REG - Asia Dragon Trust - Proposed Combination with abrdn New Dawn Inv Trust

Asia Dragon TrustAnnouncement

21/07/2023 07:00

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RNS Number : 7235G  Asia Dragon Trust PLC  21 July 2023

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE,
PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN
OR INTO, THE UNITED STATES OF AMERICA (INCLUDING ITS TERRITORIES AND
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THE SAME WOULD BE UNLAWFUL

This announcement is not an offer to sell, or a solicitation of an offer to
acquire, securities in the United States or in any other jurisdiction in
which the same would be unlawful. Neither this announcement nor any part of it
shall form the basis of or be relied on in connection with or act as an
inducement to enter into any contract or commitment whatsoever.

 

21 July 2023

Asia Dragon Trust plc

 

Legal Entity Identifier: 549300W4KB0D75D1N730

 

Proposed combination with abrdn New Dawn Investment Trust plc

 

Introduction

 

The Board of Asia Dragon Trust plc ("DGN" or the "Company") is pleased to
announce that it has agreed heads of terms with the Board of abrdn New Dawn
Investment Trust plc ("ABD") in respect of a proposed combination of ABD with
DGN. The combination, if approved by each company's shareholders, will be
effected by way of a scheme of reconstruction and winding up of ABD under
section 110 of the Insolvency Act 1986 and the associated transfer of part of
the assets and undertaking of ABD to DGN in exchange for the issue of new
ordinary shares in DGN ("New DGN Shares") (the "Scheme").

 

Following implementation of the Scheme, the enlarged DGN will continue to be
managed by abrdn Fund Managers Limited ("AFML"). However, in connection with
the Scheme, the DGN Board will propose certain amendments to the Company's
investment policy (the "Investment Policy Change") which will be subject to
FCA and shareholder approval. The principal amendment will be to permit
investment in Australasia in order to provide the management team with greater
geographic flexibility. The portfolio managers of the enlarged DGN will be
Pruksa Iamthongthong and James Thom.

 

The Scheme and the Investment Policy Change are together referred to as the
"Proposals".

 

The Board of DGN believes that, if the Proposals are implemented, DGN
shareholders will benefit from, amongst other things, the greater economies of
scale that are expected to result from the enlarged asset base, including
greater secondary market liquidity in DGN shares and cost efficiencies.

 

The Proposals will be subject to approval by the shareholders of both DGN and
ABD in addition to regulatory and tax approvals. DGN and ABD have received
irrevocable undertakings to support the Proposals from shareholders
representing 29.7 per cent. of DGN's issued share capital and 27.0 per cent.
of ABD's issued share capital (both measured as at 19 July 2023).

 

Summary of the Scheme

 

The Proposals will be effected by way of a scheme of reconstruction of ABD
under section 110 of the Insolvency Act 1986, resulting in the voluntary
winding up of ABD and the transfer of part of ABD's assets to DGN on a Formula
Asset Value ("FAV") for FAV basis. In accordance with customary practice for
such transactions involving investment trusts, the City Code on Takeovers and
Mergers is not expected to apply to the Proposals. However, the Proposals will
be subject to other regulatory and tax approvals. The Proposals will also be
subject to, inter alia, approval by the shareholders of each of DGN and ABD.

 

Under the Scheme, ABD shareholders will be entitled to elect to receive in
respect of some or all of their ABD shares:

·    New DGN Shares (the "Rollover Option"); and/or

·    cash (the "Cash Option").

 

The Cash Option is limited to 25 per cent. of ABD's shares in issue (excluding
treasury shares). Should total elections for the Cash Option exceed 25 per
cent. of ABD's shares in issue (excluding treasury shares), excess elections
for the Cash Option will be scaled back into New DGN Shares on a pro rata
basis.

 

The Cash Option will be offered at a discount of 2 per cent. to the ABD FAV
(the "Cash Discount") less the costs of realising the assets allocated to the
cash pool for the benefit of the shareholders electing for the Cash Option.
The Cash Discount will be for the benefit of the enlarged DGN.

 

New DGN Shares will be issued as the default option under the Scheme in the
event that ABD shareholders do not make a valid election under the Scheme or
to the extent elections for the Cash Option are scaled back as a result of the
Cash Option being oversubscribed.

 

Rationale and Benefits of the Scheme

 

DGN and ABD both invest in the Asia Pacific (ex-Japan) region and both are
managed by AFML with a high level of commonality across their shareholder
bases. In light of these similarities, the Boards believe a combination of the
companies will create an enlarged vehicle that offers similar investment
exposure for each set of shareholders while offering shareholders in the
enlarged DGN the following benefits.

 

·    Enhanced profile: The enlarged DGN is expected to have net assets in
excess of £700 million (as at 19 July 2023), creating a leading closed-ended
vehicle for investment in the Asia Pacific (ex-Japan) region. On the basis of
the current market capitalisations of DGN and ABD, the enlarged DGN would be
expected to qualify for inclusion in the FTSE 250 raising the profile and
enhancing the marketability of the enlarged DGN.

 

·    Lower management fee: AFML has agreed that, with effect from the
admission to listing and trading of the New DGN Shares ("Admission"), the
management fee payable by DGN to AFML will be reduced to 0.75 per cent.
(currently 0.85 per cent.) on the initial £350 million of DGN's net assets
and 0.5 per cent. on DGN's net assets in excess of £350 million. In addition,
DGN will benefit from lower costs following implementation of the Proposals as
DGN's tiered fee structure will have the effect of reducing the weighted
average fee given the increase in DGN's net assets.

