Proposed changes to Investment Policy

RNS Number : 6111T

Qatar Investment Fund PLC

16 October 2017

 

This announcement contains inside information for the purposes of Article 17 of Regulation (EU) No. 596/2014.

Legal Entity Identifier: 2138009DIENFWKC3PW84

16 October 2017

Qatar Investment Fund PLC ("QIF" or the "Company")

Proposed changes to the Investment Policy and other changes

The board of the Company (the "Board") today announces its intention to change its investment policy from a largely Qatar-focused investment strategy to a broader Gulf Cooperation Council ("GCC") investment strategy.

Currently, the investment policy enables the Company to invest up to 15% of the Company in GCC countries (namely Saudi Arabia, Kuwait, UAE, Oman and Bahrain) other than Qatar.

The proposed change in investment policy will remove the 15% limit and enable the Company to increase its investment allocation to other GCC countries and provide the Investment Adviser with a wider investment universe and more flexibility to identify attractive opportunities in the GCC region (the "Amended Investment Policy").

Alongside the Amended Investment Policy the Board has resolved to put forward a number of proposals including:  

(i)         making a tender offer for up to 10% of the issued Share Capital of the Company (excluding treasury shares) (the "2017 Tender Offer");

(ii)        cancelling the discontinuation vote currently scheduled for the 2018 annual general meeting and replacing it with a continuation vote for the 2021 annual general meeting and every three years thereafter;

(iii)       making a tender offer to shareholders for up to 100% of the Company's share capital in 2020 subject to Shareholder approval to be sought in 2020; and

(iv)       proposing to change the name of the Company to Gulf Investment Fund PLC.

All of these changes will be subject to the approval of the Company's shareholders at an Extraordinary General Meeting, other than the tender offer in 2020 which will be subject to shareholder approval in 2020.

A circular setting out these details and containing the notice convening the Extraordinary General Meeting will be posted to the Company's shareholders in due course. A further announcement will be made when the circular has been posted.

1.     Background

The Company is a closed-ended investment company which was incorporated in the Isle of Man in 2007. The Company was established to invest primarily in quoted Qatari equities. The Company's investment objective is to capture, principally through the medium of the Qatar Exchange, the opportunities for growth offered by the expanding Qatari economy by investing in listed companies or companies soon to be listed.  The Company may also invest in listed companies, or pre-IPO companies, in other GCC countries, with a maximum allocation of up to 15%.

The Company's investment adviser is Qatar Insurance Company S.A.Q., (the "Investment Adviser") one of the leading insurance companies in the GCC.

2.     The Amended Investment Policy

The Board has been in discussions with the Investment Adviser since March 2017 regarding the investment strategy of the Company. The Board is mindful that the existing investment policy, whilst allowing for some investment in GCC countries other than Qatar, is principally a single country focussed policy and the Board is conscious of the risk to the Company from having a principally single country focus. The Board and the Investment Adviser believe that there is currently an opportunity for growth offered by gaining further exposure to companies listed on other GCC exchanges. 

The proposed change to the investment policy will remove the 15% limit referred to above and thereby enable the Company to increase its investment allocation to other GCC countries. It is further proposed that the Company will also be permitted to invest in companies listed on stock markets not located in the GCC which will have a significant economic exposure to and/or derive a significant amount of their revenues from GCC countries. The Amended Investment Policy will widen the investment universe for the Investment Adviser and provide more flexibility for the Company to invest in companies listed on the GCC stock exchanges. The Amended Investment Policy will retain the same restrictions that are in the existing investment policy, including that:

•           no single investment position in a S&P GCC Composite Index constituent may,  exceed the greater of: (i) 15% of the NAV of the Company; or (ii) 125% of the constituent company's index capitalisation divided by the index capitalisation of the S&P GCC Composite Index, as calculated by Bloomberg;

•           no single investment position in a company which is not a S&P GCC Composite Index constituent may exceed 15% of the NAV of the Company; and

•           no holding may exceed 5% of the outstanding shares in any one company,

but other allocation limits by GCC country will not be set in order to allow the Investment Adviser greater flexibility with regards the composition of the Company's portfolio.

Whilst it is not intended that the Board will adopt a formal benchmark by which to measure the Company's performance and portfolio composition/allocation, the Board will monitor the performance of the S&P GCC Composite Index by way of reference only.

The S&P GCC Composite Index has 298 constituents, and the index weighting by country is Saudi Arabia (56.6%), United Arab Emirates (16.5%), Qatar (11.8%), Kuwait (10.2%), Bahrain (2.6%) and Oman (2.3%) (source: S&P Dow Jones Indices LLC, a division of S&P Global).

The Investment Adviser has experience of investing in other GCC countries and it is intended that the implementation and day-to-day management of the Company's Amended Investment Policy will continue to be led by Jubin Jose.

The Board believes that the Amended Investment Policy could improve the marketability of the Company as there are a limited number of other GCC focused investment companies that are listed on a recognised stock market.

