TIDMFPEO TIDMFPEZ TIDMFPER
RNS Number : 9790B
F&C Private Equity Trust PLC
24 April 2012
24 April 2012
F&C PRIVATE EQUITY TRUST PLC
new dividend policy, new inVESTMENT management incentive
arrangements
AND
NOTICEs OF annual GENERAL MEETING and separate general meeting
of ordinary shareholders
F&C PRIVATE EQUITY ZEROS PLC
CANCELLATION OF SHARE PREMIUM ACCOUNT and authority to purchase
ZDP shares
AND
NOTICEs OF GENERAL MEETING of F&c PRIVATE EQUITY ZEROS and
separate general meeting of zdp shareholders
Introduction
In conjunction with the announcement of F&C Private Equity
Trust's annual results for the year ended 31 December 2011, which
was released on 3 April 2012, the Board announced that it was
proposing that F&C Private Equity Trust :
-- adopts a new dividend policy that should provide Ordinary
Shareholders with a regular and relatively predictable source of
income and the prospect of income growth over time - the Company
will aim to pay semi-annual dividends with an annual yield
equivalent to not less than 4 per cent. of the average of the
published net asset values per Ordinary Share as at the end of each
of its last four financial quarters prior to the announcement of
the relevant dividend or, if higher, equal (in terms of pence per
share) to the highest semi-annual dividend previously paid; and
-- enters into new incentive arrangements with its Investment
Manager - broadly, the Investment Manager will be entitled to an
annual performance fee of 7.5 per cent. of the annualised aggregate
of the increase in the NAV (and taking into account the dividends
paid) of the Ordinary Shares over the performance period (being
rolling three year periods after an initial transitional period),
provided that the IRR per Ordinary Share over that period (after
accounting for the performance fee) is at least 8 per cent. per
annum and the aggregate basic management and performance fees in
relation to the Ordinary Pool do not exceed 2 per cent. per annum
of the Ordinary Pool's NAV. The performance fee will also be
subject to a "high water mark".
In addition, the Board is proposing that F&C Private Equity
Zeros cancels its share premium account and obtains authority from
ZDP Shareholders to buy-back ZDP Shares through the market, which
will provide it with the flexibility to buy-back ZDP Shares if the
Board considers such buy-backs to be in the best interests of
Shareholders as a whole.
Each of the Proposals is conditional on Shareholders passing the
resolutions that are required to enable them to be implemented.
Accordingly, a circular to Shareholders, which explains the
background to, reasons for and details of each of the Proposals and
includes the notices convening the Shareholder meetings for
Wednesday, 23 May 2012 to consider the requisite resolutions, will
be despatched to Shareholders later today. That circular also
includes the notice convening the annual general meeting of F&C
Private Equity Trust for Wednesday, 23 May 2012.
The Board is recommending Ordinary Shareholders to vote in
favour of the resolutions to be proposed at the Company's AGM and
Ordinary Shareholders' Meeting and ZDP Shareholders to vote in
favour of the resolutions to be proposed at the Subsidiary's
General Meeting and the ZDP Shareholders' Meeting.
Enquiries
Hamish Mair F&C Investment Business Limited T: 0131 718
1184
Sue Inglis/ Canaccord Genuity Limited T: 020 7050
Gordon Neilly 6779
T: 020 7050
6778
F&C Private Equity Trust's Proposed New Dividend Policy
Background to, and Reasons for, the Proposed New Dividend
Policy
In the current low interest rate environment, and with the
prospect that interest rates will remain low for some time, many
investors are seeking a higher cash yield from their investments.
As a result, higher yielding investment trusts tend to trade on
narrower discounts than their lower yielding counterparts.
Within the private equity sub-sector (including both investment
companies that invest directly and those that invest indirectly
through other private equity funds), typically, the yield on their
shares has been relatively low because of the nature of their
investments. In addition, the tax rules for investment trusts
prohibited investment trusts from distributing realised capital
profits as dividends. Following the recent modernisation of those
rules, that prohibition has been removed for all accounting periods
commencing on or after 1 January 2012. In order to align company
law with the new investment trust tax rules, the prohibition on
Companies Act investment companies distributing realised capital
profits was removed with effect from 6 April 2012.
