Tender Offer and Revised Investment Policy

RNS Number : 9103O

Qatar Investment Fund PLC

17 October 2012

 



17 October 2012

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

Tender Offer to purchase up to 20 per cent. of the Company's issued share capital

Revised Investment Policy

Further to the Company's announcement on 2 August 2012, a circular explaining the terms of a Tender Offer for up to 20 per cent. of the issued share capital of the Company and a notice of an Extraordinary General Meeting to be held on 14 November 2012 has been posted to shareholders. The Circular also sets out the Company's intention to adopt a Revised Investment Policy that allows the Company to gain exposure to companies listed on the Saudi Arabian stock exchange and to disapply pre-emption rights on the sale of its shares from treasury.

1.    Introduction

The Company's Articles of Association require the Board to put to shareholders a resolution at the Annual General Meeting to be held on 14 November 2012 that the Company cease to continue in existence (the "Discontinuation Resolution"). Shareholders holding at least fifty-one per cent. of the Shares must vote in favour of the Discontinuation Resolution for it to be passed. If the Discontinuation Resolution is not passed, the Board is obliged to propose the same resolution at every third annual general meeting thereafter.

The Board is unanimously recommending that Shareholders vote against the Discontinuation Resolution and the Directors intend to vote their Shares accordingly. Shareholders are referred to the Report of the Directors in the annual report and accounts for the year ended 30 June 2012 for a full explanation of the reasons why the Board is unanimously recommending that Shareholders vote against the Discontinuation Resolution at the Annual General Meeting.

The Board maintains an ongoing dialogue with Shareholders and is aware that one of the Company's larger Shareholders believes that any continuation vote should be accompanied by an opportunity for Shareholders to realise a proportion of their investment.

The Board therefore intends to propose a Tender Offer of up to 20 per cent. of the Company's issued shares at a discount of 1 per cent. to Formula Asset Value on the Calculation Date. The total number of Shares to be purchased under the Tender Offer will not exceed 44,420,496 Shares, representing 20 per cent. of the Company's issued Shares as at 16 October 2012.

In addition to seeking authority to undertake the Tender Offer as required by the Companies Acts, the Board is also seeking authority at the Extraordinary General Meeting:

(i)           pursuant to the Listing Rules, to adopt a Revised Investment Policy which will permit the Company to invest in derivative instruments to allow the Company to gain exposure to companies listed on the Saudi Arabian stock exchange; and

(ii)          pursuant to the Articles of Association and the Listing Rules, to disapply pre-emption rights in relation to the sale of Shares from treasury at a price which may represent a discount to the prevailing NAV per Share, such authority to be exercised by the Board in limited circumstances.

2.    Background

The Company is a closed-ended investment company which was incorporated in the Isle of Man in 2007.  The investment objective of the Company is to invest primarily in Qatari equities and in listed companies in other GCC countries.  As at 11 October  2012, being the latest practicable date prior to the publication of the Circular, the unaudited, undiluted Net Asset Value per Ordinary Share was US$1.0530.

After a 23 per cent. rise in Net Asset Value per Ordinary Share in 2011, the Company recorded a slight drop in the Net Asset Value per Ordinary Share in 2012, from US$1.03 to US$1.01 per Ordinary Share, which has been more than recovered since the year end. This nevertheless represented a better performance than Qatar's stock exchange overall, which declined by 2.85 per cent.

In contrast, the Company's share price improved over the 2012 financial year from US$0.87 to US$0.88, and Shareholders also received a dividend of 2.7 cents per Ordinary Share.  While this return is pedestrian compared to returns in 2011, it is of course largely a reflection of trends in international markets: over the same period, the UK's FTSE index was down by 6.30 per cent. and the MSCI Emerging Markets Index was down by 18.22 per cent.

The Qatari economy is forecasted by the IMF to grow by 6 per cent. in 2012 and 4.6 per cent. in 2013. Of particular note is its budget surplus which is projected to record a surplus of over 7 per cent. of GDP in 2012, much of which is being invested back into the local economy.  Given this economic background, the Directors believe that the Qatari stock market, trading on a 2013 (estimated) price earnings ratio of 9.8 and with a dividend yield of 4.4 per cent. represents exceptionally good value.

3.    The Tender Offer

Introduction

The Board is aware that the Shares are tightly held and that therefore the liquidity in the Shares can at times be limited. The Tender Offer is designed to enable those Shareholders (other than Restricted Shareholders) who wish to realise a portion of their holding of Shares the opportunity to do so.

Details of the Tender Offer

Under the terms of the Tender Offer, Shareholders (other than Restricted Shareholders) will be entitled to have up to 20 per cent. of the Shares they hold as at the Record Date purchased under the Tender Offer. Such Shareholders will not be able to tender additional Shares.

