REG - abrdn Japan IT - Publication of a Circular

abrdn Japan Investment TrustAnnouncement

01/09/2023 12:30

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RNS Number : 1490L  abrdn Japan Investment Trust plc  01 September 2023

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1 September 2023

ABRDN JAPAN INVESTMENT TRUST PLC

LEI: 5493007LN438OBLNLM64

Publication of a circular in relation to the recommended proposals for the
members' voluntary winding up of the Company and combination with Nippon
Active Value Fund plc

The Board of abrdn Japan Investment Trust PLC announces that it has today
published a shareholder circular (the "Circular") setting out proposals for
the reconstruction and voluntary winding-up of the Company.

 

Introduction

 

On 18 May 2023, the Board announced that it had agreed heads of terms with
Nippon Active Value Fund plc ("NAVF") in respect of a proposed merger of the
Company with NAVF to be effected by way of a scheme of reconstruction and
members' voluntary winding up of the Company under Section 110 of the
Insolvency Act 1986 (the "Scheme" or "AJIT Scheme") and the issue of New NAVF
Shares to Shareholders who elect, or are deemed to have elected, to roll over
their investments into NAVF (the "Proposals"). The background and rationale to
the Proposals is set out below.

In addition to the AJIT Scheme, the NAVF Board announced on 11 August 2023
details of a proposed combination of NAVF and Atlantis Japan Growth Fund
Limited ("AJG" and "the AJG Scheme"), which is in addition to the Proposals of
the Company and NAVF. The principal terms of the NAVF and AJG combination are
identical to those agreed between the Company and NAVF.  Neither combination
is conditional upon the other completing.

The Board welcomes news of the AJG Scheme as a second endorsement of the
investment strategy of Rising Sun Management Ltd ("Rising Sun"), investment
adviser to NAVF. Furthermore, the Board believes it represents the potential
for a further scaling up of the combined company with the consequent benefits
of greater liquidity for Shareholders as well as the spreading of the fixed
costs of NAVF over an even larger base.

The Proposals, which are conditional upon, amongst other things, the approval
of Shareholders at the General Meetings, comprise a members' voluntary
liquidation and a scheme of reconstruction of the Company under which
Shareholders will be entitled to elect to receive in respect of some or all of
their Shares:

(a)   New NAVF Shares (the "Rollover Option"); and/or

(b)   cash (subject to an overall limit of 25 per cent. of the Ordinary
Shares in issue) (the "Cash Option").

The default option under the Scheme is for eligible Shareholders to receive
New NAVF Shares meaning that Shareholders who, in respect of all or part of
their holding of Shares, do not make a valid Election or who do not make an
Election at all under the Scheme will be deemed to have elected for New NAVF
Shares in respect of such holding.

In order to effect the Scheme and the change in respect of the Company's
continuation vote as explained below, Shareholder approval is required at the
First General Meeting. If the Scheme is approved at the First General Meeting,
Shareholder approval is required at the Second General Meeting to wind up the
Company voluntarily and to appoint the Liquidators and grant authority to them
to implement the Scheme.   Further details of the Scheme Resolutions to be
proposed at the General Meetings, the Resolutions to be proposed at the Annual
General Meeting and the expected timetable associated with the Proposals are
provided below.

The Board considers the Proposals to be in the best interests of Shareholders
as a whole and recommends that Shareholders vote in favour of the Resolutions
required to implement the Proposals at the General Meetings.

Background to and rationale for the Proposals

The Proposals follow 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 Proposals provide
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 completed, 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.

Subject to the adoption of the New NAVF Investment Policy,  NAVF's investment
objective will be to provide its shareholders with attractive long-term
capital growth primarily through the active management of a focused portfolio
of quoted companies that have the majority of their operations in, or revenue
derived from, Japan, or a majority of whose consolidated net assets are held
in Japan, or that are included in the TOPIX, and that have been identified by
NAVF's investment adviser, Rising Sun as being undervalued.

