TIDMWKOF
WEISS KOREA OPPORTUNITY FUND LTD.
LEI 213800GXKGJVWN3BF511
(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)
HALF-YEARLY FINANCIAL REPORT
FOR THE PERIODED 30 JUNE 2021
Weiss Korea Opportunity Fund Ltd. (the "Company") has today, released its
Half-Yearly Financial Report for the period ended 30 June 2021. The Report will
shortly be available for inspection via the
Company's website www.weisskoreaopportunityfund.com.
For further information, please contact:
Singer Capital Markets
James Maxwell/Justin McKeegan - Nominated +44 20 7496 3000
Adviser
James Waterlow - Sales
Northern Trust International Fund
Administration Services (Guernsey) Limited
Andy Le Page +44 1481 745 405
Summary Information
The Company
Weiss Korea Opportunity Fund Ltd. ("WKOF" or the "Company") was incorporated
with limited liability in Guernsey as a closed-ended investment company on 12
April 2013. The Company's Shares were admitted to trading on the Alternative
Investment Market ("AIM") of the London Stock Exchange (the "LSE") on 14 May
2013.
The Company is managed by Weiss Asset Management LP (the "Investment Manager"),
a Boston-based investment management company registered with the Securities and
Exchange Commission in the United States of America.
Investment Objective and Dividend Policy
The Company's investment objective is to provide Shareholders with an
attractive return on their investment, predominantly through long-term capital
appreciation. The Company is geographically focused on South Korean companies.
Specifically, the Company invests primarily in listed preferred shares issued
by companies incorporated in South Korea, which in many cases trade at a
discount to the corresponding common shares of the same companies. Since the
Company's Admission to AIM, the Investment Manager has assembled a portfolio of
South Korean preferred shares that it believes are undervalued and could
appreciate based on the criteria that it selects. The Company may, in
accordance with its investment policy, also invest some portion of its assets
in other securities, including exchange-traded funds, futures contracts,
options, swaps and derivatives related to South Korean equities, and cash and
cash equivalents. The Company does not have any concentration limits.
The Company intends to return to Shareholders all dividends received, net of
withholding tax, on an annual basis.
Investment Policy
The Company is geographically focused on South Korean companies. Some of the
considerations that affect the Investment Manager's choice of securities to buy
and sell may include the discount at which a preferred share is trading
relative to its respective common share, its dividend yield, its liquidity, and
the weighting of its common share (if any) in the MSCI Korea 25/50 Net Total
Return Index (the "Korea Index"), among other factors. Not all of these factors
will necessarily be satisfied for particular investments. The Investment
Manager does not generally make decisions based on corporate fundamentals or
its view of the commercial prospects of an issuer. Preferred shares are
selected by the Investment Manager at its sole discretion, subject to the
overall control of the board of directors of the Company (the "Board").
The Company purchased certain credit default swaps on the sovereign debt of
South Korea and put options on iShares MSCI South Korea as general market and
portfolio hedges, but generally did not hedge its exposure to interest rates or
foreign currencies during the period ended 30 June 2021 (2020: Nil). Please see
additional information about the nature of these hedges in the Investment
Manager's Report.
Realisation Opportunity
In accordance with the Company's Articles of Incorporation and its Admission
Document, the Company offers all Shareholders the right to elect to realise
some or all of the value of their Ordinary Shares (the "Realisation
Opportunity"), less applicable costs and expenses, on or prior to the fourth
anniversary of Company's admission to AIM and, unless it has already been
determined that the Company be wound-up, every two years thereafter, the most
recent being 14 May 2021 (the "Realisation Date").
On 15 March 2021, the Company announced that pursuant to the Realisation
Opportunity, Shareholders who were on the register as at the record date could
elect, during the Election Period, to redesignate all or part of their Ordinary
Shares as Realisation Shares (provided that any part is rounded up to the
nearest whole Ordinary Share). The Election Period commenced on 14 April 2021
and closed on 7 May 2021. Elections were received from shareholders totalling
of 11,710,750 Ordinary Shares, representing 14.5 per cent of the Company's
issued share capital.
Following the Realisation Date, the Ordinary Shares held by the Shareholders
who elected for Realisation were redesignated as Realisation Shares and the
Portfolio was split into two separate and distinct Pools, namely the
Continuation Pool (comprising the assets attributable to the continuing
Ordinary Shares) and the Realisation Pool (comprising the assets attributable
to the Realisation Shares).
On 23 June 2021, the Company announced that it had made good progress with the
sale of assets in the Realisation Pool and would commence with the first
compulsory redemption of Realisation shares representing approximately 76.7 per
cent. of Realisation Shares in issue (the "First Redemption"). The First
Redemption was effected pro-rata to holdings of Realisation Shares on the
register at the close of business on 22 June 2021 ("First Redemption Date").
The First Redemption price was 278.4 pence per Realisation Share (the "First
Redemptions Price"), equivalent to the unaudited Net Asset Value per
Realisation Share as at 31 May 2021.
Following the period end, the Company made good progress with the sale of the
remaining assets in the Realisation Pool and on 7 September 2021 announced a
second compulsory redemption of Realisation shares representing approximately
90 per cent of Realisation Shares (the "Second Redemption"). The Second
Redemption will be effected in the same manner as the First Redemption at a
price of 275.55 pence per Realisation Share, equivalent to the Net Asset Value
per Realisation Share as at 31 August 2021, and with a record date of 6
September 2021.
Share Buybacks
In addition to the Realisation Opportunity, the Company has authority to
repurchase on the open market up to 40 percent of its outstanding Ordinary
Shares. During the period ended 30 June 2021, the Company purchased 600,000
shares (2020: Nil) of its own Shares at a consideration of £1,719,433 (31
December 2020: £Nil) under its general buyback authority.
