Publication of Prospectus and Circular

RNS Number : 9532N

Aberdeen Emerging Markets Inv Co Ld

04 October 2021

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR ANY JURISDICTION IN WHICH THE SAME COULD BE UNLAWFUL .

The information communicated in this announcement is deemed to 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 £100,000) 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 [e-mail] .

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 £150 million of market capitalisation being charged at 0.80 per cent., the next £150 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 [e-mail] .

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.

RECOMMENDATION

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 Meeting	1 p.m. on 19 October 2021
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 any unpurchased Eligible Shares	​Week commencing 15 November 2021

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 uncertificated form	8 a.m. on 10 November 2021
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 respect of each Placing	as soon as practicable following the closing of each Placing
Share certificates in respect of Shares issued pursuant to the relevant Placing despatched (if applicable)	as soon as practicable following any Subsequent Admission
Last date for Shares to be issued pursuant to the Placing Programme	3 October 2022

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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