The Board and its advisers concluded that the Scheme will offer Shareholders
the best way to continue their investment in a closed-ended investment vehicle
with exposure to the attractive fundamental drivers operating in the Japanese
market, but in a vehicle which has delivered top ranking performance and which
has a much better rating than the Company whose Ordinary Shares have traded at
a persistently wide discount to net asset value historically.  The Proposals
also allow Shareholders the opportunity for a partial cash exit at a 2 per
cent. discount to FAV per AJIT Share.

Under the Articles of the Company there is a requirement to put a continuation
vote to Shareholders at or before the next upcoming AGM. This is due to a
technical provision of the Articles which means that if the Company's Ordinary
Shares trade at an average discount wider than 10 per cent. over the discount
monitoring period to 31 March 2023, a continuation vote is triggered (the
"Continuation Vote"). As noted in the announcement of 18 May, it is proposed
to subsume the continuation vote into the business of the General Meetings
that are being held for the purpose of the Proposals. It is proposed that the
Continuation Vote provisions are removed in the amended articles of
association to be tabled as part of the Proposals. If the Scheme does not go
ahead, these amendments will not be effective and the requirement for the
Continuation Vote will remain in the Company's Articles and be voted upon at
the AGM which is due to take place immediately after the First General
Meeting. The next potential trigger point after this AGM will be in respect of
FY23-24. As noted below, if the Scheme does not go ahead, the Board will in
any case reassess the options available to the Company.

Benefits of the Proposals

The Directors believe that the Proposals will have the following benefits for
Shareholders:

(a)           NAVF active management - NAVF's active management
approach, which differentiates it from many of its peers, focuses on unlocking
value in cash-rich small and mid-cap 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 current NAVF
portfolio offers investors a high-conviction uncorrelated opportunity.

(b)           Premium listing - In connection with (but prior to
completion of) the Scheme, NAVF is proposing to migrate from the Specialist
Fund Segment of the Main Market of the London Stock Exchange 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. The Scheme is conditional on the Migration, but as
noted above not on the completion of the AJG Scheme.

(c)           Cost contribution - Rising Sun, the investment manager
of NAVF, has demonstrated its conviction in the combined fund by offering to
underwrite the Company's current estimated costs of the proposed merger up to
£800,000 including advisory and termination fees and associated VAT . The
current estimate of costs associated with the Proposals is approximately
£725,000 inclusive of VAT and therefore it is likely that Shareholders will
not bear any of the costs of the Proposals.

(d)           Injection of capital - The Proposals will result in an
inflow of capital into NAVF 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 improved returns for shareholders.

(e)           Increase in scale, spread of costs - 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. As at the Latest Practicable Date, the
net asset value of the Company was £83.4m and the net asset value of NAVF was
£168.0m.

(f)            Opportunity for substantial cash exit - The
Proposals include 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 FAV
per AJIT Share.

(g)           Uplift in market value - The Proposals also have the
potential to deliver an uplift in the market value of a Shareholder's
investment due to the narrower discount to net asset value at which the NAVF
Shares might reasonably be expected to trade over the longer term.

NAVF

Shareholders who elect (or are deemed to elect) for the Rollover Option will
be electing to receive New NAVF Shares.

NAVF is a closed-ended investment company incorporated in England and Wales on
22 October 2019 as a public limited company, registered number 12275668.  It
is an investment company as defined by section 833 of the Companies Act and
operates as an investment trust within the meaning of Chapter 4 of Part 24 of
the Corporation Tax Act 2010.

The NAVF Shares were first admitted to trading on the Specialist Fund Segment
on 21 February 2020. It is expected that the NAVF Shares will be admitted to
the Official List and to trading on the premium segment of the Main Market on
21 September 2023. The Scheme is conditional upon the Migration.

NAVF has appointed FundRock Management Company (Guernsey) Limited as its
alternative investment fund manager ("AIFM") to provide overall portfolio and
risk management services to NAVF. The AIFM and NAVF have appointed Rising Sun
as investment adviser to provide investment advisory services to the AIFM and
NAVF in respect of NAVF's portfolio of investments.

NAVF seeks to achieve its investment objective by taking advantage of the
corporate governance reforms in Japan and utilising the increased focus on
good corporate governance to engage with management teams, unlock value and
encourage investee companies to improve returns to their shareholders.

