved the implementation of a revised approach to discount management, subject to the shareholders’ approval of the Proposals and certain of the resolutions to be presented at the Annual General Meeting.

The Board believes that the long term attraction of the Company’s investment strategy remains intact and that the proposed change in the approach to discount management will ensure that the Company’s investment manager is able to focus on achieving the optimal results for shareholders without the concern of liquidity management in the face of a shrinking capital base. The Proposals, together with the revised approach to discount management, taken as a whole, recognise the smaller scale of the Company and the risk that further shrinkage would make the Company less appealing to shareholders who might want it to continue, whilst setting prudent targets to control the Discount to NAV but without penalising good performance.

In addition, the Board proposes to seek approval from shareholders at the General Meeting to implement certain changes to the Investment Policy. As reported in the Company’s 2015 annual report, following a proposal from the Company’s investment manager to expand the geographical remit of the Company to permit investment in the Middle East and Africa (MEA), the Board agreed to increase the limit on investment in other countries, outside Emerging Europe, from two per cent. to five per cent. to provide some scope for this. The immediate trigger for the proposal was the opening up of the Saudi market to foreign investors, but capital markets in both Africa and the Middle East continue to develop rapidly and may offer opportunities to expand the scope of investments. The team at the investment manager is led by Matthias Siller, head of the Europe, Middle East and Africa (EMEA) equities group. In order to provide the Company’s investment manager with additional flexibility, the Board has decided to seek Shareholder approval to increase the permitted investment in other countries, outside Emerging Europe, from five per cent. to 15 per cent., notwithstanding that the Company is yet to make an investment outside Emerging Europe. The Board currently intends that the “other countries” for the purposes of the change in the Investment Policy will comprise Bahrain, Egypt, Jordan, Kenya, Kuwait, Lebanon, Mauritius, Morocco, Nigeria, Oman, Qatar, Saudi Arabia, South Africa, Tunisia and UAE. The Company’s benchmark will remain unchanged (MSCI EM Europe 10/40 Index).

Tender Offer

The price per share at which shares will be acquired by J.P. Morgan Cazenove, as principal, under the Tender Offer will be 97.5 per cent. of the Net Asset Value (‘cum-income’) per share of the Company (after accounting for the costs of the Tender Offer, which are estimated at approximately £310,000 excluding portfolio realization costs) as at the close of business on 24 January 2017. Prior to that date, it is intended that the Company will have realised a sufficient proportion of its investment portfolio to fund the Company’s repurchase under the repurchase agreement between the parties dated 14 December 2016 (the “Repurchase Agreement”) of the shares acquired by J.P. Morgan Cazenove under the Tender Offer.

By way of illustration, assuming that the maximum number of shares is acquired under the Tender Offer (and associated repurchase), the purchase of shares under the Tender Offer (and associated repurchase) would be expected to result in no change to the Net Asset Value per share. (based on the ‘cum-income’ Net Asset Value per share as at close of business on 14 December 2016 (being the latest practicable date prior to this announcement) and the Company’s estimate of the costs of the Tender Offer, adjusted for the 23 pence per share dividend which goes “ex-div” on 20 January 2017) for shareholders who continue with their investment in the Company (without taking account of any portfolio reorganisation costs incurred in connection with the Tender Offer (and associated repurchase)).

In making the Tender Offer, J.P. Morgan Cazenove will purchase the shares, as principal, by means of an on-market purchase from tendering shareholders and will sell them on to the Company pursuant to the terms of the Repurchase Agreement. Under the terms of the Tender Offer, shareholders (other than certain Overseas Persons) will be able to tender up to their basic entitlement, being 10 per cent. of the shares registered in their name on the Register on the Record Date (as stated below), rounded down to the nearest whole number of shares. Shareholders will also have the option to tender additional shares which may be purchased by J.P. Morgan Cazenove to the extent that other shareholders tender less than their basic entitlement. Any such excess tenders will be satisfied pro rata in proportion to the amount tendered in excess of the basic entitlement (rounded down to the nearest whole number of shares).

All shares acquired by the Company from J.P. Morgan Cazenove under the Repurchase Agreement will be cancelled. The repurchase of shares by the Company pursuant to the terms of the Repurchase Agreement will be funded by the sale of investments in the Company’s investment portfolio and from the Company’s existing cash resources.

The “Record Date” for participation in the Tender Offer is 5.00 pm on 20 January 2017.

Discount Management

Subject to the approval of the Proposals at the General Meeting and the approval of a general authority for the Company to make market purchases of shares at the Annual General Meeting (as further detailed below), the Board has approved the implementation of the following measures in relation to the Company’s ongoing approach to discount management:

1. With effect from 1 June 2017, the introduction of a policy to offer shareholders a tender of up to 25 per cent. of the shares (at the minimum discount at which no dilution will occur) in the event that:

(i) the average daily Discount to NAV (‘cum-income’) exceeds 12 per cent. as calculated with reference to the trading of the shares over the four year period immediately preceding each relevant publication date of the Company’s financial results (the “New Calculation Period”), provided that the first New Calculation Period will be the period between 1 October 2016 and 30 September 2020 (Discount to NAV, for discount management purposes, is currently calculated with reference to the 365 day period prior to the publication of the Company’s results for the financial year); or

(ii) the performance of the Company’s portfolio on a total return basis does not exceed its benchmark (being the MSCI EM Europe 10/40 Index) by an average of 100 basis points per annum over the New Calculation Period.

