DCL Dexion Com.

TIDMDCL

RNS Number : 3101C

Dexion Commodities Limited

03 March 2011

Dexion Commodities Limited - recommended proposals for a change to the Company's investment policy to permit a winding down and appointment of liquidator

Summary

Further to its announcement of 23(rd) December 2010, the Board has today published a circular (the "Circular") setting out details of its proposed realisation and liquidation process and giving notice of two extraordinary general meetings at which approval will be sought from Shareholders for implementation of the proposals.

At the Company's extraordinary general meeting held on 31 July 2009, Shareholders approved reorganisation proposals pursuant to which the Company adopted a revised investment policy for the continuing portfolio to refocus as a multi-manager, multi-strategy portfolio of commodities themed hedge funds (managed on a day to-day-basis by the Investment Adviser). At the same time those Shareholders who did not wish to continue with their investment in the Company on this basis were able to redeem some or all of their Shares, such redemptions being funded from the realisation of investments (comprising those investments apportioned to a Redemption Portfolio) and payments being made on a timetable corresponding to the timing of such realisations.

Since then the Company has not performed as well as the Directors would have hoped and the Shares of each class have continued to trade at significant discounts with the prospect of continuation votes for each class being triggered in early July 2011 looking increasingly likely. Accordingly the Directors are recommending the Winding Down of the Company and its subsequent Winding Up.

In summary:

-- subject to the Winding Down Resolution being passed, the Company's investment policy will be amended to provide that the investments comprised in the Continuing Portfolio be realised in an orderly and timely manner and the Company will commence the Winding Down;

-- the Investment Management Agreement and Investment Advisory Agreement will terminate on 31 March 2011 (but with fees being paid at a reduced rate as if termination had occurred on 30 June 2011); and

-- the Second Extraordinary General Meeting will be held at a time when the Initial Investments have been realised, at which point the Winding Up Resolution will be proposed for the Winding Up of the Company and the appointment of a Liquidator.

Rupert Dorey, Chairman, said:

"The Board believes that a managed winding-down of the Company and an orderly realisation of its assets, followed shortly thereafter by the appointment of a Liquidator and a winding-up, is the most appropriate course of action in the circumstances. We are pleased that, if the proposals are approved by shareholders, the Company will be able to realise the vast majority of its portfolio on a faster timetable than would normally be the case as a result of the efforts of the Board, the Investment Manager and the Investment Adviser in securing favourable liquidity from the underlying managers of the Company's investments."

Expected Timetable

 
                                                         2011 
 Latest time and date for receipt       9.00 a.m. on 23 March 
  of Forms of Proxy for the First 
  Extraordinary General Meeting 
 First Extraordinary General Meeting    9.00 a.m. on 25 March 
 Latest time and date for receipt        9.00 a.m. on 7 April 
  of Forms of Proxy for the Second 
  Extraordinary General Meeting 
 Second Extraordinary General           9.00 a.m. on 11 April 
  Meeting 
 First settlement of Winding Up                           May 
  monies 
 

Background to the Proposals

Whilst not forming part of the Company's investment objective or policy, the Company has targeted absolute annualised returns in excess of 10 per cent. over the medium term with annualised volatility of 6-9 per cent. over the medium term. However, in the period 1 October 2009 to 31 December 2010, the Company's Continuing Portfolio has failed to meet those targeted returns, with annualised returns in that period being 0.34 per cent. (GBP Shares), 0.27 per cent. (EUR Shares) and 0.51 per cent. (US$ Shares) and with annualised volatility of 5.81 per cent., 5.65 per cent. and 5.77 per cent. respectively. Furthermore, in the period 1 July 2010 to 3 February 2011 the Company's Shares have traded at average discounts of 12.88 per cent., 11.69 per cent. and 10.32 per cent., respectively to their NAVs.

Given the small size of the Company's asset base, the Board has been, and continues to be, unwilling to further reduce those assets through the repurchase or redemption of Shares and hence the Company's ability to reduce the current share price discount is severely limited. Accordingly, in the absence of a significant change in either market conditions or the Company's performance, it is likely that the discount management provisions will be triggered in early July 2011, necessitating a continuation vote for the relevant classes of Shares in the Company. Notwithstanding the Investment Adviser's views as to the outlook for commodity strategies, the Board believes there is a real risk of one or more of those votes failing.