Shareholder Information
Northern Trust International Fund Administration Services (Guernsey) Limited
(the "Administrator") is responsible for calculating the Net Asset Value
("NAV") per Share of the Company. The unaudited NAV per Ordinary Share is
calculated on a weekly basis and at the month end by the Administrator, and is
announced by a Regulatory News Service and is available through the Company's
website www.weisskoreaopportunityfund.com.
Company financial highlights and performance summary for the period ended 30
June 2021
As at As at
30 June 2021 31 December 2020
£ £
Total Net Assets 202,234,409 203,124,953
NAV per share - Continuation 2.8038 2.4887
Pool
NAV per share - Realisation 2.8975 -
Pool
Basic and diluted earnings per share - 0.3792 0.9724
Continuation Pool
Basic and diluted earnings per share - 0.0894 -
Realisation Pool
Mid-Market share price - Continuation 2.73 2.38
Pool
Discount to NAV* - Continuation (2.6%) (4.4%)
Pool
As at close of business on 1 September 2021, the latest published NAV per Share
of the Continuation Pool had increased to £2.5605 (as at 31 August 2021) and
the Share price stood at £2.58.
*The amount by which the market value exceeds or is less than the face value of
a stock.
Total Expense Ratio
The annualised total expense ratio of the Continuation Pool and the Realisation
Pool for the six months ended 30 June 2021 were 1.76% and 1.60%, respectively
(as at 31 December 2020: 1.81% and Nil, respectively). The annualised total
expense ratio includes charges paid to the Investment Manager and other
expenses divided by the average NAV for the period.
Chair's Review
For the period ended 30 June 2021
We are pleased to provide the 2021 Half Yearly Report on the Company. During
the period from 31 December 2020 to 30 June 2021 (the "Period"), the Company's
net asset value increased by 14.8 per cent including reinvested dividends1
outperforming the reference MSCI Korea 25/50 Net Total Return Index (the "Korea
Index"), which increased 7.5 per cent in Pounds Sterling ("GBP"). Since the
admission of the Company to AIM in May 2013, the net asset value has increased
by 232.2 per cent including reinvested dividends1 (or 212.2 per cent assuming
dividends are not reinvested in the Company)2, compared to the Korea Index
returns of 111.2 per cent.2, an annualised outperformance of the index of
14.9%. A report from the Investment Manager follows.
The Directors declared a dividend of 5.2311 pence per Share, ex-dividend date
10 May 2021, to distribute the income received by the Company in respect of the
year ended 31 December 2020. This dividend was paid to all Shareholders on 4
June 2021.
As I reported to investors in prior letters, WKOF is pursuing a strategy of
rebalancing the portfolio towards Korean preference shares trading at wider
discounts, where the Investment Manager believes the greatest returns can be
made. This continues to be the strategy and WKOF's 'Portfolio Discount' reached
52% at 30 June 2021 and is still currently approximately 52%. That is the
widest Portfolio Discount WKOF has held since 2013. The widening of the
Portfolio Discount was in part due to the Company substantially reducing its
exposure to the preferred shares of Samsung Electronics while those preferred
shares were trading at historically narrow discounts to the company's common
shares. The Company has been successful to date in capturing returns from
discount narrowing in the preferred share space. Given the current Portfolio
Discount, the Board believes the Company is well positioned for additional
outperformance from further discount narrowing over time.
After 8 years of managing the portfolio, your Investment Manager has
demonstrated that, although a narrowing of the discounts of preferred shares
due to changes in corporate governance in Korea would be preferable, they are
not essential to outperform the benchmark. WAM has been able to profitably
trade volatility in preferred share discounts over the past 8 years, resulting
in the significant outperformance mentioned in this review and the Investment
Manager's Review. Corporate Governance in Korea has significantly improved
since the launch of the Company and with the portfolio discount still at over
50%, the Board looks forward to continued outperformance in the coming months
and years. The staff at Weiss Asset Management should be congratulated in
carrying out their mandate so successfully over the past 8 years.
When the Company was launched in 2013 it committed to offer Shareholders the
opportunity to elect to realise all or a part of their shareholding on or prior
to the fourth anniversary of the Company's admission to AIM and every two years
thereafter, unless it has already been determined that the Company will be
wound-up.
The Company conducted its third Realisation Opportunity during the Period and
on 7 May 2021, the Election Period for the Realisation Opportunity closed;
valid elections were received from Shareholders totalling 11,710,750 Ordinary
Shares, representing approximately 14.5 per cent. of the Company's issued share
capital. On 14 May 2021, these electing Ordinary Shares were redesignated as
Realisation Shares, and on 28 June 2021, a first cash redemption equivalent to
76.7% of Realisation Shares in issue was paid out to holders of Realisation
Shares, followed by the second distribution of 90% of the Realisation Shares
announced on the 7 September 2021. All Realisation Shares that were redeemed
will be re-designated as Ordinary Shares and held in Treasury.
None of the Directors and personnel associated with the Investment Manager
participated in the Realisation Opportunity in respect of all, or any part of,
their respective shareholdings.
As I previewed in my year end letter to you, the Board and the Investment
Manager have been working on a number of initiatives to broaden the shareholder
base, increase liquidity for all Shareholders and make WKOF more attractive to
a wider audience. In furtherance of these goals, the Company became a member of
the Association of Investment Companies and registered under the Alternative
Investment Fund Managers Directive ("AIFMD") during the Period. AIFMD
registration allows the Company to issue new shares at a premium to NAV as well
as redesignating Realisation Shares as Ordinary Shares that may be held in
Treasury and be reissued without the costs typically associated with a new
share issue. Registration also permits the Investment Manager to promote
outstanding stock more actively to institutional investors in the UK which the
Company intends to do in the near future as the opportunity to invest through
preferred shares is the most attractive it has been since the launch of the
Company 8 years ago.