It is expected that Claire Boyle, the Chair of the Company's audit committee,
will join the NAVF Board on completion of the Scheme.

Conditions of the Proposals

Implementation of the Proposals is subject to a number of conditions,
including:

(h)           Completion of the Migration (which is subject to NAVF
Shareholder approval);

(i)            the recommendation of the boards of the Company and
NAVF to proceed with the Proposals which may be withdrawn at any time
(including, without limit, for material adverse change reasons);

(j)            the passing of the Resolutions to be proposed at the
First General Meeting and the Resolution to be proposed at the Second General
Meeting, or any adjournment of those meetings and upon any conditions of such
Resolutions being fulfilled;

(k)           the NAVF Share Allotment Authorities relating, inter
alia, to the Scheme being approved by NAVF Shareholders and not having been
revoked or superseded; and

(l)            approval by the FCA of the publication of the NAVF
Prospectus.

Any condition may, subject to compliance with legal requirements, be waived
with the mutual agreement of each of the Company, NAVF and Rising Sun at any
time up to completion of the Scheme.

If any condition is not satisfied (or waived), the Proposals will not become
effective, the Company will not proceed with the winding-up and instead will
continue in existence. Shareholders of the Company will bear any abort costs
incurred if the Proposals do not become effective. In these circumstances, the
Directors will reassess the options available to the Company at that time.

Costs of implementing the Scheme

The costs of the Scheme payable by the Company are expected to be
approximately £725,000 inclusive of VAT which, for the purposes of this
calculation, is assumed to be irrecoverable where applicable. Rising Sun has
agreed to pay the Company's costs of the Scheme up to £800,000, and therefore
it is likely that Shareholders will not bear any of the costs of the Scheme.
To the extent that the Company's costs of the Scheme are above £800,000, the
Company will bear these costs.

The estimate of the Company's costs excludes the Liquidators' retention to
cover unknown liabilities (estimated at £100,000), and does not take account
of any dealing costs which will be incurred by the Company in disposing of
assets in order to repay the existing debt facilities, fund the Cash Option,
and fund the Liquidation Pool.

Except for these purposes, it is expected that AJIT will not liquidate its
portfolio but will remain invested in accordance with its published investment
policy, and will largely transfer its portfolio to NAVF in specie rather than
as cash or cash equivalents. This structure has been agreed to avoid
unnecessary dealing costs in connection with the disposal of the AJIT
portfolio and to avoid unnecessary periods when Shareholders' funds are not
invested in the Japanese market.

Although there are not expected to be any costs incurred in connection with
the realignment of the portfolio in respect of the Rollover Pool, there may be
dealing costs incurred by NAVF following the completion of the Scheme to the
extent that NAVF disposes of the existing AJIT portfolio and redeploys into
activist opportunities.

In the event that the Scheme does not proceed then each party will bear their
own costs in connection with the Proposals.

The Liquidators' retention is estimated at £100,000 and will be retained by
the Liquidators to meet any unknown or unascertained liabilities of the
Company. To the extent that some or all of the Liquidators' retention remains
when the Liquidators decide to close the liquidation, this will be returned to
Shareholders that were on the Register as at the Record Date.

Entitlements under the Scheme

Under the Scheme, each Shareholder on the Register on the Record Date may
elect to receive:

(m)          such number of New NAVF Shares as have a value equal to
the proportion of the Rollover Pool attributable to the number of Ordinary
Shares so Elected, for the Rollover Option; or

(n)           subject to an overall 25 per cent. cap on such
Elections (in aggregate), an amount of cash equal to the Cash NAV per Share
multiplied by the number of Ordinary Shares so Elected, being the Cash Option.

Shareholders can make different Elections in respect of different parts of
their holdings.

The default option under the Scheme is to receive New NAVF Shares, meaning
that eligible Shareholders who, in respect of all or part of their holding of
Ordinary Shares, do not make a valid Election, or who do not make an Election,
will be deemed to have elected for New NAVF Shares in respect of such holding.

