REG-Weiss Korea Opportunity Fund: Annual Report and Audited Financial Statements for the Year Ended 31 December 2024
15/05/2025 10:00
WEISS KOREA OPPORTUNITY FUND LTD.
LEI 213800GXKGJVWN3BF511
(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2024
Weiss Korea Opportunity Fund Ltd. (the “Company”) has today released its
Annual Financial Report for the year ended 31 December 2024. The Report will
shortly be available for inspection via the Company's website
www.weisskoreaopportunityfund.com.
FOR THE YEAR ENDED 31 DECEMBER 2024
Financial Highlights
As at
31 December 2024 Since inception
NAV Return (15.9%) 81.1%
Benchmark Return (18.5%) 41.2%
As at
31 December 2024 31 December 2023
Portfolio Discount* 46.0% 49.7%
Share Price Discount (3.2%) (0.4%)
Fund Dividend Yield 3.8% 3.2%
Average Trailing 12-Month P/E Ratio of Preference Shares Held 6.0x 4.8x
P/B Ratio of Preference Shares Held 0.3 0.3
Annualised Total Expense Ratio 2.0% 2.1%
*Portfolio Discount
The portfolio discount represents the discount of WKOF’s actual NAV to the
value of what the NAV would be if WKOF held the respective common shares of
issuers rather than preference shares on a one-to-one basis.
As at close of business on 12 May 2025, the latest published NAV per Share was
£1.57 and the Share Price was £1.38.
Chair’s Review
For the year ended 31 December 2024
Investment Performance
During the period from 1 January 2024 to 31 December 2024, WKOF’s NAV in
pounds Sterling (“GBP”) decreased by 15.9%, including reinvested
dividends, out-performing the reference MSCI South Korea 25/50 Net Total
Return Index (the “Korea Index”) by 2.6%. Since the admission of WKOF to
AIM in May 2013, NAV has increased by 81.1%, including reinvested
dividends, compared to the Korea Index returns of 41.2%, a cumulative
outperformance of 39.9% since inception.
Dividend
The Directors declared an interim dividend yield of 5.1851 pence per share in
May 2024, to distribute the income received by WKOF in respect of the year
ended 31 December 2023. This equates to a 3.8% net dividend yield over the
past 12 months. The dividend was paid to all Shareholders on 24 June 2024.
In line with the previous financial year, the Board intends to take into
account all dividends received up to, and including, 30 April 2025 when
declaring the Company’s own dividend.
Strategic Review
At the beginning of November 2024, the Board was notified by its investment
manager that it believed the opportunity set and strategy for the fund
continuing in its current form was less attractive than it had been in the
past, including at the Company’s inception in 2013. Moreover, it did not
think that circumstances were likely to improve in the foreseeable future. As
a result, the Board announced a strategic review on 4 November 2024.
The Board assessed a number of proposals, including a change of investment
mandate and/or a potential combination of WKOF’s assets with another
suitable investment company or fund, as an alternative to a Managed
Wind-down. The Board confirms that the short-listed proposals were thoroughly
assessed and meetings were held with interested parties in late January 2025,
with further detailed discussions continuing with one preferred party through
February 2025. However, due to the complexities associated with the
short-listed proposals that came to light in the detailed discussions,
combined with the differing views received from shareholders, on 27 February
2025, the Board announced the decision that a Managed Wind-down was the
fairest proposal and would be in the best interests of shareholders as a
whole.
Managed Wind-down
On 19 March 2025, a Circular was sent to all Shareholders setting out the
details of the proposed Managed Wind-down, explaining the new investment
objective and policy (in place of the existing investment objective and
policy) to reflect the realisation strategy, the Company ceasing to make new
investments during the realisation period and the adoption of the new Articles
to permit the Directors to return capital to Shareholders pursuant to the
Managed Wind-down by way of compulsory redemptions of Shares to facilitate the
implementation of the Managed Wind-down.
Shareholders overwhelmingly approved the Managed Wind-down at an Extraordinary
General Meeting on 14 April 2025.
During the Managed Wind-down process, the Company will be managed with the
intention of realising all of the assets in its portfolio in an orderly manner
that aims to achieve a balance between seeking to obtain the best achievable
value for those assets and making timely returns of capital to
Shareholders. Returns of capital to shareholders will be made by way of
compulsory redemptions of shares and are anticipated to be made as, and when,
sufficient cash is realised to make it economically expedient to do so. The
first return of capital is expected to be made by the end of June 2025.
The Board intends to maintain the trading of Shares on the AIM for as long as
the Directors believe it to be practicable during the Managed Wind-down,
subject to the ability of the Company to continue to comply with its
obligations under the AIM Rules.