Based on the fact that the assets currently held by the Company consist mainly
of securities that are readily realisable, whilst the Directors acknowledge
that the liquidity of these assets needs to be managed, the Directors believe
that the Company has adequate financial resources to meet its liabilities as
they fall due for at least twelve months from the date of this report, and that
it is appropriate for the Financial Statements to be prepared on a going
concern basis.
The Company has an active share repurchase program as part of its discount
management strategy. On 27 January 2021, the Company purchased 600,000 ordinary
shares at a price of 286.00p per share in accordance with the authority granted
to it by Shareholders at its 2020 Annual General Meeting.
The Board is authorised to repurchase up to 40 per cent of the Company's
outstanding Ordinary Shares in issue as at 22 July 2021.3 Since Admission
almost six years ago, and as at the date of this document, the Company has
repurchased, at a discount to NAV, 13,190,250 Ordinary Shares of the original
105,000,000 Ordinary Shares issued at Admission. The Board also has in place
standing instructions with the Company's broker, Singer Capital Markets
("Broker" or "Singer"), for the repurchase of the Company's Shares during
closed periods when the Board is not permitted to give individual instructions;
such closed periods typically occur around the preparation of the Annual and
Half Yearly Financial Reports. The Board intends to continue to aggressively
repurchase Shares if the Company's Shares are trading at a significant discount
to net asset value. We will continue to keep Shareholders informed of any share
repurchases through public announcements.
As mentioned above, the portfolio of preferred shares held by your Company is
trading at a discount to their equivalent ordinary shares not seen since the
IPO over 8 years ago. The Board and the Investment Manager therefore believe
that, for the first time since 2013, there is an opportunity for additional
equity capital to be raised and invested in WKOF's strategy. This will allow
existing and new investors access to a strategy that has proved successful on
an absolute and relative basis over the past 8 years, an opportunity that the
Board and Investment Manager believe will continue to be attractive over the
medium term.
The Board is therefore exploring the most appropriate way of raising additional
capital with a view to delivering further value for shareholders. A further
announcement will follow in due course.
The Directors are pleased to welcome Gill Morris on to the Board where she will
take over as head of the Audit Committee from Steve Coe in due course, as
Steve's 8-year tenure on the Board approaches. Rob and I would like to thank
Steve for his expertise, help and guidance to the Board and Shareholders since
the launch of the Company, as well as his friendship. Gill also has a wealth of
experience to bring to the role of audit chair as well as bringing a fresh
perspective to the various issues, opportunities and challenges the Company
will encounter over the next few, exciting years.
Update on Environmental, Social and Governance ("ESG") Initiatives
In the Chair's Statement in the last Annual Report, several paragraphs were
dedicated to a discussion on how the Company could engage more effectively with
its various stakeholders on Environmental, Social and Governance issues. During
the first half of the year, I spoke with several shareholders of the three
investment trusts I am a director of, and subsequently several service
providers on a confidential basis about what approach they were taking with
regard to ESG issues. As the Directors have made corporate governance central
to their entire approach to the custodianship of Shareholders' interests, most
of the time was spent discussing Environmental and Social ("E&S") issues. I
would like to thank all those who took part.
The aim of the discussions with the various investment managers was not to
determine, encourage or suggest that they use ESG criteria in stock selection.
Some investment mandates may take that into consideration, others will not. The
aim was to start a conversation on how investment managers, and other
stakeholders, apply ESG criteria within their own organisations. Shareholders
pay investment managers, lawyers, accountants, and other service providers fees
on an annual basis so many shareholders are keen to establish that some of that
money is used to further E&S issues. WKOF is in an unusual position in that the
Company owns non-voting shares so the influence over our underlying investments
is negligible. WAM also uses quantitative factors in establishing buy and sell
levels for the preferred shares in the portfolio. It is not in WKOF's
Investment Policy to use ESG metrics in stock selection but to invest in
undervalued or mispriced Korean preferred shares. This doctrine has served
Shareholders well over the 8-year life of the Company and the Board expects
this approach will continue for the foreseeable future.
All but one of the stakeholders approached was willing to discuss E&S issues in
detail and those agreeable gave up a great deal of their valuable time to help
in this process. The overwhelming impression from my discussions was that many
Shareholders and service providers are treating E&S considerations with an
increasing sense of importance and that changes being made in these areas are
being driven from the ground up, by shareholders, clients and staff rather than
top down by governments or industry bodies. Some have taken it upon themselves
to push E&S matters up the corporate agenda, whereas others have created
committees to ensure that ESG issues are promoted within their organisation and
encouraged in the wider community. It is clear that an organization's ESG
principles are now scrutinised when Shareholders and service providers
determine with whom to do business. As one person said, "If we pay anyone, then
we believe they should adhere to our ESG principles."
Many of those contacted believed that the UN Principles of Responsible
Investment ("UNPRI") provided a useful standard. I encourage all the Company's
shareholders and service providers to familiarise themselves with the
Principles (further information may be found here www.unpri.org). Another
common theme was that many shareholders and service providers use interactions
with other groups to promote the ESG agenda. This may include the companies in
which investment managers invest on behalf of shareholders, other shareholders
they might interact with, as well as governments, national pension funds and
other interested parties.
On Environmental issues, the main concern raised by shareholders and service
providers was climate change. Several recognised that business travel is one of
the biggest sources of carbon emissions within their workplace and had used
offset programs in the past. Some were now in the process of refining that
approach to find the best offset program or reduce business travel accordingly.
