Invesco Enh Inc Publication of Circular
April 22 2021 - 2:00AM
UK Regulatory
TIDMIPE
22 April 2021
Invesco Enhanced Income Limited
Recommended Proposals for the Reconstruction and Winding-up of the Company
On 1 March 2021, The Board of Invesco Enhanced Income Limited (the "Company" or
"IPE") announced that it had signed Heads of Terms with the Board of City
Merchants High Yield Trust Limited ("CMHY") in respect of a proposed merger
with CMHY to be effected by way of a shareholder approved contractual scheme of
reconstruction (the "Scheme").
A circular in connection with the Scheme will shortly be sent to the Company's
shareholders (the "Shareholders") including details of the Proposals and to
convene a general meeting of the Company (the "General Meeting") to seek
approval from Shareholders for the implementation of the Proposals (the "
Circular").
Under the scheme, the Company's Shareholders will receive New CMHY Shares on
the basis of the respective adjusted net asset values of each company. Upon the
Scheme becoming effective, it is proposed that the name of CMHY be changed to
"Invesco Bond Income Plus Limited" ("BIPS").
The Proposals, which are unanimously recommended by the Board, comprise a
scheme of reconstruction and the summary winding up (solvent liquidation) of
the Company pursuant to which Shareholders will be entitled, in respect of
their shareholdings, to receive New CMHY Shares.
Background to the Proposals
IPE and CMHY share many similarities: both are managed by Invesco and have the
same lead portfolio manager, Rhys Davies; the Company and CMHY invest in the
same asset class with similar investment objectives and policies; there is
significant overlap between the two portfolios; and the Company and CMHY have
many common shareholders.
The Board is very aware of the benefits that accrue to shareholders from
greater economies of scale including lower ongoing charges and increased
liquidity. In light of this and the similarities between the Company and CMHY,
the Board entered into discussions with the CMHY Board with respect to a
proposed merger and both the Board and CMHY are in agreement that the interests
of Shareholders and CMHY Shareholders would be best served if the assets of the
Company and CMHY were merged into a single entity.
Conditional upon the Scheme becoming effective, the Proposals would result in
the Company being wound up and the assets and undertaking of the Company
transferring to CMHY, with Shareholders being issued New CMHY Shares.
It is proposed that the enlarged entity will be renamed Invesco Bond Income
Plus Limited ("BIPS") which, based on the existing net assets of CMHY and IPE,
would have net assets in excess of £300 million. A resolution to change the
name of the Company will be put to the Shareholders at the General Meeting. The
current portfolio manager of both CMHY and IPE, Rhys Davies, will continue as
the portfolio manager of BIPS.
(The above proposals are referred to herein as the "Proposals".)
Benefits of the Proposals
The Directors consider that the Proposals should have the following benefits
for IPE Shareholders:
* Greater scale through the combination of similar investment portfolios:
Shareholders will be able to continue with the same fund management company
and investment manager with a similar investment style. Rhys Davies
currently manages both funds with a good track record and does so with a
similar investment objective of high income and a focus on high-yield
fixed-interest securities. There is a high degree of overlap between the
two investment portfolios.
* Lower management fee arrangements: In connection with the Proposals, it has
been agreed with the Investment Manager that the management fee will be
reduced to an annual amount equal to 0.65 per cent of the total assets less
current liabilities to reflect the larger size of BIPS. This is a reduction
from the Company's tiered annual management fee with a current blended rate
of 0.76 per cent of the Company's net assets.
* Lower ongoing charges: In addition to the change in management fee
arrangements, the other costs of the Company will be spread across a larger
asset base resulting in further economies of scale and a reduction in
ongoing charges ratio.
* Sustainable income level: It is anticipated that the income yield payable
to Shareholders will be placed onto a more sustainable basis as a
consequence of the transaction. In addition, Shareholders will be paid a
special pre-liquidation dividend of 0.75 pence per Ordinary Share ahead of
the transaction.
* Increase in scale and improved liquidity: The Board expects that the
enlarged entity will benefit from greater liquidity in its shares.
* Potential for strong share price rating: The Board believes that the above
benefits should assist BIPS's shares in maintaining a strong rating as the
greater scale of BIPS is expected to result in broader market appeal.
Conditions of the Proposals
Implementation of the Proposals is subject to a number of conditions,
including:
* The passing of the Resolutions to be proposed at the General Meeting, or
any adjournment of the General Meeting, and any conditions of such
Resolutions being fulfilled;
* The CMHY Resolutions being passed and becoming unconditional in all
respects;
* The approval of the Financial Conduct Authority and the London Stock
Exchange to the Admission of the New CMHY Shares to the Official List and
to trading on the main market of the London Stock Exchange, respectively;
* The novation of the Repo Contacts and FX Forwards to CMHY with effect from
the Effective Date; and
* The Directors resolving to proceed with the Scheme.
If any of the above conditions are not satisfied, the Proposals will not become
effective, the Company will not proceed with the winding-up and instead will
continue in existence. In these circumstances, the Directors will reassess the
options available to the Company at that time.
Dividends
In connection with the Proposals, it is proposed that the BIPS Board would
target an annualised dividend of 11 pence per share over a period of three
years following the implementation of the Scheme by way of twelve quarterly
dividend payments of 2.75 pence per share, with the first such dividend being
the second interim dividend for the year ending 31 December 2021 which is
expected to be declared in June 2021. This is equivalent to approximately 4.22p
per annum per share for Shareholders. On the implementation of the Scheme, the
target total dividends per share for the year ending 31 December 2021 would
therefore increase to 10.75 pence per share (being the First Interim Dividend
of 2.5 pence per share and three further quarterly dividends of 2.75 pence per
share).