The Board considers that the inclusion of a viability statement in the
Financial Statements would not provide additional benefit to the Company’s
stakeholders given that the Company has entered a Managed Wind-down which
aligns with the UK Corporate Governance Code.
Share buybacks
The Board is also authorised to repurchase up to 40% of WKOF’s outstanding
Ordinary Shares in issue as of 31 December 2024. Whilst historically the
Company has bought back shares where the share price discount to net asset
value per share has reached high single digit percentages (with 12.6% of
Shares issued at admission having been repurchased to date), and remains
authorised to do so in its discretion, looking forward the Board does not
anticipate buying back shares given the Company is now in Managed Wind-down
and will be regularly returning capital to shareholders by way of a compulsory
redemption of Shares.
Krishna Shanmuganathan
Chair
14 May 2025
Investment Manager’s Report
For the year ended 31 December 2024
Managed Wind-down of the Fund
In November 2024, we notified WKOF’s Board of Directors that we believed
that the opportunity set and strategy for the fund continuing in its current
form was less attractive than it has been in the past, including at WKOF’s
inception in 2013, and that we did not think this change in circumstances was
likely to improve in the foreseeable future. Our assessment was based on a
number of factors:
* Several large and more liquid preference shares have had their discounts
narrow to the point where they are no longer attractive investments for the
fund. Consequently, the pool of more liquid preference shares available for
investment has decreased.
* South Korea's continued efforts to open its financial markets to foreign
investors mean that the fund's holdings can now be replicated in more
cost-effective ways than through the fund itself.
* It was felt that given the above and the performance over the least 2 years,
more shareholders would be likely to consider taking up the next realisation
opportunity. If this were to happen, the overhead cost per share to investors
would increase.
As discussed in the Chair’s Review of this Annual Report, the Board
subsequently commenced a strategic review to consider the future of the
Company and explore the strategic options available, including a change of
investment mandate and/or a potential combination of the Company’s assets
with another suitable investment company or fund. The shortlisted proposals
were thoroughly assessed and meetings were held with interested parties in
late January 2025, with further detailed discussions continuing with one
preferred party through February 2025. However, due to the complexities
associated with the shortlisted proposals that came to light in the detailed
discussions, combined with differing views of Shareholders, the Board reached
the decision that a Managed Wind-down was the fairest proposal and would be in
the best interests of the Company and its Shareholders as a whole.
WKOF Performance Attribution
At the end of December 2024, WKOF held a portfolio of 30 South Korean
preference shares. As a reminder, the economic rights of South Korean
preference shares are generally the same or slightly better than the
corresponding common shares, yet the preference shares often trade at
substantial discounts to the common shares.
WKOF’s returns, on a currency-neutral basis, are driven by five primary
factors:
* The performance of the Korean equity market generally as indicated by the
South Korea Index;
* The discounts of the preference shares WKOF holds narrowing or widening
relative to their corresponding common shares;
* The performance of the common shares (which correspond to the preference
shares held by WKOF) relative to the performance of the South Korean equity
market;
* Excess dividend yields of the preference shares held by WKOF; and
* Fees, expenses and other factors.
In order to compare WKOF’s relative return to the Korea Index, we report the
attribution of these aforementioned factors to WKOF’s performance. The
following table provides this performance attribution for the last 12 months
and for the period since the inception of WKOF in May 2013 to 31 December
2024.
Performance Attribution Table
Return Component 2024 Since Inception
The Korea Index -18.5% 41.2%
Discount Narrowing of Preferred Shares Owned 9.2% 97.6%
WKOF Common Shares vs. The Korea Index -1.1% -47.3%
Excess Dividend Yield of Preferred Shares Owned 1.3% 15.0%
Fees, Expenses and Others -6.8% -25.4%
NAV Performance -15.9% 81.1%
Macro and Corporate Governance update
In our 2024 Half Yearly Report, we mentioned that investors might gain more
clarity on South Korea’s Corporate Value-Up Programme (CVUP) by the end of
the year. However, despite some periods of optimism, the CVUP still lacks
clarity and effectiveness. A large part of this was due to increased political
turmoil in South Korea towards the end of 2024.
President Yoon declared martial law, which was later revoked, leading to two
impeachment proceedings. After President Yoon was impeached, the National
Assembly also sought to impeach acting President and former Prime Minister
Duck-soo Han for his role in the martial law order and his lack of cooperation
during the impeachment process; however, he has since been reinstated.
This political instability has temporarily hindered the government's ability
to function effectively and damaged the nation’s international reputation.