Others still were looking to quantify less obvious sources of carbon emissions
by asking staff to detail their modes of travel to work. Once the problem has
been measured, it is much easier to work on a solution. The Board felt this was
a very sensible approach and will be adopting this in the coming months for
your Company. Many were looking to lower carbon emissions by encouraging more
environmentally friendly modes of transport such as cycling or walking to work,
which may mean the installation of bicycle racks and showers. Only one of the
companies approached was able to say that they used green suppliers for their
electricity, but we are sure that number will increase over time as this is an
obvious way to reduce everyone's carbon footprint.
The response to Social issues was even more positive. Social issues such as
sexism, racism, bullying and mental health are now much higher priority to
service providers, and all are working hard to address these problems. It is
positive that mental health is now a focus of several service providers. The
Directors are pleased that some of the money that Shareholders pay to service
providers is being used to address this issue, which has been brought clearly
into focus during the current pandemic. Many of us have worked in the industry
long enough to have lost friends and colleagues to suicide, drugs, alcohol or
just over-work to understand the importance of good mental health support.
Commendably, some stakeholders are also expanding this care into support for
groups outside their offices. Many stakeholders support local charities with
one stakeholder going even further and donating 10% of corporate profit to
charities around the world, selected by employees.
The E&S issues touched on above should be important in a civilised society but
all too often they are downplayed in the quest for profit. One stakeholder
approached has an Ethics Committee, and that is arguably more important. If we
are acting in an ethical manner, then are not the Environmental and Social
issues mentioned above already covered by ethics? An Ethics Committee with a
broad enough remit and the power to address issues raised should cover all the
ESG problems and many more.
During these discussions it was suggested that the Company should introduce a
framework to measure progress in ESG issues. I am reluctant to do this now as
many groups already have a great deal of form-filling to deal with and adding
to that burden should be avoided. We will however continue to discuss ESG with
our stakeholders on an informal basis for the moment and I will report back to
shareholders in the next Annual Report.
At the moment your Board will be satisfied to see an improvement in ESG
standards from all of your stakeholders. Some are just beginning to address E&S
issues whereas others have a very sophisticated approach. We look forward to
helping everyone work together to improve all aspects of ESG for the investment
trust industry.
The investment trust industry pays billions of pounds to investment managers
and hundreds of millions of pounds to accountants, lawyers, company secretaries
and all the other groups that make our industry run effectively. It is clear
that shareholders of investment trusts have recently added E&S to their list of
priorities along with Governance. I believe the boards of investment trusts, as
the representatives of shareholders, have a duty to reflect these new
priorities to other stakeholders, and to ensure that these new concerns are
communicated well. Just as the industry responded to higher governance
standards during my career from the 1990's onwards, so must the entire industry
react to increasing concerns to E&S standards. On behalf of my fellow directors
and Shareholders, I look forward to helping everyone work together to improve
all aspects of ESG for the investment trust industry.
1 This return includes all dividends paid to the Company's Shareholders and
assumes that these dividends were reinvested in the Company's Shares at the
next date for which the Company reports a NAV, at the NAV for that date.
2 MSCI total return indices are calculated as if any dividends paid by
constituents are reinvested at their respective closing prices on the ex-date
of the distribution.
3 On 22 July 2020, the Company had 69,307,078 Ordinary Shares in issue.
Norman Crighton
Chair
7 September 2021
Investment Manager's Report
For the period ended 30 June 2021
Performance
In the first half of 2021, Weiss Korea Opportunity Fund's ("WKOF's") NAV in
Pounds Sterling ("GBP") gained 14.6 per cent, including reinvested dividends.1
This was an outperformance compared with the MSCI Korea 25/50 Index, which
gained 7.5 per cent in GBP during the same period.2 From its inception in May
2013 through 30 June 2021, WKOF has significantly outperformed the MSCI Korea
25/50 Index: WKOF's NAV has increased 231.8 per cent (including reinvested
dividends), compared to a 111.2 per cent return for the MSCI Korea 25/50 Index.
The outperformance against the MSCI Korea 25/50 Index during the first half of
2021 was largely due to narrowing of discounts among preferred shares held in
WKOF's portfolio.
Macroeconomics & COVID-19
The South Korean economy continues to recover from the effects of the COVID-19
pandemic. Based on improving economic data, the Governor of the Bank of Korea
(the "Bank") commented in late June that the Bank expected to raise interest
rates within the year. However, the Bank has not yet begun implementing that
change; at its 15 July meeting, the Bank held rates steady at 0.50 per cent, an
all-time low, which we believe is attributable to a spike in COVID-19 cases
during the month. South Korea's headline CPI inflation moderated to 2.4 per
cent year-on-year in June from 2.6 per cent in May but remains higher than the
Bank of Korea's medium target inflation rate of 2 per cent.
South Korea's economy continued to benefit from a strong upswing in exports,
driven largely by pent up demand for its memory chips and cars. Export figures
continue to rise as June ended with a 5.1 per cent month-over-month
seasonally-adjusted expansion, marking five months of consecutive gains, and
contributing to a year-over-year increase in overseas shipments of
approximately 40 per cent. A substantial contributor to this increase in
exports is a rise in semiconductor exports. As a major semiconductor exporter,
Korea has benefited from the shortages in global semiconductor supply;
moreover, the government has recently enacted policies to further boost the
industry. For example, in May, President Moon announced a 'K-Semiconductor
Strategy' to increase its market share across memory and non-memory chips by
providing tax breaks and easing regulations for domestic chipmakers.