The Tender Price will be an amount equal to a discount of 1 per cent. to Formula Asset Value per share (Formula Asset Value being Net Asset Value on the Calculation Date less the costs of undertaking the tender offer).

Continuing Shareholders should receive an uplift to their NAV per Share as the Tender Price is being calculated to a discount of 1 per cent. to Formula Asset Value (which includes the costs of the Tender Offer (including the costs of associated portfolio realisations)).

The Tender Price will be paid to Shareholders in US Dollars and will be effected by the despatch of cheques drawn on an account of a branch of a United Kingdom clearing bank, or the crediting of CREST accounts as appropriate.

The Tender Offer is being made by Panmure Gordon who, as principal, will purchase at the Tender Price the Shares validly tendered (subject to the overall limits of the Tender Offer) and, following the completion of all those purchases, sell the relevant Shares on to the Company at the Tender Price by way of an on-market transaction, in accordance with the terms of Repurchase Agreement. All transactions will be carried out on the London Stock Exchange.

Shareholders are not obliged to tender any Shares and, if they do not wish to participate in the Tender Offer, Shareholders should not complete or return their Tender Form.

Conditions

The Tender Offer is conditional, inter alia, upon: (i) the Discontinuation Resolution not being passed at the Annual General Meeting; (ii) the Company obtaining the necessary Shareholders' authority to implement the Tender Offer at the Extraordinary General Meeting; (iii) the Company satisfying the distributable profits requirements under Isle of Man law; and (iv) the Repurchase Agreement becoming unconditional in all respects (save in respect of any condition relating to the Tender Offer becoming unconditional).

Implementation of the Tender Offer will require approval by Shareholders at the Extraordinary General Meeting, which is to be held at 10.30 a.m. on 17 October 2012. The Tender Offer is also conditional upon Panmure Gordon being satisfied that the Company has sufficient funds available to meet its obligations under the Repurchase Agreement. In addition, the Tender Offer may be postponed or terminated in certain other circumstances

Subsequent tender offers

Subject to Shareholder approval and the Company satisfying the distributable profits requirements under Isle of Man law at the relevant time, the Directors have decided to implement further tender offers in the fourth quarters of 2013 and 2014, on similar terms to the Tender Offer, for up to 10 per cent. of the Company's issued Share capital at those times (excluding treasury shares) in the event that the average discount to NAV per Share at which the Shares trade in the twelve month period from the Calculation Date to 29 November 2013 and for the subsequent twelve month period to 29 November  2014 has been greater than 10 per cent.

4.    Restricted Shareholders and other Overseas Shareholders

The Tender Offer is not being made to Restricted Shareholders. In particular, the Tender Offer is not being made, directly or indirectly, in or into or by the use of mails by any means or instrumentality (including, without limitation, facsimile transmission, internet, telex and telephone) of interstate or foreign commerce, or any facility of a national securities exchange of the United States, nor is it being made directly or indirectly in or into Canada, Australia or Japan and the Tender Offer cannot be accepted by any such use, means, instrumentality or facility or from within the United States, Canada, Australia or Japan.

It is the responsibility of all Overseas Shareholders to satisfy themselves as to the observance of any legal or regulatory requirements in their jurisdiction, including, without limitation, any relevant requirements in relation to the ability of such Overseas Shareholders to participate in the Tender Offer.

5.    Amendment to the investment policy of the Company

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.

The Board, the Investment Manager and the Investment Adviser believe that there is currently an opportunity for growth offered by gaining exposure to companies listed on the Saudi Arabian stock exchange but, as explained below, in order to take advantage of this opportunity, the Company's investment policy needs to be amended.

The Saudi Arabian market is one of the largest in the GCC region with current market capitalisation at just over USD363.7 billion, followed by Qatar at around USD128.4 billion. The Investment Adviser believes that the higher expected economic growth potential for Saudi Arabia justifies the higher 2012E P/E for the Tadawul All-Share index ("TASI", the Saudi Arabian stock exchange all share index) as compared to other GCC markets. On a valuation basis, the Investment Adviser believes that the TASI looks attractive as valuations are cheaper compared to its historical valuations.

Saudi Arabian law prohibits foreign investors from holding Saudi Arabian securities directly. Accordingly, investments relating to such securities must be acquired by structured financial instruments, for example Swaps or P-Notes. Swaps and P-Notes are instruments issued by certain counterparty banks, that are designed to offer the holder a return linked to the performance of a particular underlying equity security or market, and are used where direct investment in the relevant underlying equity security or market is not possible for regulatory or other reasons.