After consultations with the Company's Investment Manager and major Shareholders and given:

-- the Company's performance since the 2009 reorganisation;

-- the small size of the Company's asset base;

-- the share price discount at which the Shares continue to trade;

-- the likelihood of one or more redemption offers being required later in 2011;

-- the limited liquidity in the Shares; and

-- the Company's expense base (as a closed ended fund listed on the main market of the London Stock Exchange) compared to its assets,

the Board has concluded there is insufficient Shareholder support for the Company pursuing its current investment objective with its existing investment policy and that, rather than wait for the outcome of the likely continuation votes, the Board should accelerate the process and put forward proposals for an orderly Winding Down of the Company and subsequently the Winding Up of the Company and the appointment of the Liquidator.

Illiquid Investments

Approximately 0.4 per cent. of the Continuing Portfolio (using estimated net asset values at

18 February 2011 and after the fair value adjustments referred to below) comprises the Illiquid Investments, being those Investments which cannot be realised within 6 months or are currently gated, suspended, in liquidation or subject to other Settlement Obstructions. On 7 February 2011, the Directors announced fair value adjustments pursuant to which the estimated aggregate value of the Illiquid Investments was reduced from US$839,321 to US$260,287 as at 31 December 2010, a reduction of approximately 69 per cent. These adjustments did not represent values provided by the Investment Manager or Investment Adviser nor were they derived from third party sources as there was a lack of current information relating to the status of many of those Illiquid Investments. The fair value adjustments made by the Directors were intended to reflect estimates of the current values of those Illiquid Investments following discussions with the Investment Manager and should not be relied upon for any purpose. It is unknown when a substantial part of those Illiquid Investments can be realised or what amounts will be received upon such realisation.

Continuing Portfolio Liquidity

As at 25 February 2011 (the latest practicable date prior to posting of the circular to shareholders and using estimated net asset values at 18 February 2011), the Board has been advised that:

-- approximately 97.3 per cent. of the Continuing Portfolio could be realised, on the basis of the conditional redemption notices that have been served as referred to below and realisation monies received, before 30 April 2011;

-- a further 2.3 per cent. of the Continuing Portfolio could be realised, on the basis of the conditional redemption notices that have been served as referred to below and redemption monies received, before 31 May 2011; and

-- the remaining 0.4 per cent. of the Continuing Portfolio is highly illiquid and it is currently uncertain when those Investments can be realised.

The terms of subscription of the Company's Investments do not generally permit a redemption notice for them to be withdrawn once served. However, as part of the process relating to the termination of the Company's investment management arrangements (as referred to below) the Investment Adviser agreed it would seek consents from the underlying managers of the Investments with redemption notice periods in excess of one month (but excluding the Illiquid Investments and assets in the Redemption Portfolio) to serve conditional redemption notices which could be withdrawn if the Winding Down Resolution was not passed and at no cost to the Company. These consents have been forthcoming and conditional redemption notices have been served with the result that the expected redemption date for 97.3 per cent. of the Continuing Portfolio (using estimated net asset values as at 18 February 2011 and assuming the Winding Down Resolution is passed) is 31 March 2011, with the redemption proceeds for those Investments expected to be received by 30 April 2011.

Winding Down

Subject to the Winding Down Resolution having been duly passed, the Company will commence the Winding Down. If the Winding Up Resolution is not passed, the Winding Down would continue but would be administered by the Directors.

The Company's investment objective and investment policy will be amended to reflect the objective of realising the investments in the Continuing Portfolio. The new investment objective and policy of the Company will be to realise the Investments in the Continuing Portfolio in an orderly and timely manner, with a view to distributing cash to Shareholders (in accordance with their rights to distributions on a winding up as set out in the Articles) at appropriate times as sufficient investments are realised. The Company will not make any new investments (other than cash and near cash equivalent securities pending distributions).

Until the appointment of a Liquidator the Continuing Portfolio will be managed by the Investment Manager and the Investment Adviser (under the control and supervision of the existing Board) but with a view to realising the Investments comprised in the Continuing Portfolio in an orderly and timely manner. It is currently expected that the Company's currency hedging programme would continue until 31 March 2011, following which the GBP Shares and EUR Shares would be exposed to movements in the exchange rate between GBP and EUR respectively and the US$. It is anticipated that the realisation schedule for the Investments comprised in the Continuing Portfolio would be as set out further below (and subject to the assumptions stated). Accordingly, subject to the passing of the Winding Down Resolution, it is currently expected that all of the Initial Investments will have been realised by 31 March 2011 with the realisation proceeds expected to be received by the Company by 30 April 2011.