After allocating cash and other assets to the Liquidation Pool to meet all
known and unknown liabilities of the Company and other contingencies,
including the retention and the entitlements of any Dissenting Shareholders,
there shall be appropriated to the Cash Pool and the Rollover Pool the
remaining assets of the Company in the manner described in the Circular. Such
appropriation includes the application of a discount of 2 per cent. to FAV per
AJIT Share in relation to those Shares in respect of which Shareholders have
elected to receive cash. The value arising from the application of the Cash
Option Discount shall be allocated to the Rollover Pool for the benefit of
Shareholders electing, or deemed to have elected for, the Rollover Option. In
the week commencing 16 October 2023, it is expected that the Liquidators shall
distribute to Shareholders who have elected for the Cash Option their Cash
Entitlements, being rounded down to the nearest penny.

For illustrative purposes only, had the Calculation Date been 5.00 p.m. on the
Latest Practicable Date and assuming that no Shareholders exercise their right
to dissent from participation in the Scheme, after deduction of the Dividend
and assuming that the maximum amount is elected for the Cash Option, the AJIT
FAV per Share would have been 673.083880 pence and the NAVF FAV per Share
would have been 148.153178  pence which, for the Rollover Option, would have
produced a conversion ratio of 4.543162 and, in aggregate, 42,360,524 New NAVF
Shares would have been issued to Shareholders who elected for the Rollover
Option under the Scheme.

The above figures are for illustrative purposes only and do not represent
forecasts.  The AJIT FAV per Share and NAVF FAV per Share and Shareholders'
entitlements under the Proposals may materially change up to the Effective
Date as a result of, inter alia, changes in the value of investments.

Scaling back of Elections for the Cash Option

The maximum number of Ordinary Shares (in aggregate) that can be elected for
the Cash Option is 25 per cent. of the total number of Ordinary Shares in
issue (excluding Ordinary Shares held in treasury).  Shareholders are
entitled to elect for the Cash Option in respect of more than 25 per cent. of
their individual holdings of Ordinary Shares (the "Basic Entitlement", such
excess amount being an "Excess Application").  However, if aggregate
Elections are made for the Cash Option which exceed 25 per cent. of the issued
Ordinary Shares (excluding Ordinary Shares held in treasury), Shareholders who
have made an Election for the Cash Option in excess of their Basic Entitlement
shall have their Excess Applications scaled back in a manner which is, as near
as practicable, pro rata to the number of Shares elected under such Excess
Applications, resulting in such Shareholders (other than Excluded
Shareholders) receiving New NAVF Shares instead of cash in respect of part of
their holding of Ordinary Shares.

dividend

As an investment trust, the Company is not permitted to retain more than 15
per cent. of its income in any accounting period. If the Scheme is successful,
that condition requires to be met in the shortened accounting period
commencing on 1 April 2023 and ending on the Effective Date. In order to meet
this requirement, the Company is separately announcing today an interim
dividend of 3 pence per Ordinary Share, to be paid to Shareholders on the
Register as at 15 September 2023. The expected payment date for the Dividend
is 29 September 2023.

Apart from the Dividend, it is not anticipated that there will be any
dividends paid by the Company in relation to the current financial period or
for the period up to the liquidation of the Company.

GENERAL meetings

The implementation of the Proposals will require two general meetings of the
Company.  The notices convening the First General Meeting (to be held at 4.00
p.m. on 28 September 2023) and the Second General Meeting (to be held at 3.00
p.m. on 10 October 2023) are set out in the Circular.

annual general meeting

Under the Companies Act, the Company is required to hold its annual general
meeting within six months of its financial year end. It is proposed that this
technically required AGM will follow the First General Meeting. This will
include standard AGM resolutions to (amongst other things) reappoint the
Directors, approve the Directors' Remuneration Policy, re-elect the Directors
and renew its share allotment and share buyback authorities.

The Company's AGM will be held at 4.30 p.m. on 28 September 2023 at Dentons UK
& Middle East LLP, 1 Fleet Place, London EC4M 7WS, which is immediately
following the First General Meeting.

If the Scheme Resolutions at the First General Meeting are not passed, as
noted above the Continuation Vote will be held at the AGM.
 

The Board recommend voting in favour of all the resolutions to be put forward
at the AGM and believe they are in the best interests of the Company. If the
Scheme Resolutions do not pass, the Board support the continuation of the
Company but as noted in this document the Board will consider carefully the
future options for  the Company.