Not all recent economic developments have been positive, however. In July, the
emergence of the Delta variant led to a fourth wave of COVID-19 infections
across South Korea. In response, the government reinstated social distancing
guidelines and pandemic controls that it had been easing over the prior months.
Seoul has been subject to the most stringent social distancing protocols (Level
4) while surrounding regions have implemented 'Level 2' procedures. As the
Delta variant has already produced the highest 7-day average number of new
cases since the start of the pandemic, we are carefully monitoring this fourth
wave of new cases and its impact. Fortunately, case fatality rates in South
Korea remain at their lowest levels since April 2020. Vaccination rates have
been slow but have showed meaningful progress since March; these rose from near
zero at end-March to greater than 29 per cent of the total population being
fully vaccinated as of end-August, with 56 per cent having received at least
one dose.
Portfolio Changes
WKOF's Portfolio Discount widened from 49 per cent at end-December to 52 per
cent at end-June. This is the widest month-end Portfolio Discount that WKOF has
had. The Portfolio Discount represents the discount of WKOF's actual NAV to the
value of what the NAV would be if WKOF held the respective common shares of
issuers rather than preferred shares. We believe that a wider Portfolio
Discount is generally consistent with a portfolio with higher expected returns.
Note that a widening Portfolio Discount need not imply underperformance.
Rather, an increase in the Portfolio Discount could occur if we sold securities
with smaller discounts and purchased securities with larger discounts. We have
been doing just that opportunistically from time to time, as we believe that
securities with wider discounts have greater potential for future
outperformance. WKOF's NAV outperformed the MSCI Korea 25/50 Index during the
first half of 2020 even as the Portfolio Discount increased.
A large driver of WKOF's returns since inception has been the narrowing of
discounts of individual preferred shares owned versus the corresponding
ordinary shares. In 2018, we previewed our plans to rebalance the Company's
portfolio over time toward wider-discount Korean preferred shares; this
rebalancing has enabled us to maintain a substantial Portfolio Discount by
trading preferred shares with narrow discounts for those with wider ones.
WKOF's annualised portfolio turnover for the first half of 2021 was higher than
in all years apart from 2013 when the portfolio was under construction. The
opportunities to profitably trade into and out of preferred shares are a
function of the dispersion of discounts and available liquidity; currently both
are high. As a result, WKOF's portfolio turnover remained elevated and on an
annualized basis higher than turnover in 2020. The Fund purchased approximately
82 million GBP and sold approximately 118 million GBP over an average monthly
NAV of 274 million GBP. See Note 8 for purchase and disposal information.
In line with this plan, WKOF continued to reduce its exposure to Samsung
Electronics' ("Samsung") preferred shares during the first half of the year,
resulting in Samsung no longer constituting a top-ten holding by end-June. When
WKOF launched in May 2013, Samsung's preferred shares were trading at
approximately a 35 per cent discount. At the end of June 2021, that discount
had narrowed to 8.7 per cent. Replacing Samsung and Korean ETF exposure with
securities trading at wider discounts was a significant contribution to the
widening of the Portfolio Discount.
We remind Shareholders to consider the preferred share discount levels
described above in the context of the general fundamentals of the Korean
equities market. The KOSPI 200 Index trades at a discount to other regional
indices such as the Nikkei or Taiwan Stock Exchange Weighted Index based on
forward price-to-earnings multiples. As of 31 August 2021, the KOSPI 200 Index
had a forward P/E Ratio of 10.7, compared to the TAIEX at 14.1, the S&P at
22.4, and the Nikkei at 17.1.
Index Name Forward P/E P/B Ratio Dividend Yield
Ratio3
Nifty Index (India) 23.5 3.6 1.0%
S&P 500 (US) 22.4 4.7 1.3%
Nikkei 225 (Japan) 17.1 1.9 1.6%
TAIEX (Taiwan) 14.1 2.3 2.6%
FTSE 100 (UK) 12.6 1.8 3.8%
KOSPI 200 (S. Korea) 10.7 1.1 2.2%
Shanghai Composite (China) 13.0 1.7 2.0%
Hang Seng Index (HK) 12.3 1.0 2.6%
Source: Bloomberg, as of 31 August 2021
In addition to reducing its holdings of Samsung preferred shares, WKOF also
increased exposure to Hyundai Motor Co ("Hyundai") during the period. This
change has further contributed to the divergence of WKOF's holdings from the
MSCI 25/50 Index weightings. Shareholders should be aware that WKOF was
significantly underweight Samsung and overweight Hyundai Motor Co relative to
MSCI Korea 25/50 Index at the end of June.
Hyundai has three series of preferred shares outstanding, all trading at
greater than 50 per cent discounts to Hyundai's ordinary shares. WKOF has
previously held all three preferred share series, but currently only holds the
2nd and 3rd series. The three series have historically traded at different
levels, with the most liquid 2nd series trading at the narrowest discount, and
the least liquid 3rd series at the widest discount. However, in January and
late February, the 2nd series of preferred shares traded considerably wider
than the 1st series. Following this development, WKOF transferred its exposure
from the 1st series to the 2nd series since it continued to have greater
liquidity and upside potential conditional upon a reversion to historical
discount levels. This effect is enhanced as the discounts between Hyundai's
preferred shares and its common shares have widened significantly. As of 30
June 2021, the 2nd series of preferred shares of Hyundai were trading at a 52%
discount, compared to a 42% discount in June 2020. Additionally, the chairman
of Hyundai Motor Group announced he is considering options for a restructuring
of the conglomerate and the modernization of its current cross-shareholding
structure. As it stands, entities within the conglomerate have controlling
interests in each other. We believe that a restructuring would benefit
shareholders of Hyundai and have the potential to cause preferred share
discounts to narrow.
