PJF Prospect Japan

 
TIDMPJF 
 
The Prospect Japan Fund Limited 
 
  Recommended proposal for investment in Prospect Co., Ltd (formerly Gro-bels 
                                   Co., Ltd) 
 
Introduction 
 
Further to the announcement on 26 September 2014, The Prospect Japan Fund 
Limited (the "Company") announces that it has today published a circular (the 
"Circular") relating to a proposed subscription by the Company for up to 
Yen3,000 million (approximately US$28 million) convertible bonds in Prospect 
Co. (formerly Gro-bels), a Japanese real estate developer (the "Proposed 
Investment"). 
 
A copy of the Circular will be submitted to the National Storage Mechanism and 
will shortly be available at: http://www.morningstar.co.uk/uk/NSM . 
 
The Chairman's Letter in respect of the Proposed Investment, as contained in 
the Circular, is set out below and terms used and not defined in this 
announcement bear the meaning given to them in the Circular to be published 
today. 
 
 
Chairman's Letter 
 
"Dear Sir or Madam 
 
 
 
           Recommended proposal for investment in Prospect Co., Ltd 
 
                        (formerly Gro-bels Co., Ltd) and 
 
                    Notice of Extraordinary General Meeting 
 
INTRODUCTION 
 
I am writing to you in connection with a proposed subscription by the Company 
for up to Yen3,000 million (approximately US$28 million) convertible bonds in 
Prospect Co. (formerly Gro-bels),a Japanese real estate developer (the 
"Proposed Investment"). Since Prospect Co. (formerlyGro-bels) is the ultimate 
parent company of the Company's Manager, Prospect Asset Management (Channel 
Islands) Limited, the Proposed Investment constitutes a related party 
transaction for the purposes ofthe Listing Rules and is therefore conditional 
upon Shareholder approval. The resolution to approvethe Proposed Investment, 
which is to be proposed at the Extraordinary General Meeting as anordinary 
resolution, is set out in the notice of the Extraordinary General Meeting at 
the end of thisdocument. 
 
The purpose of this letter is to outline the reasons for the Proposed 
Investment and explain why the 
 
Board: (i) considers the Proposed Investment to be in the best interests of the 
Company and Shareholders as a whole; and (ii) recommends that you vote in 
favour of the Resolution. Since Rupert Evans is a director of the Manager, he 
is not considered to be independent and has therefore nottaken part in the 
Board's consideration of the Proposed Investment. 
 
INFORMATION ON PROSPECT CO. (FORMERLY GRO-BELS) AND RATIONALE FOR THEPROPOSED 
INVESTMENT 
 
Prospect Co. (formerly Gro-bels) is a Japanese publicly listed real estate 
developer (Tokyo Stock Exchange code: 3528). 
 
On 31 August 2013, Gro-bels acquired 100 per cent. ofProspect Co., Ltd, the 
Japanese incorporated ultimate parent of the Manager. Mr Curtis Freeze, a 
director of the Manager, is presidentof Gro-bels. Subsequently on 1 October 
2014, Gro-bels changed its name to Prospect Co., Ltd. 
 
The Company has previously invested in the equity and convertible bonds of 
Prospect Co. (formerlyGro-bels) with such investment comprising up to 5.6 per 
cent. of the Company's gross assets (inAugust 2013) although it has since been 
reducing its investment and as at 24 October 2014 (thelatest practicable date 
prior to the publication of this document) the Company's investment inProspect 
Co. (formerly Gro-bels) amounted to only 0.9 per cent. of the Company's gross 
assets. 
 
Over the last two years Prospect Co. (formerly Gro-bels) has undertaken three 
private corporate transactions, acquiring Sasaki House Ltd, a housebuilder in 
Yamagata, in November 2013, KidohConstruction Co., Ltd, a civil engineering 
company based in Osaka, in March 2014 and Prospect Co.,Ltd, as referred to 
above. Prospect Co. (formerly Gro-bels) now anticipates extending its corporate 
activity to public company transactions. 
 
On 5 March 2014, following approval by Shareholders, the Company adopted a new 
investment objective, policy and investment restrictions, a copy of which are 
included at Appendix I of this document. The new investment restrictions 
included an increase in the amount that the Company may invest or lend in 
securities of any one company or single issuer (other than obligations of the 
Japanese Government or its agencies or of the US Government or its agencies) 
from up to 10 per cent. of its assets to up to 25 per cent. This increase in 
the single investment limit of the investment restrictions is to allow the 
Manager the opportunity to realise value for Shareholders through taking larger 
positions in investee companies and accordingly the Proposed Investment is in 
line with the Company's Investment Policy. 
 
As stated in the circular to shareholders dated 31 January 2014, the ability to 
take larger positions in investee companies is considered to represent an 
opportunity to realise value for Shareholders through the initiation of a 
corporate transaction or other corporate action (such as buybacks, asset sales 
or reconstructions). The investment in Prospect Co. (formerly Gro-bels), which 
will provide it with capital in support of extending its corporate activity in 
Japanese listed companies (as described above), is therefore in furtherance of 
the opportunity to realise value for Shareholders, particularly in such 
instances where the corporate activism of Prospect Co. (formerly Gro-bels) may 
relate to the 
 
Japanese listed companies which are held by the Company. Although Prospect Co. 
(formerlyGro-bels) does not currently hold any common investments with the 
Company, it is anticipated thatProspect Co. (formerly Gro-bels) may in the 
future invest in companies that do form part of theCompany's investment 
portfolio as part of its corporate activity in Japanese listed companies. In 
suchinstances, the ability of Prospect Co. (formerly Gro-bels) and the Company 
to initiate corporate actions, and therefore realise value for both companies' 
shareholders, will be improved as a result of their combined shareholding. The 
Company may also benefit from future appreciation of the Prospect Co. (formerly 
Gro-bels) share price that may result from its corporate activism (or 
otherwise) as a result of the Company's option to convert the Convertible Bonds 
into Prospect Co. (formerly Gro-bels)equity. 
 