The economic impact is already being felt in South Korea's heavily
export-oriented economy. Most notably, the South Korean won has depreciated
significantly against the U.S. dollar, prompting the National Pension Service
to implement a “strategic currency hedging” practice using up to 48.2
billion U.S. dollars in foreign currency reserves. Additionally, there were
net foreign outflows of 9.7 billion USD from the South Korean stock market in
the fourth quarter. In December alone, during the brief declaration of martial
law and the ensuing impeachment process, foreign investors sold 3.86 billion
USD worth of South Korean securities, marking the largest monthly foreign
outflow since March 2020. Furthermore, although acting President Choi has
publicly supported the Corporate Value-Up Programme, it remains unclear how
committed the post-Yoon South Korean government is to corporate governance
reforms.
The “Korea Value-Up Index” is considered one of the three main components
of the Corporate Value-Up Programme (CVUP). According to the Korea Exchange
(KRX), this index is designed to highlight local companies that follow best
practices in corporate governance and take steps to enhance shareholder value.
Some investors consider the development of this index encouraging, especially
if the National Pension Service (NPS), South Korea's largest pension fund,
decide to use it as a long-term benchmark.
However, when the KRX launched the Value-Up Index on September 25, which
included 100 listed companies from the KOSPI and KOSDAQ, it was criticised for
being an underwhelming selection with inconsistent standards. In response, the
KRX announced plans to actively reconsider the standards used for selecting
companies in the index.
One potentially positive development in corporate governance this year is that
lawmakers have voted to expand the fiduciary duties of corporate boards to
include responsibilities to shareholders, not just the company. The National
Assembly, controlled by the opposition, passed a bill to amend the commercial
code, but it faces possible veto by Acting President Choi Sang-mok. Proponents
argue that the reform will restore market confidence and align corporate
actions with shareholder interests. Opponents, including the ruling party and
business groups, believe the change will lead to an increase in shareholder
lawsuits and negatively impact the national economy.
Finally, protectionist trade policies under the Trump administration pose
significant risks to the profitability of South Korea’s leading companies.
The U.S. government raised concerns about trade imbalances with countries
including South Korea and announced its intention to use tariffs to address
them. Duties were imposed on steel and aluminium—directly affecting
manufacturers such as POSCO (currently not a WKOF holding). Separately,
broader “reciprocal” tariffs of 25% on South Korea were announced in April
before being reduced to 10% temporarily. Given South Korea’s economic
reliance on large conglomerates (“chaebols”), these trade actions could
have ripple effects across the broader economy. The complex network of
subsidiaries and supply chains within chaebols means that tariffs on one part
of the group can indirectly impact the entire organisation.
Hedging
WKOF pursues its investment strategy with a portfolio that is generally
long-only. However, as further described in WKOF’s Annual Report and Audited
Financial Statements for the year ended 31 December 2017 and in subsequent
Annual Reports, the Board approved a hedging strategy intended to reduce
exposure to extreme events that would be catastrophic to its Shareholders’
Investments in WKOF because of political tensions in Northeast Asia.
WKOF has limited its use of hedging instruments to purchases of credit default
swaps (“CDS”) and put options on the MSCI Korea 25/50 Index, securities we
believe would generate high returns if Korea experienced geopolitical
disaster, and do not introduce material new risks into the portfolio. These
catastrophe hedges are not expected to make money in most states of the world.
We expect that, as with any insurance policy, WKOF’s hedges will lose money
most of the time. The table below provides details about the hedges as of 31
December 2024. Note that outside of the general market and portfolio hedges
described herein, WKOF has generally not hedged interest rates or currencies.
Please also note that WKOF's exposure to these hedging instruments will
gradually reduce as the Managed Wind-down progresses.
CDS Notional Amount (GBP) Cost Paid as a % of Notional Value per Annum (Spread) Expiration Date
79,617,834 0.238% 20/06/2025
Concluding Remarks
Thank you to our long-term shareholders. We are proud of WKOF’s performance
during the nearly 12 years the Company has been listed on AIM, during which we
have continually sought to do what is in the best interest of shareholders.
For the reasons outlined above, we believe the Managed Wind-down is in the
best interest of shareholders, and will seek to manage the portfolio
accordingly.
Weiss Asset Management LP
14 May 2025
Statement of Financial Position
As at 31 December 2024
As at As at
31 December 31 December
2024 2023
£ £
Assets
Financial assets at fair value through profit or loss 94,780,296 112,427,879
Other receivables 913,777 1,627,052
Margin account 1,041,581 1,396,037
Cash and cash equivalents 1,224,127 3,364,287
Total assets 97,959,781 118,815,255
Liabilities
Derivative financial liabilities 283,591 903,381
Due to broker - 271,189
Other payables 715,723 790,981
Total liabilities 999,314 1,965,551
Net assets 96,960,467 116,849,704
Represented by:
Shareholders' equity and reserves
Share capital 33,912,856 33,912,856
Other reserves 63,047,611 82,936,848
Total Shareholders' equity 96,960,467 116,849,704
Net Assets Value per Ordinary Share 1.3998 1.6870
The Financial Statements were approved and authorised for issue by the Board
of Directors on 14 May 2025.