Discounts in other substantial positions in WKOF's portfolio have also
narrowed, notably Amorepacific and Kumho Petro Chem ("Kumho"). Interestingly,
in the case of Kumho, the discount change appears to have been largely driven
by activism by members of Kumho's controlling family. This led to a proxy
battle for board seats between the current chairman and the chairman's nephew,
who is also the largest individual shareholder. Both parties pressed for a
dividend increase; the Chairman suggested a 174 per cent increase in dividend
per share while the activist (nephew) suggested a greater than 600% increase.
The chairman won most agenda items at March's Annual General Meeting, including
the contested dividend increase. Following this development, the preferred
discount narrowed from 61 per cent to 56 per cent. While this specific set of
circumstances is unlikely to repeat, we believe preferred shares trading at
greater than 60 per cent discounts to common shares present an attractive
opportunity.
Positive dividend trends
Dividend trends in the Korean market also remain positive. According to the
Korea Exchange, combined dividend payments in 2020 by KOSPI companies closing
their books in December increased by 60.7 per cent year-over-year, reaching a
five-year high. The average dividend yield of all listed preferred shares also
reached a five year high of 2.62 per cent (compared to 2.58, 2.51, and 2.28 per
cent in 2019, 2018, and 2017, respectively). At the same time, the dividend
payout ratio of the KOSPI has increased significantly since 2017, to around 40%
at the end of 2020.
While the companies in WKOF's portfolio pay a lower dividend on average, we are
hopeful that broader market trends relating to dividends will extend to these
companies as well, and that such trends will be accompanied by common price
increases and narrowing preferred discounts.
Hedging
WKOF pursues its investment strategy with a portfolio that is generally long
only. However, as described more fully in WKOF's Annual Report and Audited
Financial Statements for the year ended 31 December 2017, because of political
tensions in Northeast Asia, the Board approved a hedging strategy in September
2017 that was intended to reduce exposure to extreme events that would be
catastrophic to its Shareholders' investments in WKOF. As a result, WKOF has
limited its use of hedging instruments to purchases of credit default swaps
("CDS") and put options on the MSCI Korea 25/50 Index: securities that we
believe would generate high returns if WKOF experienced geopolitical disaster
without introducing material new risks into the portfolio. These catastrophe
hedges are not expected to make money in most states of the world. We expect
that, as with any insurance policy, WKOF's hedges will lose money most of the
time. The tables below provide details about the hedges as of 30 June 2021.
Note that outside of the general market and portfolio hedges described herein,
WKOF has generally not hedged interest rates or currencies.
Credit Default Notional Total Cost Annual Price Paid as Expiration Duration
Swaps on South Value (USD) to Cost % of Notional Date (Years)
Korean Expiration (USD) Value
Sovereign Debt (USD) (per annum)
5 year CDS $20m $457,151 $91,430 45bps 2023 5.0
3 year CDS $80m $431,216 $143,739 18bps 2023 3.0
Total Cost $888,367 $235,169
Number of Put Option Strike Total Cost to Purchase Expiration
Contracts Held on EWY4 Price (USD) Expiration (USD) Date Date
2,000 $78 $504,069 18 June 21 January
2021 2022
Total Cost $504,069
Conclusion
In the context of WKOF's performance over its more than eight year history, it
is perhaps surprising to find that the prospects for the current portfolio of
Korean preferred shares seem as attractive as they have been since WKOF's
inception. The overall Korean market remains one of the more cheaply valued
equity markets globally and in the Asian region. There are more opportunities
to invest in preferred shares at wide discounts today than we have seen in the
last few years. Volatility in discounts over the last several years has
presented opportunities to generate additional returns to investors. WKOF has a
diversified portfolio of preference shares that as a group trade at less than
half of the market value of the voting shares. While we do not have a crystal
ball, we believe that this portfolio is a compelling value proposition for long
term investors.
Weiss Asset Management LP
7 September 2021
1 This return includes all dividends paid to the Company's Shareholders and
assumes that these dividends were reinvested in the Company's Shares at the
next date for which the Company reports a NAV, at the NAV for that date.
2 MSCI Korea 25/50 Net Total Return Index denominated in GBP. MSCI total return
indices are calculated as if any dividends paid by constituents are reinvested
at their respective closing prices on the ex-date of the distribution.
3 Forward Price/Earnings ratio based on estimated earnings, Bloomberg.
4 iShares MSCI South Korea ETF, U.S. ticker EWY
Statement of Principal and Emerging Risks and Uncertainties
For the period ended 30 June 2021
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its meetings
and annually by the Board. The Board believes that the Company has adequate and
effective systems in place to identify, mitigate, and manage the risks to which
it is exposed.
Emerging Risks
In order to recognise any new risks that may impact the Company and to ensure
that appropriate controls are in place to manage those risks, the Audit
Committee undertakes a regular review of the Company's Risk Matrix.
COVID-19
The Board continues to monitor the impact of the COVID-19 outbreak and the
impact that COVID-19 will continue to have on the future of the Company and the
performance of the Portfolio. Notwithstanding the impact the outbreak has
already had on the Company's share price and NAV performance, there remains
continued uncertainty as to the consequences of the COVID-19 outbreak on the
economy in general.
From an operational perspective, the Company uses a number of service providers
who have established, documented and regularly test their Business Resiliency
Policies to cover various possible scenarios whereby staff cannot be present at
the designated office and conduct business as usual. Since the COVID-19
pandemic outbreak, service providers have deployed these alternative working
policies to ensure continued business service.
Principal Risks and Uncertainties
In respect to the Company's system of internal controls and reviewing its
effectiveness, the Directors:
. are satisfied that they have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency, or liquidity; and
. have reviewed the effectiveness of the risk management and internal
control systems, including material financial, operational, and compliance
controls (including those relating to the financial reporting process) and no
significant failings or weaknesses were identified.
