REG-Atlantis Japan Growth Fund Ltd: Proposal for the Reconstruction and Voluntary Winding-up of Company

Atlantis Japan Growth FundAnnouncement

11/08/2023 07:15

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 any member state of the European Economic Area, the United States,
Australia, Canada, Japan or the Republic of South Africa or any jurisdiction
for which the same could be unlawful.

This announcement contains inside information for the purposes of Article 7 of
Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by
virtue of the European Union (Withdrawal) Act 2018 and as amended ("MAR"), and
is disclosed in accordance with the Company's obligations under Article 17 of
MAR.

 

ATLANTIS JAPAN GROWTH FUND LIMITED

("AJGF" or the "Company")

(A closed-ended investment company incorporated in Guernsey with registration
number 30709)

LEI: 54930041W0LDG00PGL69

Proposal for the Reconstruction and Voluntary Winding-up of the Company

11 August 2023

 

The Board of Atlantis Japan Growth Fund Limited 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").

The Board has been actively reviewing options to address the relative small
size of the Company, which has been driven in part by the market rotation away
from the growth investment style and recent disappointing relative
performance. These issues have made it difficult to attract significant demand
for the Company's shares and, absent any action, the discount at which the
shares trade to net asset value is likely to persist.

NAVF is a 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 provides the Company's shareholders ("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
pursuant to section 391(1)(b) of the Companies (Guernsey) Law, 2008 ("Section
391(1)(b) Scheme"), resulting in the reconstruction and members' 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 aligned with recent developments in Japanese corporate
governance and with NAVF's structure as a listed UK investment trust.  The
highly selective portfolio of NAVF 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 9 August 2023, having
delivered a NAV Total Return of 45.6 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, pursuing an activist strategy in recent years. 
* NAVF has access to the Tokyo based research team of its investment adviser's
affiliate, Dalton Investments LLC, and corporate legal expertise based in
Japan. NAVF also benefits from the potential to have other clients of Dalton
Investments LLC invest alongside it, which provides the opportunity to take
more meaningful stakes in companies and have more effective conversations with
investee company management.
* As announced on 18 May 2023 in connection with the proposed combination of
abrdn Japan Investment Trust plc and NAVF (the "AJIT Combination"), NAVF has
undertaken to move to a premium listing on the Main Market of the London Stock
Exchange, which is expected to complete prior to completion of the Proposal
and the AJIT Combination and improve the access of retail investors to the
enlarged NAVF and therefore its share rating and liquidity. The Proposal is
not conditional upon the AJIT Combination.
* NAVF also intends to implement the Proposal under the same prospectus to be
issued by NAVF in connection with the AJIT Combination, which is expected to
reduce the costs of the proposed combination.
* Rising Sun has offered to underwrite the Company's costs of the proposed
merger up to £800,000 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 NAVF's view, the 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 ongoing costs
ratio of NAVF, as enlarged by implementation of the Proposal and the AJIT
Combination, are anticipated to be significantly less than that of AJGF as
currently constituted.
* 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

While the Board believes that the Company's strategy remains attractive in the
longer term, it is aware that the Company's small size and recent poor
performance, both relative and absolute, make it difficult to attract
significant demand for its shares, and that the discount at which the shares
trade to net asset value is likely to persist. The Board is also conscious
that the continuation vote at the forthcoming annual general meeting is a
significant hurdle to the Company continuing unchanged.

Accordingly, the Board has been reviewing alternative options for the
Company's future, including combinations with other closed-ended funds, a
change of manager and a solvent liquidation with no rollover option. In
conducting its review, the Board took account of the attractive opportunities
in Japanese equities and the fact that many of the Company's investors are
long term supporters of the listed investment fund structure and concluded
that a rollover into an investment trust or similar vehicle was appropriate.
Furthermore, the Board wished to see an appropriate cash exit opportunity
being available to shareholders as well as ongoing liquidity in, and demand
for, the rollover vehicle's shares. The Board has maintained dialogue with
major shareholders on the future of the Company over the last twelve months.

The Board considers that taking advantage of the ongoing reforms and
improvements in corporate governance to invest in undervalued Japanese listed
companies and actively engage with them to deliver returns for shareholders is
an attractive strategy. The strategy has delivered strong returns in recent
years, and in the Board's view can be expected to continue to do so.

The combination with NAVF, as contemplated in the Proposal, therefore provides
an opportunity for shareholders to continue with an attractive ongoing
exposure to Japanese equities in an investment trust structure alongside an
option to elect for a cash exit at a modest discount to NAV in respect of at
least 25 per cent. of their holdings.