 

·    Lower ongoing charges: Existing and new shareholders in DGN are
expected to benefit from a lower ongoing expense ratio with the Company's
fixed costs spread over a larger asset base.

 

·    Enhanced liquidity: The scale of the enlarged company is expected to
improve the secondary market liquidity of DGN's shares.

 

·    Shareholder register: The Proposals will allow a number of
shareholders to consolidate their holdings across the two companies while also
creating a more diversified shareholder base through a combination of the
balance of the two share registers.

 

·    Contribution to costs: As described below, AFML has agreed to make a
cost contribution in respect of the Proposals which, in addition to the
contribution to the costs from the Cash Discount described above, is expected
to offset the direct transaction costs for DGN shareholders.

 

Costs of the Proposals and AFML Contribution

 

Each company intends to bear its own costs incurred in relation to the
Proposals and the direct costs will be reflected in the FAV for each company.

 

AFML has agreed to make a contribution to the costs of the Scheme by means of
a reduction in the management fee payable by DGN to AFML. The fee reduction
will constitute a waiver of the management fee that would otherwise be payable
to AFML in respect of the assets transferred by ABD to DGN pursuant to the
Scheme for the first six months following the completion of the Scheme (the
"AFML Contribution"). The AFML Contribution will be for the benefit of the
shareholders of the enlarged DGN following implementation of the Scheme.

 

Management Fees

 

As noted above, AFML has agreed that, with effect from Admission, the
management fee payable by DGN to AFML will be reduced to 0.75 per cent. on the
initial £350m of net assets and 0.5 per cent. on net assets in excess of
£350m. This is a reduction from the existing DGN management fee of 0.85 per
cent. on the initial £350m of net assets, reducing to 0.5 per cent. on net
assets in excess of £350m.

 

Change of Investment Policy

 

It is intended that DGN will seek shareholder approval for the Investment
Policy Change at the general meeting to be held by the Company in connection
with the Proposals. The proposed amendments to the DGN investment policy will,
inter alia, allow for investment in Australasia in order to provide the
management team with greater geographic flexibility, which is in line with
ABD's current investment policy. DGN's existing benchmark comparative index
(MSCI AC Asia (ex-Japan) Index) will be retained. In addition, other
modernising and clarificatory amendments will also be proposed. The proposed
amended investment policy will be set out in full in the circular to be sent
to shareholders in connection with the Proposals.

 

Performance Related Conditional Tender Offer

 

DGN offers a five-yearly performance related conditional tender ("Conditional
Tender") with the current performance period running from 1 September 2021 to
31 August 2026 ("2026 CTO"). It is proposed that, in the light of the
Proposals and conditional on the Scheme being implemented, the 2026 CTO will
be amended such that, in the event DGN underperforms the Benchmark over the
performance period, DGN will offer shareholders the opportunity to tender up
to a maximum of 15 per cent. of their shares; a reduction from the maximum of
25 per cent. previously proposed.  This reflects the revised Conditional
Tender being of broadly a similar size to that previously proposed for the
2026 CTO, given the greater scale of the enlarged DGN.

 

 

 

Board Structure

 

Following completion of the Proposals, it is expected that the Board of the
enlarged DGN will consist of eight directors and will include the five
existing DGN directors and three of the existing ABD directors. After a
transition period that will end on the six month anniversary of Admission, it
is intended that the Board of the enlarged DGN will reduce to five directors
consisting of three existing DGN directors and two existing ABD directors.

 

Expected Timetable

 

A circular to shareholders of the Company, providing further details of the
Proposals and convening a general meeting to approve the Proposals, and a
prospectus in respect of the issue of New DGN Shares in connection with the
Scheme are expected to be published by the Company in September 2023. The
Proposals are anticipated to become effective in October 2023.

 

The Chairman of DGN, James Will, commented:

 

"The Proposals will create a combined entity with significantly greater scale
through the bringing together of two trusts with a similar investment approach
and management style and the same investment manager, while also providing the
Company with greater investment flexibility. The transaction is expected to
lead to improved liquidity in the Company's shares and a lower ongoing charges
ratio, further benefiting from the tiered fee structure and reduced management
fee arrangements. We expect the enlarged Company will be of sufficient size to
enter the FTSE250 in due course and will allow abrdn to focus its marketing
efforts on one all-cap growth trust in the Asia Pacific (ex-Japan) sector,
rather than two; all of which has the potential to broaden investor interest
in the Company over time."

 

For further information please contact:

 

 Asia Dragon Trust plc           Contact via AFML

 James Will

 abrdn Fund Managers Limited     +44 (0) 20 7463 6223

 William Hemmings

 Luke Mason                      +44 (0) 20 7463 5971

 Stephanie Hocking               +44 (0) 7514 064 988

 Winterflood Securities Limited  +44 (0) 20 3100 0000

 Neil Langford

 Haris Khawaja

 

Important Information

 

This announcement contains information that is inside information for the
purposes of Article 7 of the UK version of Regulation (EU) No. 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as
amended (the Market Abuse Regulation). The person responsible for arranging
for the release of this announcement on behalf of Asia Dragon Trust plc is
Charles Mearns of abrdn Holdings Limited.

 

This announcement is not for publication or distribution, directly or
indirectly, in or into the United States of America.  This announcement is
not an offer of securities for sale into the United States.  The securities
referred to herein have not been and will not be registered under the U.S.
Securities Act of 1933, as amended, and may not be offered or sold in the
United States, except pursuant to an applicable exemption from registration.
No public offering of securities is being made in the United States.

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