The principal risks and uncertainties which have been identified and the steps
which are taken by the Board to mitigate them are as follows:
Investment Risks
The Company is exposed to the risk that its portfolio fails to perform in line
with its investment objective and policy if markets move adversely or if the
Investment Manager fails to comply with the investment policy. The Board
reviews reports from the Investment Manager at the quarterly Board Meetings,
with a focus on the performance of the portfolio in line with its investment
policy. The Administrator is responsible for ensuring that all transactions are
in accordance with the investment restrictions.
Operational Risks
The Company is exposed to the risk arising from any failures of systems and
controls in the operations of the Investment Manager, Administrator, and the
Custodian. The Board and its Committees regularly review reports from the
Investment Manager and the Administrator on their internal controls. The
Administrator will report to the Investment Manager any valuation issues which
will be brought to the Board for final approval as required.
Accounting, Legal and Regulatory Risks
The Company is exposed to the risk that it may fail to maintain accurate
accounting records, fail to comply with the requirements of its Admission
Document and fail to meet its listing obligations. The accounting records
prepared by the Administrator are reviewed by the Investment Manager. The
Administrator, Broker, and Investment Manager provide regular updates to the
Board on compliance with the Admission Document and changes in regulation.
Discount Management
The Board and its Broker monitor the Share price discount (or premium)
continuously and have engaged in Share buybacks from time to time to help
minimise any such discount. The Board believes that it has access to
sufficiently liquid assets to help manage the Share price discount.
Liquidity of Investments
The Korean preferred shares typically purchased by the Company generally have
smaller market capitalisations and lower levels of liquidity than their common
share counterparts. These factors, among others, may result in more volatile
price changes in the Company's assets as compared to the South Korean stock
market or other more liquid asset classes. This volatility could cause the NAV
to go up or down dramatically.
Going Concern
In accordance with the Company's Articles of Incorporation and its Admission
Document, the Company offers all Shareholders the right to elect to realise
some or all of the value of their Ordinary Shares (the "Realisation
Opportunity"), less applicable costs and expenses, on or prior to the fourth
anniversary of Company's admission to AIM and, unless it has already been
determined that the Company be wound-up, every two years thereafter, the most
recent being 14 May 2021 (the "Realisation Date").
On 15 March 2021, the Company announced that pursuant to the Realisation
Opportunity, Shareholders who were on the register as at the record date could
elect, during the Election Period, to redesignate all or part (provided that
such part be rounded up to the nearest whole Ordinary Share) of their Ordinary
Shares as Realisation Shares. The Election Period commenced on 14 April 2021
and closed at 1pm, 7 May 2021. Elections were received from shareholders
totalling of 11,710,750 Ordinary Shares, representing 14.5 per cent of the
Company's issued share capital.
As the aggregate NAV of the continuing Ordinary Shares at the close of business
on the last Business Day before the Realisation Date was more than £50 million,
the Ordinary Shares held by the Shareholders who have elected for Realisation
have been redesignated as Realisation Shares and the Portfolio split into two
separate and distinct Pools, namely the Continuation Pool (comprising the
assets attributable to the continuing Ordinary Shares) and the Realisation Pool
(comprising the assets attributable to the Realisation Shares). If one or more
Realisation Elections are duly made and the NAV of the continuing Ordinary
Shares at the close of business on the last Business Day before the
Reorganisation Date is less than £50 million, the Directors may propose an
ordinary resolution for the winding up of the Company and may pursue a
liquidation of the Company instead of splitting the Portfolio into the
Continuation Pool and the Realisation Pool.
Based on the fact that the assets currently held by the Company consist mainly
of securities that are readily realisable, whilst the Directors acknowledge
that the liquidity of these assets needs to be managed, the Directors believe
that the Company has adequate financial resources to meet its liabilities as
they fall due for at least twelve months from the date of this report, and that
it is appropriate for the Financial Statements to be prepared on a going
concern basis.
Directors
For the period ended 30 June 2021
The Company has four non-executive Directors, all of whom are considered
independent of the Investment Manager and details are set out below.
Norman Crighton (aged 55)
Having worked within the investment trust and global closed-end fund industries
for over 30 years, Mr Crighton has extensive experience of these sectors.
Starting his career as an investment banker, he was soon running multinational
teams within major investment banks overseeing sales, research, market making
and corporate finance departments. He then moved on to the buy-side, managing a
portfolio of closed-end funds for institutional investors on a long and hedged
basis. Since 2011, he has joined the boards of many closed-end funds and
trading companies, overseeing IPOs and capital raises, as well as
restructurings and wind downs. He has expertise, and a particular interest, in
ESG issues. Mr Crighton is also the Chair of RM Infrastructure Income and AVI
Japan Opportunity Trust.
Stephen Charles Coe (aged 55)
Stephen is Chair of the Audit Committee. He is also Chair of the Audit
Committee for Chrysalis Investment Company Limited. He has been involved with
offshore investment funds and managers since 1990 with significant exposure to
property, debt, emerging markets, and private equity investments.
He qualified as a Chartered Accountant with Price Waterhouse Bristol in 1990
and remained in audit practice, specialising in financial services, until 1997.
From 1997 to 2003, he was a director of the Bachmann Group of fiduciary
companies and Managing Director of Bachmann Fund Administration Limited, a
specialist third party fund administration company. From 2003 to 2006, Stephen
was a director with Investec in Guernsey and Managing Director of Investec
Trust (Guernsey) Limited and Investec Administration Services Limited. He
became self-employed in August 2006, providing services to financial services
clients. Stephen is British and resident in Guernsey. Stephen was appointed to
the Board in 2013.
