Invesco Enh Inc Proposed Merger with City Merchants High Yield Trust Ltd
01 Março 2021 - 4:00AM
UK Regulatory
TIDMIPE
1 March 2021
Invesco Enhanced Income Limited
Proposed merger with City Merchants High Yield Trust Limited
Introduction
The Board of Invesco Enhanced Income Limited (the "Company" or "IPE") is
pleased to announce that it has signed Heads of Terms with the Board of City
Merchants High Yield Trust Limited ("CMHY") in respect of a proposed merger
with CMHY to be effected by way of a shareholder approved contractual scheme of
reconstruction (the "Scheme"). The Scheme will be implemented on a Formula
Asset Value ("FAV") for FAV basis.
It is proposed that IPE will be merged into CMHY and the current fund manager
of both IPE and CMHY, Rhys Davies, will continue as the fund manager of the
enlarged entity which will be renamed Invesco Bond Income Plus Limited ("BIPS")
which, based on the existing net assets of IPE and CMHY, would have net assets
in excess of £300 million.
(The above proposals are referred to herein as the "Proposals".)
The Board believes that the Proposals will enable IPE shareholders to benefit
from greater economies of scale that are expected to result from the enlarged
asset base of BIPS whilst retaining the same investment approach and manager.
Benefits of the Proposals to IPE Shareholders
The Board believes that the Proposals have a number of benefits for IPE
shareholders:
* Greater scale through the combination of similar investment portfolios:
Shareholders will be able to continue with the same fund management company
and investment manager with a similar investment style. Rhys Davies
currently manages both funds with a good track record and does so with a
similar investment objective of high income and a focus on high-yield
fixed-interest securities. There is a high degree of overlap between the
two investment portfolios.
* Lower management fee arrangements: In connection with the Proposals, it has
been agreed with Invesco Fund Managers Limited ("IFML") that the management
fee will be reduced to an annual amount equal to 0.65 per cent of the total
assets less current liabilities to reflect the larger size of BIPS. This is
a reduction from the IPE tiered annual management fee with a current
blended rate of 0.76 per cent of IPE's net assets; other costs will be
spread across a larger asset base resulting in further economies of scale.
* Sustainable income level: It is anticipated that the income yield payable
to IPE shareholders will be placed onto a more sustainable basis as a
consequence of the transaction. In addition, IPE shareholders will be paid
a special pre-liquidation dividend of 0.75 pence per IPE ordinary share
ahead of the transaction.
* Increase in scale and improved liquidity: The Board expects that the
enlarged entity will benefit from greater liquidity in its shares.
* Potential for strong share price rating: The Board believes that the above
benefits should assist the shares in maintaining a strong rating as the
greater scale of BIPS is expected to result in broader market appeal.
The Proposals will be subject to the approval by the shareholders of both IPE
and CMHY in addition to regulatory and tax approvals. A timetable and further
details of the Proposals will be announced in due course.
Invesco Bond Income Plus Limited
Investment Policy
The current CMHY investment objective and investment policy will not be amended
in connection with the Proposals. Following completion of the Scheme, it is
intended that the BIPS portfolio will continue to be managed on substantially
the same basis as is the case for IPE and CMHY currently, subject to any legal
or regulatory constraints.
Management Arrangements
It is proposed that Rhys Davies, the current fund manager of both IPE and CMHY,
will continue as fund manager of BIPS following shareholder approval of the
Proposals.
In connection with the Proposals, it has been agreed with IFML that the
management fee will be reduced to an annual amount equal to 0.65 per cent of
the total assets less current liabilities to reflect the larger size of BIPS.
In addition, the administration fee of £22,500 (plus RPI) currently payable by
CMHY to IFML shall no longer by payable by BIPS.
BIPS will enter into a separate marketing agreement with IFML pursuant to which
BIPS will pay an annual marketing fee of £45,000. This fee shall be reviewed by
the parties on an annual basis.