3.     Investment Management fees

As part of the discussions with the Investment Adviser on the Amended Investment Policy, the Board has been discussing the level of the investment management fee under the proposed Amended Investment Policy.

The Board has agreed in principle with the Investment Adviser that the level of the investment management fee will be maintained at the current 0.90% of net asset value per annum notwithstanding the broader investment universe that the Investment Adviser will be required to research.

4.     Cancellation of the 2018 discontinuation vote and the Amended Articles

Conditional on the adoption of the Amended Investment Policy, the Directors would propose that the Company's next discontinuation vote which would have otherwise been put forward at the 2018 annual general meeting be cancelled and replaced with a continuation vote to be held at the 2021 annual general meeting.

5.     Rationale for the Amended Investment Policy

The Board and the Investment Adviser believe that GCC markets offer an attractive long-term investment opportunity to investors. Governments in the GCC are focused on expanding the non-oil sectors of their economies, led by a strong push on infrastructure development and continued investment in the social sectors. National development plans, which include The Abu Dhabi Economic Vision 2030, Qatar National Vision 2030, and Saudi Arabia Vision 2030 are being implemented with a view to boosting human capital and economic growth. These initiatives are supported by key events and programmes such as Expo 2020 in Dubai, the 2022 FIFA World Cup in Qatar and Saudi Arabia's National Transportation Program 2020. Growth in the GCC economies is expected to recover on the back of supportive fiscal policies and continued growth in sectors such as travel, tourism, healthcare, education and infrastructure. According to the IMF, the aggregate population of the GCC is expected to reach 58.8 million by 2020, a 101% increase over the level in 2000, offering a large market for continued consumption growth.

The upgrade of the UAE and Qatari markets to the MSCI and FTSE Emerging Markets categories and the addition of Saudi Arabia to the MSCI Emerging Markets watch list highlight the steps that GCC countries are taking in making their stock exchanges more open to global investors. HSBC estimates potential inflows to the Saudi Arabian stock exchange of approximately US$ 9 billion were Saudi Arabia to be promoted to the MSCI Emerging Markets Index. If that were to occur, Saudi Arabia would be expected to have a 2-3% weighting in the MSCI Emerging Markets Index, while Qatar and the UAE currently have a weight of just under 1% each. Actions such as the privatisation of public assets, easing of foreign ownership restrictions and more transparency are likely to accelerate the upgrade of other GCC markets over the next few years.

6.     The 2017 Tender Offer

The Board is aware that the Company's shares are tightly held and that therefore the liquidity in the shares can, at times, be limited. The Board is also mindful that it believes it to be appropriate to offer a tender offer to shareholders when proposing a material change to the investment policy.

As with past tender offers, the 2017 Tender Offer is designed to enable shareholders who wish to realise a portion of their holding of shares the opportunity to do so.  The terms of the 2017 Tender Offer will be similar to that of the tender offer announced on 19 October 2016, however it will be limited to 10% of the Company's issued share capital (excluding treasury shares).

7.     Subsequent tender offers

The Directors have decided not to put forward further tender offers in 2018 and 2019, however they do intend to put forward a tender offer of up to 100% of the Company's issued share capital at the time of the 2020 annual general meeting.

8.     Taxation and Offshore Fund Rules

If the proposals outlined in this announcement are approved by shareholders, including in particular the Directors' commitment to offer shareholders a further tender offer for up to 100% of the Company's share capital in 2020 (subject to shareholder approval to be sought in 2020), it is considered that this will result in the Company being treated as an "offshore fund" for the purposes of UK taxation. This is on the basis that, in light of the Proposed 2020 Tender Offer, a reasonable investor in the Company would expect to be able to realise his investment in the Company on a basis calculated entirely or almost entirely by reference to net asset value, by a determinable date. UK resident shareholders should note that the Company intends to apply to HMRC for approval as a "reporting fund" for the purposes of the Offshore Fund Rules. As a reporting fund, the Company would be required to provide shareholders with a report of income received by the Company for each reporting period (as calculated for the purposes of the Offshore Fund Rules). 

If the amount of income reported to shareholders exceeds the amount actually distributed for a relevant reporting period, UK resident shareholders will be taxed as if a notional dividend equal to the excess had been received. The Company therefore intends, if the Proposals are approved, to amend its annual distribution policy with the intention, so far as possible, of ensuring that actual distributions are at least equal to reported income for each reporting period. If reporting fund status were not granted by HMRC, or if the Company subsequently ceased to be an approved reporting fund, gains on a disposal of shares could for UK tax purposes be taxed as income, rather than as capital gains, which could result in shareholders incurring higher levels of taxation.

For further information:

Nicholas Wilson [phone]

Qatar Investment Fund plc

Ian Dungate/Suzanne Jones [phone]

Galileo Fund Services Limited

Richard Gray/Andrew Potts/Atholl Tweedie [phone]

Panmure Gordon

William Clutterbuck/Cebuan Bliss [phone]

Maitland

 

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