 

Recommendation and voting intentions

The Board considers the Proposals and the Resolutions to be proposed at the
General Meetings to be in the best interests of Shareholders as a whole.

Accordingly, the Board unanimously recommends Shareholders to vote in favour
of the Resolutions, as the Directors intend to do in respect of their own
beneficial holdings, which total 5,313 Ordinary Shares (representing 0.043 per
cent. of the Company's total voting rights) as at the Latest Practicable Date.
The Directors who hold Ordinary Shares (being Karen Brade and David Warren)
intend to roll over their entire beneficial holdings of Shares into New NAVF
Shares.

 

EXPECTED TIMETABLE

                                                                                 2023
 Ex dividend date for the Dividend                                               14 September
 Record date for the Dividend                                                    15 September
 Latest time and date for receipt of Forms of Direction in respect of the First  4.00 p.m. on 21 September
 General Meeting
 Lates time and date for receipt of Forms of Direction in respect of the Annual  4.30 p.m. on 21 September
 General Meeting
 Latest time and date for receipt of Forms of Proxy and CREST voting             4.00 p.m. on 26 September
 instructions in respect of the First General Meeting
 Latest time and date for receipt of Forms of Proxy and CREST voting             4.30 p.m. on 26 September
 instructions in respect of the Annual General Meeting
 First General Meeting                                                           4.00 p.m. on 28 September
 Annual General Meeting                                                          4.30 p.m. on 28 September
 Dividend paid to Shareholders                                                   29 September
 Latest time and date for receipt of Forms of Election for Shareholders who      1.00 p.m. on 2 October
 hold Ordinary Shares in a Share Plan
 Latest time and date for receipt of Forms of Direction in respect of the        3.00 p.m. on 3 October
 Second General Meeting
 Latest time and date for receipt of Forms of Election and TTE Instructions      1.00 p.m. on 5 October
 Calculation Date                                                                5.00 p.m. on 5 October
 Record date for entitlements under the Scheme                                   6.00 p.m. on 5 October
 Ordinary Shares disabled in CREST (for settlement)                              close of business on 5 October
 Latest time and date for receipt of Forms of Proxy in respect of the Second     3.00 p.m. on 6 October
 General Meeting
 Reclassification of the Ordinary Shares                                         8.00 a.m. on 9 October
 Suspension of listing of Reclassified Shares                                    7.30 a.m. on 10 October
 Second General Meeting                                                          3.00 p.m. on 10 October
 Appointment of the Liquidators                                                  10 October
 Effective Date for implementation of the Scheme                                 10 October
 Announcement of the results of Elections, the AJIT FAV per Share, the Cash NAV  10 October
 per Share and the NAVF FAV per Share
 CREST accounts credited with, and dealings commence in, New NAVF Shares         8.00 a.m. on 11 October
 Certificates despatched in respect of New NAVF Shares during or as soon as      week commencing 16 October
 practicable after
 Cheques despatched to Shareholders who elect for the Cash Option in accordance  week commencing 16 October
 with their entitlements and CREST accounts credited with cash
 Cancellation of listing of Reclassified Shares                                  as soon as practicable after the Effective Date

Note: All references to time in the Circular are to UK time. Each of the
times and dates in the above expected timetable (other than in relation to
the General Meetings) may be extended or brought forward. If any of the above
times and/or dates change, the revised time(s)
and/ordate(s) will be notiï¬ed to Shareholders by an announcement through a Regulatory Information Service.

 

A copy of the Circular has been submitted to the National Storage Mechanism
and will shortly be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. The Circular will
also shortly be available on the Company's website at
www.abrdnjapan.co.uk.co.uk where further information on the Company can also
be found.

 

Capitalised terms used but not defined in this announcement will have the same
meaning as set out in the Circular dated 1 September 2023.

 

Enquiries

 

 abrdn Japan    Karen Brade                                                   E:  abrdnjapan@shorecap.co.uk
 Shore Capital  Robert Finlay/Rose Ramsden/Angus Murphy (Corporate Advisory)  T: 020 7408 4090

                Fiona Conroy (Corporate Broking)

 

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