The Board wishes to place on record its appreciation of the long-standing
dedication and service to the Company of the investment adviser, Atlantis
Investment Research Corporation. For many years this was led Mr Ed Merner,
regarded as one of the leading Japanese fund managers by his peers until his
death in 2022. Taeko Setaishi and her team at AIRC have advised the fund since
2016 and deserve our thanks.

Combination with NAVF

The Board has in principle agreed the terms for a combination of the Company
with NAVF. NAVF is a UK investment trust, with Rising Sun as its investment
adviser. Total net assets were £165.8 million at 30 June 2023. 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 Section 391(1)(b) 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 (i) the costs payable by the relevant
company in relation to the Proposal, (ii) any dividends and distributions
declared by each company which have a record date prior to the effective date
of the combination, and (iii) in the case of AJGF, less the amount reserved by
the liquidator to provide for known and unknown liabilities. The AJGF FAV per
share in respect of the rollover pool shall be increased by the amount
equivalent to the 2 per cent. discount applied to the AJGF FAV per share in
respect of the cash option.

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 discount applied to the
cash exit FAV will benefit the FAV of AJGF shares electing, or deemed to have
elected, to rollover.

Shareholders may elect for more or less than their pro rata entitlement to the
cash option however, excess applications for the cash option over 25 per cent.
of the Company's issued share capital will be scaled back pro rata to such
excess applications.

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.

Management cost contribution

Rising Sun, the investment adviser to NAVF, has demonstrated its conviction in
the combined fund by offering to pay for the Company's costs of implementing
the Proposal up to £800,000. The Board welcomes this contribution and notes
the strong indication it gives of Rising Sun's commitment to the Proposal and
the enlarged NAVF.

Annual report and accounts and AGM

The Board expects that the Company will publish its annual report and accounts
for the year to 30 April 2023 and the notice of the AGM to be held in December
as usual in the coming weeks. The Company intends that the extraordinary
general meeting required to implement the Proposal will be held before planned
the AGM, such that (assuming the Proposal is approved) the Company will be in
liquidation by the date of the AGM, and the AGM may therefore be adjourned
sine die. If the Proposal is not approved, the AGM will be held as planned and
the scheduled continuation vote will be put to shareholders.

City Code

In accordance with customary practice for schemes of reconstruction schemes,
The Panel on Takeover and Mergers has confirmed that 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. It is anticipated that the Company will publish a
circular setting out details of the Proposal in early September 2023. The
Proposal is not conditional on implementation of the AJIT Combination.

The Company has consulted with a number of its major Shareholders who have
indicated support for the Proposal. These comprise approximately 51 per cent.
of the Company's share register.

Noel Lamb, Chairman of the Company, commented:

"Style rotation, recent poor performance and reduced liquidity have led the
Board to review alternative options and take market soundings. The investment
adviser, Atlantis Investment Research Corporation has given the fund great
service over many years. Looking ahead, this proposal to rollover into Nippon
Active Value Fund with an option for a 25 per cent. cash exit, will provide
investors with increased liquidity and access to a manager with a proven
record. I commend it to our shareholders."

For further information please contact:

Enquiries:

Company Secretary

Hannah Hayward
Northern Trust International Fund Administration Services (Guernsey) Limited
Email:  HH61@ntrs.com
Tel:         +44 (0) 1481 745 417

Corporate Broker

Singer Capital Markets
Robert Peel,
Robert.Peel@singercm.com (Investment Banking)
James Waterlow, 
James.Waterlow@singercm.com (Sales)
Tel:       +44 (0) 20 7496 3000

Important Information

This announcement contains statements about the Company that are or may be
deemed to be forward looking statements. Without limitation, any statements
preceded or followed by or that includes the words "targets", "plans",
"believes", "expects", "aims", "intends", "will", "may", "anticipates",
"estimates", "projects" or words or terms of similar substance of the negative
thereof, may be forward looking statements.

These forward looking statements are not guarantees of future performance.
Such forward looking statements involve known and unknown risks and
uncertainties that could significantly affect expected results and are based
on certain key assumptions. Many factors could cause actual results to differ
materially from those projected or implied in any forward looking statement.
Due to such uncertainties and risks, readers should not rely on such forward
looking statements, which speak only as of the date of this announcement,
except as required by applicable law.

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Kingdom may be restricted by law and therefore persons into whose possession
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violation of the securities laws of such jurisdictions.

 

 



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