The Shares are currently listed on the Official List and traded on the main market of the London Stock Exchange. However, subject to the passing of the Winding Down Resolution, the listing for each class of Shares will be suspended by no later than 31 March 2011 and cancelled by no later than 30 April 2011. At the point of suspension the Shares will no longer be capable of being traded on the London Stock Exchange.

The net proceeds generated from the realisation of the Initial Investments (subject to the cash holdback referred to under "Winding Up" below) are intended to be returned to Shareholders pursuant to the Winding Up.

Winding Up

Once (or shortly before) the Initial Investments in the Continuing Portfolio have been realised the Second Extraordinary Meeting will be held to consider the Winding Up Resolution for the Winding Up of the Company and the appointment of the Liquidator. In the event that the realisation of the Initial Investments is delayed for any reason the Board would propose the adjournment of the Second Extraordinary General Meeting until such realisation has been or is about to be completed. Whilst there can be no absolute guarantee that such a voluntary liquidation would be approved by Shareholders, there is at that stage little viable alternative for the Company. At the time the Liquidator is appointed, the assets of the Company are likely to comprise the remaining assets attributable to the Redemption Portfolio together with the Illiquid Investments and an amount of cash of approximately GBP200,000, which cash and Illiquid Investments are intended to cover the costs and expenses of the Winding Up (including those of the Liquidator).

The Board is proposing the delay between the First Extraordinary General Meeting and the Second Extraordinary General Meeting so as to ensure that the Board, rather than the Liquidator, remains in substantial control of the realisation of the Initial Investments.

Amendments to Investment Management Agreement and Investment Advisory Agreement and Trail Commissions

The Investment Management Agreement and Investment Advisory Agreement contain termination provisions such that on a winding up resolution being passed termination is deemed to occur 12 months after such resolution is passed with management fees (and, where applicable, performance fees) being paid to the date of termination. The provisions in those agreements relating to a managed winding down (which were introduced in the context of the 2009 reorganisation of the Company and the one-off continuation vote the following year) are considerably more complex.

The Board's focus in relation to the Winding Down and the Winding Up has been to achieve a solution which is as quick and clean as possible for Shareholders. In particular this has involved the Investment Adviser agreeing to seek consents from certain underlying funds to the conditional redemption of certain Investments, so enabling a significant part of the Continuing Portfolio to be realised up to three months earlier than would otherwise have been the case. Accordingly, at the start of this process, the Board negotiated terms with the Investment Manager and the Investment Adviser for the termination of the Investment Management Agreement and the Investment Advisory Agreement which involved:

-- termination of the Investment Management Agreement and Investment Advisory Agreement on 31 March 2011;

-- management fees being paid as if the Investment Management Agreement and Investment Advisory Agreement had terminated on 30 June 2011 (and from 1 April 2011 to 30 June 2011

-- being paid on the basis of the NAV of the Continuing Portfolio as at 31 December 2010) at a reduced rate of 1.0 per cent. per annum but subject to a maximum amount equal to 0.2499 per cent. of the Company's market capitalisation as at 1 March 2011; and

-- no performance fees being payable.

Qualifying Investors (or a financial intermediary where Qualifying Investors are procured by a financial intermediary who subscribed on their behalf) are currently entitled to a trail commission of 0.5 per cent. per annum of the Total Assets attributable to the Shares held by them calculated and payable quarterly in arrears by the Investment Manager out of the Investment Manager's management fee. Trail commission ceases to be payable to Qualifying Investors in respect of Shares subsequently disposed of by such Qualifying Investors (including on cancellation) and is not pro-rated to take account of the date of any disposal/cancellation of Shares during a quarter and is not payable unless those Shares remain held at the NAV Calculation Date at the end of the relevant quarter (subject to any variations agreed by the Investment Manager with certain investors).

Trail commissions will cease to be payable to Qualifying Investors from the end of March 2011, subject only to the Winding Down Resolution being passed.

Redemption Portfolio

Since the creation of the Redemption Portfolio in July 2009, approximately 98 per cent. by value (using NAVs at that date) of the Investments comprised in it have been realised, with the realisation proceeds being distributed to redeeming former shareholders. On 7 February 2011, as part of the process referred to under 'Illiquid Investments' above, the Directors announced fair value adjustments resulting in the estimated aggregate value of those Investments remaining in the Redemption Portfolio reducing from US$1.37 million to US$0.39 million as at 31 December 2010 (together with US$0.42 million in cash, receivables and creditor accruals).