The Investment Adviser expects to predominantly invest in Saudi Arabian listed companies via a P-Note structure. The current investment policy states that the Company will not make use of any derivative instruments. Investments in Saudi Arabian listed equities by the Company could only be made by way of investment in structured financial instruments, such as Swaps or P-Notes, which are deemed to be derivative instruments. Therefore, in order to permit the Company to invest in Saudi Arabian listed companies via such structured financial instruments, it is necessary to amend the investment policy to permit investment in derivative instruments.

The proposed Revised Investment Policy is set out in full in the Appendix to this announcement.

6.    Disapplication of Pre-emption Rights in relation to sales of Shares from treasury

The Board will seek authority at the Extraordinary General Meeting to issue Shares from treasury on a non-pre-emptive basis at a price which may represent a discount to the prevailing Net Asset Value per Share in order to permit the Board to be in a position to meet demand from investors seeking to invest in the Company where it has not been possible for the Company's brokers to meet such demand with sellers of the Company's Shares. In order to limit the risk of dilution for existing Shareholders, such authority shall only be exercised by the Board in respect of Shares bought into treasury within the previous month and Shares shall not be sold at a price which represents a greater discount to NAV per Share than the discount to NAV per Share at which the Shares were purchased by the Company. The Board proposes that if such authority is granted at the Extraordinary General Meeting, it should be renewed at each annual general meeting.

7.    General Meeting

The Proposals set out in this document are subject to Shareholder approval at the Extraordinary General Meeting that has been convened for 10.30 a.m. on 14 November 2012, to be held at the offices of Galileo Fund Services Limited, Millennium House, 46 Athol Street, Douglas, Isle of Man IM1 1JB. The Resolutions to be proposed are:

(i)   Resolution 1 - to authorise the Company to make market purchases of its Shares pursuant to the Tender Offer on the terms set out in this document;

(ii)  Resolution 2 - to adopt the Revised Investment Policy as described in paragraph 4 above; and

(iii) Resolution 3 - to authorise the issue of Shares from treasury on a non-pre-emptive basis subject to certain parameters.

8.    Recommendation

The Board considers that the Proposals are in the best interests of Shareholders as a whole. Accordingly, the Board recommends that Shareholders vote in favour of the Resolutions to be proposed at the Extraordinary General Meeting, as those Directors who hold beneficial interests in Shares intend to do in respect of their own beneficial holdings of Shares which, in aggregate, amount to 166,700 Shares representing approximately 0.08 per cent. of the issued share capital of the Company.

The Board makes no recommendation to Shareholders as to whether or not they should tender their Shares. Whether or not Shareholders decide to tender any of their Shares will depend, among other things, on their individual circumstances including their tax position and on their view of the Company's prospects. Shareholders in any doubt as to the action they should take should consult an appropriately qualified independent financial adviser, authorised under the Financial Services and Market Act 2000, without delay.

9.    Expected Timetable of Principal Events

The expected timetable for the Tender Offer is as follows:

Record Date for participation in the Tender Offer	5.30 p.m. on 19 October 2012
Latest time and date for receipt of Tender Forms or for settlement of TTE Instructions in respect of the Tender Offer	1.00 p.m. on 9 November 2012
Latest time and date for receipt of Forms of Proxy in respect of the Extraordinary General Meeting	10.30 a.m. on 12 November 2012
Annual General Meeting	10.00 a.m. on 14 November 2012
Extraordinary General Meeting	10.30 a.m. on 14 November 2012
Calculation Date	5.30 p.m. on 4 December 2012
Results of the Tender Offer and Tender Price announced	7 December 2012
Settlement date: cheques despatched and CREST accounts credited with proceeds in respect of successfully tendered Shares	14 December 2012
Balancing certificates despatched and CREST accounts credited in respect of unsold Shares	from 14 December 2012

Capitalised terms and expressions shall have the same meanings as those attributed to them in the Circular.

A copy of the Circular will shortly be available for inspection on the National Storage Mechanism at www.hemscott.com/nsm.do and is available for download from the Company's website www.qatarinvestmentfund.com/publications.

For further information:

Qatar Investment Fund Plc [phone]

David von Simson

Panmure Gordon [phone]

Richard Gray/Andrew Potts

Oriel Securities [phone]

Joe Winkley/Neil Winward        

Maitland [phone]

William Clutterbuck/ Robbie Hynes

Galileo Fund Services Limited [phone]

Ian Dungate / Suzanne Jones

Appendix - Proposed Revised Investment Policy

Investment Objective

The Company's investment objective is to capture, principally through the medium of the Qatar Exchange (formerly the Doha Securities Market), 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.

The Company applies a top-down screening process to identify those sectors which should most benefit from sectoral growth trends. Fundamental industry and company analysis, rather than benchmarking, forms the basis of both stock selection and portfolio construction.

