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 Scheme |
close of business on
13 May |
Calculation Date |
5.00 p.m. on 14 May
2021 |
Latest time and date for receipt of
Forms of Proxy |
10.00 a.m. on 17 May
2021 |
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 Scheme |
19 May 2021 |
Payment date for special
dividend |
20 May 2021 |
CREST accounts credited with, and
dealings commence in, New CMHY Shares |
As soon as practicable
after 8.00 a.m. on 20 May 2021 |
Certificates despatched in respect
of New CMHY Shares during or as soon as practicable after |
Week commencing 24 May
2021 |
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.