Dividend Policy
In connection with the Proposals, it is proposed that BIPS adopt a dividend
policy to target an annual dividend of 11.0 pence per share over a three year
period following the implementation of the Scheme by way of 4 quarterly
dividends of 2.75 pence per share. This is approximately equivalent to an
annual dividend of 4.25p per share for IPE shareholders[1]. It is anticipated
that dividends will be substantially covered by net income from the portfolio,
although BIPS will support the target dividend over this period through the use
of revenue and capital reserves if necessary. Thereafter, the Board of BIPS
shall give consideration to its ongoing dividend policy, taking into account
the annualised net income from its portfolio and the market environment at that
time.
This proposed dividend policy has been agreed between the Board of IPE and CMHY
in recognition of the differential in income distribution ratios adopted by
each of the two companies and is intended to provide a path towards a
longer-term sustainable income distribution to shareholders of BIPS.
Whilst the target dividend of 11.0 pence per share would result in a reduction
in the annual dividend income for IPE's shareholders compared with IPE's
historical dividend pay-out, IPE shareholders will be paid a special
pre-liquidation dividend of 0.75 pence per IPE ordinary share ahead of the
transaction, which is expected to be approximately equal to the reduction for
the first year following the merger.
IPE's dividend has been supported by the use of revenue reserves for several
years. As noted in IPE's 2020 Annual Financial Report, the medium term effects
of Covid-19 will likely bring a prolonged period of very low interest rates, in
light of which the Board would be reviewing whether the dividend policy is
sustainable, balancing the need for current income against the requirement to
preserve investors' capital to earn that income in coming years. The Board of
IPE has taken this into account when considering the dividend proposals set out
above and believes they will continue to provide an attractive level of income
for IPE shareholders over the long-term.
Gearing
While the maximum gearing level for BIPS will remain at the same level as
CMHY's existing investment policy of 30 per cent of total assets, it is
intended that, immediately following the implementation of the Scheme, the net
gearing of the combined portfolio will be approximately 10 per cent of net
assets.
Proposed Board
Following completion of the Proposals, BIPS will have Board representation from
both IPE and CMHY and will be chaired by Tim Scholefield, current Chairman of
CMHY.
Expected timetable
It is currently envisaged that a shareholder circular and notice of the general
meeting setting out the details of the Scheme and seeking shareholder approval
will be sent to shareholders in April 2021. The relevant general meetings are
also expected to be convened in May 2021.
The Chairman of IPE, Kate Bolsover, commented:
"We believe the combination of the two trusts to form Invesco Bond Income Plus
("BIPS") to be beneficial and appropriate for IPE shareholders given the
greater scale and lower ongoing charges. The Board believes the Proposals will
provide an attractive and sustainable level of income for IPE shareholders over
the long-term whilst also promoting greater liquidity in its shares and a
strong long-term share price rating. The continuation of investment approach
which will be led by the same fund manager and fund management house underpins
the clear rationale for the merger, allowing shareholders to benefit from the
manager's strong track record."
For further information please contact:
JTC Fund Solutions (Jersey) Limited
+44 (0) 15 3470 0000
Hilary Jones
Invesco Asset Management Limited
+44 (0) 20 3753 1000
Will Ellis
Guy Short
J.P. Morgan Cazenove (Financial Advisor to IPE)+44 (0) 20 7742 4000
William Simmonds
Alexis Owuadey
Winterflood Securities (Financial Advisor CMHY)+44 (0) 20 3100 0000
Neil Langford
Hande Derinkok
Important Information
This announcement contains information that is inside information for the
purposes of the Market Abuse Regulation (EU) No. 596/2014. The person
responsible for arranging for the release of this announcement on behalf of IPE
is Hilary Jones of JTC Fund Solutions (Jersey) Limited.
[1] The exact equivalent annual dividend will depend on the relative Net Asset
Values on the calculation date
END
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