The making of any tender offer pursuant to the above will be conditional upon the Company having the required shareholder authority or such shareholder authority being obtained, the Company having sufficient distributable reserves to effect the repurchase and, having regard to its continuing financial requirements, sufficient cash reserves to settle the relevant transaction with shareholders, and the Company’s continuing compliance with the Listing Rules and all other applicable laws and regulations. The Company may require a minimum level of participation in any such tender offer to be met, failing which the tender offer may be declared void.

2. An increase in the Company’s focus on a dividend yield by paying income from capital where considered appropriate by the Board. The Board anticipates paying out up to one per cent. per annum of NAV from capital. The Board believes that this is a sustainable policy that should improve the Company’s appeal amongst investors. The regular dividend of the Company of 23 pence per share per annum equates to a yield (with reference to the market price of shares as at 14 December 2016) of 3.5 per cent. With distributions out of capital, the Board anticipates that the Company’s dividend yield will increase going forward. 1

1 This is a target only and not a profit forecast. There can be no assurance that the target can or will be met and should not be taken as an indication of the Company’s expected or actual future results. Accordingly, potential investors should not place any reliance on this target in their decision-making or assume that the Company will make any distributions at all and should decide for themselves whether or not the target dividend yield is reasonable or achievable.

In addition to the implementation of the discount management measures listed above, shareholders will be requested at the Annual General Meeting to grant the Company authority to make market purchases of up to 2,377,318 shares, representing approximately 14.99 per cent. of the issued share capital of the Company as at 8 December 2016 (being the latest practicable date prior to the publication of the Company’s annual report for FY16). Authorising the Tender Offer (and associated repurchase) will not affect any such general authority granted at the Annual General Meeting, except that the number of shares in respect of which the general authority is granted shall be reduced by a proportion equal to the proportion of the issued share capital (excluding any treasury shares held by the Company) which is repurchased by the Company in connection with the Tender Offer. No part of the general authority granted at the Annual General Meeting will be used to implement the Tender Offer (and associated repurchase). Immediately following the Tender Offer (and associated repurchase), assuming that the maximum number of shares will be purchased under the Tender Offer (and associated repurchase), there will be approximately 14,273,428 shares in issue (excluding 3,318,207 shares held in treasury by the Company), provided that no further shares are bought back by the Company in the meantime.

Investment Policy

The Company requires approval from the FCA (pursuant to the Listing Rules) and the approval of shareholders for any material change to its Investment Policy. The Company has received the FCA approval required by the Listing Rules. Separately, the Company has provided the proposed Investment Policy to the FCA for consideration under the AIFMD Regulations. The proposed resolution to change the Investment Policy is set out in the notice of General Meeting in the Circular.

The proposed Investment Policy will only become effective once approved by shareholders at the General Meeting.

General Meeting

The Tender Offer (and associated repurchase) is subject to shareholder approval. A notice convening a general meeting of the Company, which is to be held at 3.00 pm on 24 January 2017 (or as soon thereafter as the Annual General Meeting of the Company is concluded or adjourned) at 155 Bishopsgate, London EC2M 3XY is included in the Circular. At this meeting, two special resolutions will be proposed to sanction the Proposals.

Expected Timetable of Principal Events Expected timing for receipt of FCA confirmation under the AIFMD regulations in relation to the investment Policy         on or by 9 January 2017
Requested time and date for receipt of Forms of Proxy in respect of the General Meeting	by 3.00 pm on 20 January 2017
Latest time and date for receipt of Tender Forms	3.00 pm on 20 January 2017
Record Date for Tender Offer	5.00 pm on 20 January 2017
General Meeting	3.00 pm on 24 January 2017 (or as soon thereafter as the Annual General Meeting of the Company is concluded or adjourned)
Expected effective date of change of Investment Policy	24 January 2017
Announcement of results of General Meeting and announcement of take-up of Tender Offer	by close of business on 24 January 2017
Calculation Date for Tender Price	close of business on 24 January 2017
Announcement of Tender Price	by close of business on 25 January 2017
Trade Date for Shares submitted for Tender Offer	27 January 2017
Settlement of proceeds through CREST in respect of Tender Offer shares to uncertificated shareholders	31 January 2017
Despatch of settlement proceeds by cheque in respect of Tender Offer shares to certificated shareholders	by 3 February 2017

Unless otherwise stated, all references to time in this document are to London time.

Enquiries:

Steven Bates

Chairman, Baring Emerging Europe PLC

Tel: [phone]

William Simmonds

J.P. Morgan Cazenove

Tel: [phone]

Martin Salmon / Graham Venables

Northern Trust

Tel: [phone]

A copy of the Circular will be submitted to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.do.