Krishna Shanmuganathan Gill Morris
Chair Director
Statement of Comprehensive Income
For the year ended 31 December 2024
For the year ended For the year ended
31 December 2024 31 December 2023
£ £
Income
Net loss on financial assets at fair value through profit or loss (16,403,274) (4,498,384)
Net gain on derivative financial instruments at fair value through profit or loss 619,646 242,072
Net foreign currency losses (373,493) (559,160)
Dividend income 4,180,485 2,490,245
Bank interest income 3,951 12,747
Total loss (11,972,685) (2,312,480)
Expenses
Operating expenses (3,405,984) (3,586,733)
Total operating expenses (3,405,984) (3,586,733)
Loss for the year before dividend withholding tax (15,378,669) (5,899,213)
Dividend withholding tax (919,084) (548,479)
Loss for the year after dividend withholding tax (16,297,753) (6,447,692)
Loss and total comprehensive loss for the year (16,297,753) (6,447,692)
Basic and diluted loss per Share (0.2353) (0.0931)
All items derive from continuing activities.
Following review of the AIC SORP and its impact on the Statement of
Comprehensive Income, the Board has decided not to follow the recommended
income and capital split. This is due to the fact that the Company’s
dividend policy is not influenced by its expense policy.
Statement of Changes in Equity
For the year ended 31 December 2024
Share Other
capital reserves Total
For the year ended 31 December 2024 £ £ £
Balance as at 1 January 2024 33,912,856 82,936,848 116,849,704
Total comprehensive loss for the year - (16,297,753) (16,297,753)
Transactions with Shareholders, recorded directly in equity
Distributions paid - (3,591,484) (3,591,484)
Balance as at 31 December 2024 33,912,856 63,047,611 96,960,467
Share Other
capital reserves Total
For the year ended 31 December 2023 £ £ £
Balance as at 1 January 2023 33,986,846 93,093,647 127,080,493
Total comprehensive loss for the year - (6,447,692) (6,447,692)
Transactions with Shareholders, recorded directly in equity
Purchase of Realisation Shares (73,990) - (73,990)
Redemption of Realisation Shares - (3,709,107) (3,709,107)
Balance as at 31 December 2023 33,912,856 82,936,848 116,849,704
Statement of Cash Flows
For the year ended 31 December 2024
For the year ended 31 December 2024 For the year ended 31 December 2023
£ £
Cash flows from operating activities
Loss and total comprehensive loss for the year (16,297,753) (6,447,692)
Adjustments for:
Interest income (3,951) (12,747)
Net loss on financial assets at fair value through profit or loss 16,403,274 4,498,384
Exchange losses/(gains) on cash and cash equivalents 359,527 (81,949)
Net gain on derivative financial instruments at fair value through profit or loss (619,646) (242,072)
Decrease/(increase) in receivables excluding dividends 3,074 (1,731)
Increase in other payables excluding withholding tax 81,000 89,974
Dividend income net of withholding taxes (3,261,401) (1,941,766)
Dividend received net of withholding taxes 3,815,344 4,261,019
Bank interest received 3,951 12,747
Purchase of financial assets at fair value through profit or loss (49,779,905) (18,040,415)
Proceeds from the sale of financial assets at fair value through profit or loss 50,753,022 22,149,787
Net cash generated from operating activities 1,456,536 4,243,539
Cash flows from investing activities
Closure of derivative financial instruments (141) -
Decrease/(increase) in margin account 354,456 (68,724)
Net cash generated/(used in) from investing activities 354,315 (68,724)
Cash flows from financing activities
Purchase of Realisation Shares - (73,990)
Distributions paid (3,591,484) (3,709,107)
Net cash used in financing activities (3,591,484) (3,783,097)
Net (decrease)/increase in cash and cash equivalents (1,780,633) 391,718
Exchange (losses)/gains on cash and cash equivalents (359,527) 81,949
Cash and cash equivalents at the beginning of the year 3,364,287 2,890,620
Cash and cash equivalents at the end of the year 1,224,127 3,364,287
For further information, please contact:
Singer Capital Markets Limited James Maxwell/ Justin McKeegan – Nominated Adviser James Waterlow – Sales +44 20 7496 3000
Northern Trust International Fund Administration Services (Guernsey) Limited Samuel Walden +44 1481 745385
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