Realisation of the remaining investments in the Redemption Portfolio will continue during the Winding Down and afterwards during the Winding Up. If the Winding Up Resolution is approved by Shareholders, the Liquidator would take responsibility for realising the remaining investments in the Redemption Portfolio. Realisations of assets in the Redemption Portfolio may still not have occurred even after all of the investments in the Continuing Portfolio have been realised.

Continuing Portfolio realisations and Continuing Portfolio liquidity

On the basis of the composition of the Continuing Portfolio as at 18 February 2011, assuming the Winding Down Resolution is passed on or before 25 March 2011, the assumptions set out in the table immediately below and taking account of the Company's prevailing net cash position, the Investment Adviser's current expectation is that the Continuing Portfolio could be realised in accordance with the following indicative timetable (which should not be relied upon for any purpose), assuming no requirement to maintain a balanced investment portfolio during the realisation period:

 
                                  Cumulative Percentage 
                                   Continuing Portfolio 
 Realisation proceeds received 
  by 
 30 April 2011                                     97.3 
 31 May 2011                                       99.6 
 After                                            100.0 
 

(The above table is based on a pro forma NAV of the Continuing Portfolio of the Company. The pro forma NAV includes the estimated valuations of the Continuing Portfolio as at 18 February 2011 and assumes such valuations are unchanged from that date. Such valuations may be estimated and/or unaudited and may be inaccurate and/or subject to conflicts of interest. Investments may not realise the assumed cash sum or percentage of such valuations at the times assumed or at all. The pro forma NAV of the Continuing Portfolio takes into account the actual cash balances held by the Company as at 25 February 2011 (the latest practicable date prior to the publication of the shareholder circular) and attributable to the Continuing Portfolio, and assumes receipt of the cash proceeds of those disposals made on 1 March 2011 on or before 31 March 2011.

The above table assumes that further Continuing Portfolio realisations are made with effect from 30 March 2011 and further assumes no Settlement Obstructions other than those of which the Investment Adviser had actual knowledge as at 25 February 2011. There may be other matters or factors which affect the availability, amount or timing of receipt of the proceeds of realisation of some or all of the Company's investments. The expected realisation proceeds do not include costs of realisation, including redemption penalties. The expected realisation proceeds take no account of ongoing fees and expenses or the impact of currency hedging on the Company's cash resources.

The remaining 0.4 per cent. of the Continuing Portfolio is invested in six underlying funds that are currently in liquidation or subject to other Settlement Obstructions. It is currently uncertain when those Investments can be realised and accordingly it has not been reflected in the schedule above. The information in this table has not been subject to audit.)

However, it is emphasised that there is no guarantee that the Continuing Portfolio will realise the amounts referred to above or that the Continuing Portfolio can be realised in accordance with the above indicative timetable. It is also emphasised that the values of any Investments as at the time of realisation, and hence the amounts returned to Shareholders on a Winding Up of the Company, may differ significantly from the values used in this announcement.

Distributions

As stated above, distributions of cash pursuant to the Winding Down are likely to be made by way of a distribution by the Liquidator pursuant to the Winding Up. This will be by way of cheques drawn upon a UK clearing bank posted to the Shareholder's registered address. Such payments will be at the sole risk of the Shareholder concerned.

Distributions of cash by a Liquidator pursuant to the Winding Up will take place in the normal course of a liquidation and through the usual channels. The Liquidator will only be in a position to make a distribution after the conclusion of a creditor notice period, which is generally a period of 2 to 3 weeks following the appointment of the Liquidator. Should any additional creditor claims, of which the Liquidator was not previously aware, arise during the creditor notice period, this may impact on the timing and amount of any distribution.

Capitalised terms shall have the meaning given to them in the Circular unless otherwise stated.

Enquiries:

Robin Bowie Tel: +44 (0) 20 7832 0900

Dexion Capital

Chris Copperwaite Tel: +44 (0)1481 732815

Dexion Capital (Guernsey) Limited

David Yovichic Tel: +44 (0) 20 7523 8361

Collins Stewart Europe Limited

Collins Stewart Europe Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Dexion Commodities Limited and no one else in connection with the matters described in this announcement and will not be responsible to anyone other than Dexion Commodities Limited for providing the protections afforded to clients of Collins Stewart Europe Limited or for giving advice in relation to the contents of this announcement or on any of the matters referred to herein.

This information is provided by RNS

The company news service from the London Stock Exchange

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