The Convertible Bonds (as described above) will have a face value of Yen 75 
million, will mature on25 May 2020, carry an annual coupon of 4.00 per cent. 
and will be convertible into the shares ofProspect Co. (formerly Gro-bels) at 
an initial price of Yen 60 per share in units of Yen 75 million (seePart II 
below for further details). As at 24 October 2014 (being the latest practicable 
date prior to the publication of this document) Prospect Co.'s (formerly 
Gro-bels) share price was Yen 51 per share with a three month trading range to 
the same date of Yen 51 to Yen 69 per share. TheConvertible Bonds stand in 
priority to the equity of Prospect Co. (formerly Gro-bels), carry a coupon 
significantly in excess of the current equity dividend yield and provide the 
option for the Company to convert into the equity of Prospect Co. (formerly 
Gro-bels) over the period to 25 May 2020 at a modest premium to the current 
share price. The Company will be the sole subscriber for the issue of 
Convertible Bonds and they will be unlisted. 
 
On 12 September 2014, the Company entered into a subscription agreement with 
Prospect Co.(formerly Gro-bels) to subscribe for the Convertible Bonds. This 
subscription agreement was subsequently cancelled following agreement by both 
parties as it did not provide for the prior approval of the Company's 
shareholders. It is expected that the Company will enter into the 
ProposedSubscription Agreement on, or around, 20 November 2014 to subscribe for 
the Convertible Bonds,in the event of approval by Shareholders of the 
Resolution. The terms of the Proposed SubscriptionAgreement are summarised in 
paragraph 3 of Part II of this document. 
 
RELATED PARTY TRANSACTION 
 
As noted above, Prospect Co. (formerly Gro-bels) is the ultimate parent company 
of the Manager and, in light of this being a member of the Manager's group, is 
accordingly classified as a related party of the Company. 
 
The Listing Rules require that a related party transaction of a listed company 
must be approved by its shareholders other than the related party (or its 
associates), unless certain exemptions apply. Although the Proposed Investment 
is considered to be in accordance with the Company's Investment Policy, it is 
the first significant investment following the adoption of the new Investment 
Policy inMarch 2014 and will represent up to 25 per cent. of the Company's 
gross assets at the time theinvestment is made. Since no exemptions are 
applicable in relation to the Proposed Investment, theinvestment is subject to 
the passing of the Resolution, which will be proposed as an ordinary resolution 
and will require the approval of a majority of the Shareholders voting on the 
Resolution.The Manager has undertaken not to, and to take all reasonable steps 
to ensure that its associates will not, vote on the Resolution. 
 
The Board, having been so advised by Westhouse Securities, considers the terms 
of the Proposed Investment to be fair and reasonable insofar as Shareholders 
are concerned. In providing advice to the Board, Westhouse Securities has taken 
into account the Board's commercial assessments of the Proposed Investment. 
 
RESOLUTION 
 
You will find set out at the end of this document, a notice convening an 
extraordinary general meetingof the Company to be held at 10.00 a.m. on 
Thursday, 20 November 2014. The Resolution tobe proposed at the EGM to approve 
the Proposed Investment will be proposed as an ordinaryresolution. 
 
All persons holding Shares (other than the Manager and its associates) at 10.00 
a.m. on Tuesday, 18 November 2014, or if the EGM is adjourned, on the register 
of Shareholders of the Company48 hours before the time of any adjourned EGM, 
present in person or by proxy, shall be entitled to attend, speak and vote at 
the EGM and shall be entitled upon a show of hands to one vote and upon a poll 
to one vote per Share held. In order to ensure that a quorum is present at the 
EGM, itis necessary for two or more Shareholders holding 5 per cent. or more of 
the voting rights applicable to such meeting to be present in person or by 
proxy (or, if a corporation, by a representative). 
 
ACTION TO BE TAKEN 
 
Appointment of proxy 
 
Whether or not you intend to attend the EGM you should ensure that your Proxy 
Appointment is returned in hard copy form by post, by courier or by hand to the 
Company's registrars,Computershare Investor Services (Jersey) Limited, c/o The 
Pavilions, Bridgwater Road, Bristol BS99 6ZY by no later than 48 hours before 
the time for holding of the EGM. To be valid, the relevantProxy Appointment 
should be completed in accordance with the instructions accompanying it 
andlodged with the Company's registrars by the relevant time. 
 
Completion and return of the Proxy Appointment will not affect a Shareholder's 
right to attend, speakand vote at the EGM. 
 
RECOMMENDATION 
 
Your Board is of the opinion that the Proposed Investment is in the best 
interests of the Company and its Shareholders as a whole and unanimously 
recommends that Shareholders vote in favour of the Resolution to be proposed at 
the EGM. Rupert Evans has not taken part in the Board's consideration of the 
Proposed Investment and has refrained from voting on any Board decisions with 
regard to it. 
 
Yours faithfully 
 
John Hawkins 
Chairman 
 
 
 
Enquiries: 
 
Northern Trust International Fund AdministrationServices (Guernsey) Limited 
Franczeska King 
+44 (0) 1481 745918 
 
Westhouse Securities Limited 
Alastair Moreton/ Darren Vickers 
+44 (0) 20 7601 6118 
 
 
 
END 
 

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