Assets or companies in which the Company can invest

The Company has been established to invest primarily in quoted Qatari equities. The Company invests in listed companies on the Qatar Exchange in addition to companies soon to be listed. The Company may also invest in listed companies, or pre-IPO companies, in other GCC countries.

Whether investments will be active or passive investments

In the ordinary course, the Company is not an activist investor, although the Investment Adviser will seek to engage with investee company management where appropriate.

Holding period for investments

In the normal course of events, the Company expects to be fully-invested, although the Company may, however, hold cash reserves pending new IPOs or when it is deemed financially prudent. Although the Company is a long term financial investor, it will actively manage its portfolio.

Spread of investments and maximum exposure limits

The Company will invest in a portfolio of investee companies. The following investment restrictions are in place to ensure a spread of investments and that there are maximum exposure limits in place (all of which are calculated at the time of investment):

·     No single investment position in a QE Index constituent may exceed the greater of (i) 15 per cent. of the Net Asset Value of the Company; or (ii) 125 per cent. of the constituent company's index capitalisation divided by the index capitalisation of the QE Index, as calculated by Bloomberg (or such other source as the Directors and Investment Manager may agree);

·     No single investment position in a company which is not a QE Index constituent may exceed 15 per cent. of the Net Asset Value of the Company;

·     No holding may exceed 5 per cent. of the outstanding shares in any one company; and

·     The Company may hold up to a maximum of 15 per cent. of its Net Asset Value outside Qatar, within the GCC region, including investment in P-Notes or Swaps structured financial products for investment in companies listed on the Saudi Arabian stock exchange.

Policy in relation to gearing and derivatives

Borrowings will be limited, as at the date on which the borrowings are incurred, to 5 per cent. of Net Asset Value. Borrowings will include any financing element of a Swap. The Company will not make use of hedging mechanisms.

The Company may utilise derivative instruments in pursuit of its investment policy subject to:

·     such derivative instruments only being utilised in respect of investments listed on the Saudi Arabian stock exchange;

·     such derivative instruments being designed to offer the holder a return linked to the performance of a particular underlying listed equity security;

·     a maximum underlying equity exposure limit of 15 per cent. of Net Asset Value (calculated at the time of investment); and

·     a policy of entering into derivative instruments with more than one counterparty in relation to an investment, where possible, to minimise counterparty risk. 

Policy in relation to cross-holdings

Cross-holdings in other listed or unlisted closed-ended investment funds that invest in Qatar or other countries in the GCC region will be limited to 10 per cent. of Net Asset Value at any time (calculated at the time of investment).

Investing restrictions

The investing restrictions for the Company are as follows:

(i)           Foreign ownership restrictions

Investments in most Qatar Exchange listed companies by persons other than Qatari citizens have an ownership restriction wherein the law precludes persons other than Qatari citizens from acquiring a certain proportion of a company's issued share capital. It is possible that the Company may have problems acquiring stock if the foreign ownership interest in one or more stocks reaches the allocated limit. Restrictions on foreign ownership may adversely impact the ability of the Company to invest in the local Qatari market and in other GCC markets.

(ii)          Investment Guidelines

The Company has established certain investment guidelines. These are as follows (all of which calculated at the time of investment):

·     No single investment position in a QE Index constituent may exceed the greater of (i) 15 per cent. of the Net Asset Value of the Company; or (ii) 125 per cent. of the constituent company's index capitalisation divided by the index capitalisation of the QE Index, as calculated by Bloomberg (or such other source as the Directors and Investment Manager may agree);

·     No single investment position in a company which is not a QE Index constituent may exceed 15 per cent. of the Net Asset Value of the Company;

·     No holding may exceed 5 per cent. of the outstanding shares in any one company; and

·     The Company may hold up to a maximum of 15 per cent. of its Net Asset Value outside Qatar, within the GCC region.

(iii)         Conflicts management

The Investment Manager, the Investment Adviser, their officers and other personnel are involved in other financial, investment or professional activities, which may on occasion give rise to conflicts of interest with the Company. The Investment Manager will have regard to its obligations under the Revised Investment Management Agreement to act in the best interests of the Company, and the Investment Adviser will have regard to its obligations under the Investment Advisory Adviser Agreement to act in the best interests of the Company, so far as is practicable having regard to their obligations to other clients, where potential conflicts of interest arise. The Investment Manager and the Investment Adviser will use all reasonable efforts to ensure that the Company has the opportunity to participate in potential investments each identifies that fall within the investment objective and strategies of the Company. Other than these restrictions set out above, and the requirement to invest in accordance with its investing policy, there are no other investing restrictions.

 

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