It is anticipated that dividends will be substantially covered by net income
from the portfolio although BIPS will support the target dividend over this
period through the use of revenue and capital reserves if necessary.
Thereafter, the BIPS Board shall give consideration to its ongoing dividend
policy, taking into account the annualised net income from its portfolio and
the market environment at that time.
This proposed dividend policy has been agreed between the IPE Board and the
CMHY Board in recognition of the differential in income distribution ratios
adopted by each of the two companies and is intended to provide a path towards
a sustainable income distribution to shareholders of BIPS.
Whilst the target dividend of 11 pence per share would result in a reduction in
the annual dividend income for Shareholders compared with IPE's historical
dividend pay-out, Shareholders will be paid a special pre-liquidation dividend
of 0.75 pence per Ordinary Share ahead of the transaction, which is expected to
be approximately equal to the reduction for the first year following the
merger.
IPE's dividend has been supported by the use of revenue reserves for several
years. As noted in IPE's 2020 Annual Financial Report, the medium term effects
of Covid-19 will likely bring a prolonged period of very low interest rates, in
light of which the Board would be reviewing whether the dividend policy is
sustainable, balancing the need for current income against the requirement to
preserve investors' capital to earn that income in coming years. The Board has
taken this into account when considering the dividend proposals set out above
and believes they will continue to provide an attractive level of income for
Shareholders over the long-term.
Gearing
While the maximum gearing level shall remain at the level within the CMHY
investment policy of 30 per cent. of total assets, it is intended that,
immediately following the implementation of the Scheme, the net gearing of the
BIPS portfolio will be approximately 10 per cent. of net assets.
Proposed Board Changes
Following completion of the Proposals, BIPS will have board representation from
both IPE and CMHY and will be chaired by Timothy Scholefield, current Chairman
of CMHY (the "BIPS Board"). The BIPS Board will comprise six non-executive
directors all of whom will be independent of the AIFM and the Investment
Manager.
The proposed BIPS Board will be as follows:
* Timothy Scholefield (Chairman), who is the existing chairman of CMHY;
* Kate Bolsover, who is an existing director of the Company, and is proposed
to be appointed senior independent director of BIPS; and
* Caroline Dutot, who is an existing director of CMHY;
* Heather MacCallum, who is an existing director of CMHY;
* Tom Quigley, who is an existing director of CMHY;
* Christine Johnson, who is an existing director of the Company.
In accordance with Provisions 5.2.6 and 6.2.13 of the AIC Code, the Board has
identified that Kate Bolsover and Timothy Scholefield are both directors of
Fidelity Asian Values Plc ("FAS"). However, Timothy Scholefield does not intend
to stand for re-election to the board of FAS at the annual general meeting to
be held in December 2021. It is noted that the majority of the Board of the
Enlarged Company will be independent of each other.
Circular
The Circular is expected to be published shortly and copies will be available
for inspection on the Company's website www.invesco.co.uk/enhancedincome. In
addition, a copy of the Circular has been submitted to the National Storage
Mechanism and will shortly be available for viewing online at the following
website address:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The General Meeting
The General Meeting will be held at the offices of JTC Fund Solutions (Jersey)
Limited, 28 Esplanade, St Helier, Jersey JE2 3QA at 10.00 a.m. on 19 May 2021
but will follow the minimum legal requirements for a general meeting. In line
with current guidance, physical attendance by members at the General Meeting
may not be feasible and is therefore discouraged. Arrangements will therefore
be made by the Company to ensure that a minimum number of Shareholders required
to form a quorum will attend the General Meeting in order that the meeting may
proceed.
Given that it may not be feasible for Shareholders to attend the General
Meeting, Shareholders are strongly encouraged to appoint the Chairman of the
General Meeting as their proxy to vote on their behalf at the General Meeting.
Expected Timetable
2021
Ex dividend date for interim dividend 8 April 2021
Record date for interim dividend 9 April 2021
Ex dividend date for special dividend 29 April 2021
Payment date for interim dividend 30 April 2021
Record date for special dividend 30 April 2021
Record Date for entitlements under the close of business on 13 May
Scheme
Calculation Date 5.00 p.m. on 14 May 2021
Latest time and date for receipt of Forms 10.00 a.m. on 17 May 2021
of Proxy
Suspension of listing of Ordinary Shares 7.30 a.m. on 19 May 2021
General Meeting 10.00 a.m. on 19 May 2021
Effective Date for implementation of the 19 May 2021
Scheme
Payment date for special dividend 20 May 2021
CREST accounts credited with, and dealings As soon as practicable after 8.00
commence in, New CMHY Shares a.m. on 20 May 2021
Certificates despatched in respect of New Week commencing 24 May 2021
CMHY Shares during or as soon as
practicable after
Cancellation of listing of Ordinary Shares as soon as practicable after the
Effective Date
Terms used and not defined in this announcement have the meanings given in the
Circular unless the context otherwise requires.
This announcement does not contain all the information which is contained in
the Circular. Shareholders should read the Circular to make an informed
decision in respect of the Proposals
For further information please contact:
JTC Fund Solutions (Jersey) Limited
+44 (0) 15 3470 0000
Hilary Jones
Invesco Asset Management Limited
+44 (0) 20 3753 1000
Will Ellis
Guy Short
J.P. Morgan Cazenove (Financial Advisor to IPE)+44 (0) 20 7742 4000
William Simmonds
Alexis Owuadey
Important Information
This announcement contains information that is inside information for the
purposes of the Market Abuse Regulation (EU) No. 596/2014. The person
responsible for arranging for the release of this announcement on behalf of IPE
is Hilary Jones of JTC Fund Solutions (Jersey) Limited.
END
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