TIDMAJIT
RNS Number : 7968Z
abrdn Japan Investment Trust plc
18 May 2023
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT
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COULD BE UNLAWFUL .
The information communicated in this announcement is deemed to
constitute inside information as stipulated under the UK Version of
Market Abuse Regulation (EU) No. 596/2014 (as incorporated into UK
Law by virtue of the European Union (Withdrawal) Act 2018, and as
subsequently amended ("MAR"). Upon the publication of this
announcement, this information is considered to be in the public
domain.
18 May 2023
abrdn Japan Investment Trust plc
LEI: 5493007LN438OBLNLM64
Proposal for the Reconstruction and Voluntary Winding-up of the
Company
The Board of abrdn Japan Investment Trust plc (the "Company") is
pleased to announce that heads of terms have been agreed for a
proposed combination of the assets of the Company with the assets
of Nippon Active Value Fund plc ("NAVF") (the "Proposal"). It
believes the Proposal will benefit shareholders in the Company
("Shareholders") going forward. NAVF is a top performing UK
investment trust which targets attractive capital growth for its
shareholders through the active management of a focused portfolio
of quoted companies which have the majority of their operations in,
or revenue derived from, Japan and that have been identified by
NAVF's investment adviser, Rising Sun Management Limited ("Rising
Sun") as being undervalued .
The Proposal follows an extensive review by the Board of various
investment strategies in the Japan fund sector. The Board believes
this review demonstrated that the case for taking advantage of
recent corporate governance changes in Japan remains compelling,
particularly at the small cap end of the market, where NAVF has
performed strongly. The Proposal provides Shareholders with access
to a focused and differentiated investment opportunity with a
strong track record, a partial cash exit option and a larger
continuing investment trust with the prospect of improved
liquidity. The combination, if approved by each company's
shareholders, will be implemented through a scheme of
reconstruction under section 110 of the Insolvency Act 1986
resulting in the reconstruction and voluntary liquidation of the
Company.
Key benefits of the Proposal:
-- NAVF's active management approach, which differentiates it
from many of its peers, focuses on unlocking value in cash-rich
smaller Japanese companies, an approach which is well aligned with
recent developments in Japanese corporate governance and with its
structure as a listed UK investment trust. The concentrated
portfolio offers investors a high-conviction, uncorrelated
opportunity.
-- Since the date of its IPO (21 February 2020), NAVF has been
the top performing Japanese investment trust over the period to 31
March 2023, having delivered a NAV Total Return of 52.8 per cent.
in sterling terms.
-- Although NAVF has only been in existence for a little over
three years, members of its investment adviser's team have a track
record of over 30 years of investing in Japan.
-- NAVF has access to the Tokyo based research team of its
investment adviser's affiliate, Dalton Investments LLC and a
colleague with corporate legal expertise based in Japan. NAVF also
benefits from the option to have other clients of Dalton LLC invest
alongside it, which provides the opportunity to take more
meaningful stakes in companies and have more effective
conversations with investee company management.
-- NAVF is listed on the Specialist Fund Segment of the London
Stock Exchange. As part of the Proposal, it has undertaken to move
to a premium listing on the Main Market of the London Stock
Exchange, which is expected to improve the access of retail
investors to the enlarged fund and therefore its share rating and
liquidity.
-- Rising Sun, has demonstrated its conviction in the combined
fund by offering to underwrite the Company's current estimated
costs of the proposed merger up to GBP800,000 including advisory
and termination fees and associated VAT.
-- The Proposal will result in an inflow of capital into the
NAVF portfolio which can be deployed at an advantageous time in the
cycle, when recent government reforms support, more than ever in
the Board's view, NAVF's strategy of finding undervalued Japanese
listed companies and actively engaging with them to deliver returns
for shareholders.
-- The combination with NAVF is expected to improve the enlarged
fund's liquidity for all shareholders as well as spreading the
fixed costs of NAVF, as the continuing entity, over a larger pool
of assets.
-- The Proposal includes a cash exit opportunity of up to 25 per
cent. of the Company's shares in issue, providing Shareholders with
the ability to realise part (or potentially all) of their
investment at a 2 per cent. discount to formula asset value ("FAV")
per ordinary share.
Background to the Proposal
The Board, as an enthusiastic supporter of the attractions of
Japan's equity markets for investment opportunities, has long been
mindful of the need for the Company to deliver consistent
competitive investment performance, increased scale, greater
liquidity and a more modest discount. Increased investment
resources, an enhanced dividend policy, more focused marketing and
a change of corporate broker are some of the strategies the Board
has employed over the period in attempts to deliver for
Shareholders.
Every year the Company has a defined discount monitoring period,
being 90 days up to 31 March. The average discount for this year's
monitoring period was 13.6 per cent, above the target of 10.0 per
cent requiring a continuation vote to be put to Shareholders at the
next Annual General Meeting ("AGM") or a general meeting held
before the AGM. Over the 1, 3 and 5 years to 15 May 2023 the
Company's NAV total return has lagged the benchmark Topix Index (in
sterling terms) by 1.3, 12.8 and 9.2 per cent respectively and at
close of business on the same date the Company's market
capitalisation was GBP72.4 million.
In light of these factors and following consultation with a
number of the Company's major Shareholders, the Board undertook a
rigorous strategic review of the opportunities in the Japan fund
sector, to consider which investment strategy would be best for
Shareholders while remaining invested in the Japanese market. The
Board considered solutions among closed end investment trusts,
where greater liquidity and a lower discount can reasonably be
expected and where there is a clear, focused and differentiated
investment strategy which has delivered strong performance.
