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