Accordingly, subject to amending their articles of association
to remove the prohibition on distributing realised capital profits,
investment trusts will be permitted to pay out accumulated realised
capital profits in the form of dividends. This should enable
investment trust boards to manage dividends with greater
flexibility, including setting a dividend yield target that is
independent of the underlying portfolio revenue yield.
The Directors believe that the ability to pay dividends out of
realised capital profits is particularly helpful for the private
equity sub-sector, where, currently, dividend yields are relatively
low and discounts are relatively wide. As at 31 December 2011, the
Company had accumulated realised capital profits in excess of
GBP120 million. The Directors are proposing, therefore, to take
advantage of the new regime by adopting a new dividend policy that
is designed to provide Ordinary Shareholders with a regular and
relatively predictable source of income and the prospect of income
growth over time.
Proposed New Dividend Policy
The Company intends to make regular cash distributions to
Ordinary Shareholders in the form of semi-annual dividend payments,
which will be funded out of the income and realised capital profits
attributable to the Ordinary Pool. Accordingly, the Company expects
to pay, in respect of each financial year, semi-annual dividends on
the Ordinary Shares in November and May in respect of the six
months ending on the preceding 30 June and 31 December,
respectively. The first dividend under the new distribution policy
is expected to be declared in August 2012 and paid in November 2012
in respect of the six months ending 30 June 2012.
The Company's objective will be to pay semi-annual dividends
with an annual yield equivalent to not less than 4 per cent. of the
average of the published NAVs per Ordinary Share as at the end of
each of its last four financial quarters prior to the announcement
of the relevant semi-annual dividend or, if higher, equal (in terms
of pence per share) to the highest semi-annual dividend previously
paid. For illustrative purposes only, had the new dividend policy
been implemented in respect of the year ended 31 December 2011,
aggregate dividends of 9.36p per Ordinary Share would have been
paid, representing a yield of 5.7 per cent. based on the closing
mid-market price of an Ordinary Share as at 20 April 2012.
Notwithstanding the partial funding of dividends out of capital
profits, all dividends will be taxed as income in Ordinary
Shareholders' hands.
Benefits of the Proposed New Dividend Policy
The Directors believe that the new dividend policy, which is
designed to provide Ordinary Shareholders with a regular and
relatively predictable source of income and the prospect of income
growth over time, should appeal to a broader investor audience that
is seeking income. Accordingly, the Directors believe that, over
time, the new dividend policy should lead to a higher rating for
the Ordinary Shares (that is, a narrower discount at which the
Ordinary Shares trade in the market relative to their underlying
NAV).
The Directors believe that the new dividend policy will be of
particular interest to companies, funds that do not pay tax on
UK-sourced income and investors through ISAs and SIPPs, none of
which generally incur any additional tax on dividends in the
UK.
Shareholder Approval
Before the proposed new dividend policy can be implemented by
the Company, it is necessary to amend the Company's Articles by
removing the current prohibition on paying dividends out of
realised capital profits. That amendment requires to be approved,
under the Companies Act, by a resolution passed at a general
meeting of the Company (which will be proposed at this year's AGM)
and, under the Company's Articles, by a resolution passed at a
separate general meeting of Ordinary Shareholders (which has been
convened for the same place and date as this year's AGM).
General
The proposed yield under the new dividend policy is a target
only, does not represent a forecast and is not guaranteed. In
particular, the payment of semi-annual dividends will be made only
in accordance with the Company's Articles and applicable law and
will be subject to compliance with the financial covenants under
the Company's loan facility and the intra-Group arrangements
between the Company and the Subsidiary and the Board being
satisfied that the Group has sufficient cash, liquid investments
and undrawn amounts under its loan facility to meet future calls on
its cash resources (including repayment of the ZDP Shares).
Proposed New Investment Management Incentive Arrangements
Background to, and Reasons for, the Proposed New Performance
Fee
At present, the Investment Manager is entitled to the following
fees in relation to the Ordinary Pool:
-- a basic management fee, payable quarterly in arrears, of 0.9
per cent. per annum of, broadly, the aggregate of the NAV and
long-term borrowings of the Ordinary Pool; and
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