The Board's review concluded that the case for taking advantage
of the corporate governance changes in Japan is more compelling
than ever. Over recent decades, many Japanese companies have
accumulated significant cash reserves and have reduced their
reliance on debt financing. This has resulted in many companies
having excess capital and, consequently, generating lower returns
for equity investors. The Japanese authorities are seeking to
address this by implementing regulations to improve governance and
deliver improved returns to shareholders. The Board believes that
this provides a highly favourable background for an active
investment approach, particularly in smaller quoted companies.
The Proposal
Combination with NAVF
The Board has in principle agreed the terms for a combination of
the Company with NAVF. NAVF is a UK-listed investment trust, with
Rising Sun as its investment adviser. Gross assets were GBP158.7
million at 31 December 2022. It aims to provide its shareholders
with attractive capital growth through active management of a
focused portfolio of quoted companies which have the majority of
their operations in, or revenue derived from, Japan and that are
considered by Rising Sun to be undervalued .
The combination, if approved by each company's shareholders at
the requisite general meetings, will be implemented through a
scheme of reconstruction pursuant to section 110 of the Insolvency
Act 1986 ("section 110 scheme"), resulting in the voluntary
liquidation of the Company and the rollover of its assets into NAVF
in exchange for the issue of new NAVF shares to Shareholders who
roll their investment into the enlarged fund.
New NAVF shares issued to the Company's Shareholders will be
issued on a FAV-to-FAV basis. FAVs will be calculated using the
respective net asset values of each company, adjusted for the costs
payable by the relevant company in relation to the Proposal and any
dividends and distributions declared by each party which have a
record date prior to the effective date of the combination,
including the Company's dividend for the financial year ended 31
March 2023, as well as the cash exit option (for the Company).
The Board believes that many Shareholders will wish to continue
to be invested in the enlarged fund. The Board would encourage them
to roll over their interest into NAVF, as Karen Brade and David
Warren, being the members of the Board with shares in the Company,
intend to do with their own holdings. Nevertheless, given the
proposed change of investment strategy represented by the Proposal,
the Board believes it is appropriate to offer Shareholders the
opportunity to realise part, or potentially all, of their
investment in the Company via a cash exit for up to 25 per cent. of
the Company's shares in issue, at a 2 per cent. discount to FAV per
share of the Company.
The combination with NAVF is expected to improve the enlarged
fund's liquidity for all shareholders as well as spreading the
fixed costs of NAVF, as the continuing entity, over a larger pool
of assets.
Following completion of the Proposal, it is expected that a
director from the Board of the Company will join the Board of NAVF,
taking the total number of directors on NAVF's board to six.
Management arrangements
Rising Sun, the investment adviser to NAVF, has demonstrated its
conviction in the combined fund by offering to pay for the
Company's estimated costs of implementing the Proposal up to
GBP800,000. The Board believes this shows a strong commitment on
the part of Rising Sun to pursue positive outcomes for
shareholders.
Annual report and accounts and AGM
Your Board expects that the Company will publish its annual
report and accounts for the year to 31 March 2023 as usual in the
coming weeks. Normally, the notice of the Company's AGM would
accompany its Annual Report and the AGM would follow in June.
However, your Board also recognises that, as a result of the
average discount at which the Company's shares have traded
throughout the discount monitoring period to 31 March 2023, the
Company is required to put a continuation resolution to
Shareholders at or before the upcoming AGM. Given that the
Proposal, if approved by Shareholders, will result in the Company
winding up, the Board is anticipating subsuming the continuation
vote into the business of the general meetings which will be
convened to approve the Proposal. The Company's AGM is likely to be
delayed accordingly. The Board will update Shareholders on the
timings of shareholder meetings once these are confirmed via the
RNS.
City Code
In accordance with customary practice for section 110 schemes,
the City Code on Takeovers and Mergers is not expected to apply to
the combination of the Company and NAVF.
Approvals
Implementation of the Proposal is subject to the approval, inter
alia, of the Company's Shareholders as well as regulatory and tax
approvals and approval by the shareholders of NAVF. A circular
providing further details of the Proposal and convening general
meetings to seek the necessary Shareholder approvals will be
published by the Company as soon as practicable. It is anticipated
that the Proposal will be implemented in Q3 2023.
The Company has consulted with a number of its major
Shareholders who have indicated support for the Proposal. These
comprise circa 30 per cent. of the Company's share register.
Karen Brade, Chair of the Company, commented:
"After a very thorough and comprehensive review and selection
process, your Board has concluded that the Proposal represents a
highly desirable opportunity for Shareholders. We believe the most
compelling Japanese strategy, to achieve strong, uncorrelated
returns, is active engagement with undervalued small and mid-cap
companies. NAVF is already pursuing this strategy and we believe is
well positioned to deploy our additional capital and to generate
superior performance for Shareholders. We expect that the
combination with NAVF will also result in enhanced liquidity and a
stronger rating, with fees set at competitive levels. I commend the
Proposal to Shareholders."
Enquiries
abrdn Japan Karen Brade E: abrdnjapan@shorecap.co.uk
Shore Capital Robert Finlay/Rose Ramsden/Fiona T: 020 7408 4090
Conroy
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END
MSCNKOBDFBKDAPD
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May 18, 2023 02:00 ET (06:00 GMT)
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