Robert Paul King (aged 58)
Rob is a non-executive director for a number of open and closed-ended
investment funds including Tufton Oceanic Assets Limited (chair) and CIP
Merchant Capital Limited. Before becoming an independent non-executive director
in 2011, he was a director of Cannon Asset Management Limited and their
associated companies. Prior to this, he was a director of Northern Trust
International Fund Administration Services (Guernsey) Limited (formerly
Guernsey International Fund Managers Limited) where he had worked from 1990 to
2007. He has been in the offshore finance industry since 1986 specialising in
administration and structuring of offshore open and closed-ended investment
funds. Rob is British and resident in Guernsey. Rob was appointed to the Board
in 2013.
Gillian Yvonne Morris (aged 58)
Gill was appointed to the Board in 2021 and will become Chair of the Audit
Committee when Stephen Coe retires. Gill is a non-executive director and Chair
of the Audit Committee at The International Stock Exchange, a panel member of
the States of Guernsey Financial Scrutiny Panel and the Guernsey Tax Tribunal.
She also runs her own consultancy and coaching business. Gill qualified as a
Chartered Accountant with the Institute of Chartered Accountants of England &
Wales in 1988 and a Chartered Tax Advisor with the Chartered Institute of
Taxation in 1994. Gill started her career in 1985 as a tax advisor at Touche
Ross & Co in London. She worked with Touche Ross & Co and KPMG in Australia
before returning to Guernsey with KPMG. Gill moved into industry in 1994
joining Specsavers Optical Group as their tax manager and during her time with
the Group was promoted to Director of Tax and Treasury. As part of her role,
she was a director of Specsavers Finance (Guernsey) Limited. She ultimately
served as Director of Risk and Government Affairs until 2020. Gill has also
held other government roles in Guernsey since 2012, including as a Non States
member of the Public Accounts and the Scrutiny Management Committees and a
panel member of The Trade Policy Advisory Panel. Gill is British and resident
in Guernsey.
Directors' Responsibility Statement
For the period ended 30 June 2021
The Directors are responsible for preparing the Unaudited Half-Yearly Financial
Report (the "Condensed Financial Statements"), which have not been audited by
an independent auditor, and confirm that to the best of their knowledge:
· these Condensed Financial Statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") and in accordance
with International Accounting Standard 34 "Interim Financial Reporting" issued
by the European Union and the AIM Rules of the London Stock Exchange ("LSE");
· these Condensed Financial Statements include a fair review of important
events that have occurred during the period and their impact on the Condensed
Financial Statements, together with a description of the principal risks and
uncertainties of the Company for the remaining six months of the financial
period as detailed in the Investment Manager's Report; and
· these Condensed Financial Statements include a fair review of related
party transactions that have taken place during the six-month period which have
had a material effect on the financial position or performance of the Company,
together with disclosure of any changes in related-party transactions in the
last Annual Report and Audited Financial Statements which have had a material
effect on the financial position of the Company in the current period.
The Directors confirm that the Condensed Financial Statements comply with the
above requirements.
On behalf of the Board,
Norman Crighton
Chair
7 September 2021
Stephen Coe
Director
7 September 2021
Condensed Statement of Financial Position
As at As at
30 June 31 December
2021 2020
(Unaudited) (Audited)
Notes £ £
Assets
Financial assets at fair value through 8 194,741,212 193,058,894
profit or loss
Derivative financial assets 9 231,331 62,951
Other receivables 243,440 3,857,730
Cash and cash equivalents 6,847,850 5,972,867
Margin account 1,707,673 2,095,974
Due from broker 289,611 2,989,619
Total assets 204,061,117 208,038,035
Liabilities
Derivative financial liabilities 9 1,315,412 1,588,314
Due to broker - 2,711,434
Other payables 511,296 613,334
Total liabilities 1,826,708 4,913,082
Net assets 202,234,409 203,124,953
Represented by:
Shareholders' equity and
reserves
Share capital:
Continuation Pool 10 33,986,846 68,124,035
Realisation Pool 10 7,417,757 -
Other reserves:
Continuation Pool 160,334,893 135,000,918
Realisation Pool 494,913 -
Total shareholders' equity 202,234,409 203,124,953
Net assets per
share:
Continuation Pool 7 2.8038 2.4887
Realisation Pool 7 2.8975
-
The Notes form an integral part of these Condensed Financial Statements.
The Condensed Financial Statements were approved and authorised for issue by
the Board of Directors on
7 September 2021.
Norman Crighton
Chair
7 September 2021
Stephen Coe
Director
7 September 2021
Condensed Statement of Comprehensive Income
For the For the
period ended period ended
30 June 2021 30 June 2020
(Unaudited) (Unaudited)
Notes £ £
Income
Net changes in fair value of financial 32,880,404 14,222,572
assets
at fair value through profit or loss
Net changes in fair value of derivative 82,819 1,581,263
financial
instruments through profit or loss
Net foreign currency (losses)/gains (311,025) 53,624
Dividend income 619,918 506,542
Bank interest (expenses)/income (90) 3,302
Total income 33,272,026 16,367,303
Expenses
Operating expenses (3,068,708) (1,937,790)
Total operating expenses (3,068,708) (1,937,790)
Profit for the period before tax 30,203,318 14,429,513
Withholding tax 3 (136,305) (111,440)
Profit for the period after tax 30,067,013 14,318,073
Profit and total comprehensive 30,067,013 14,318,073
income for the period
Basic and diluted earnings per Share:
Continuation Pool 6 0.3792 0.1754
Realisation Pool 6 0.0894 -
All items derive from continuing activities.
The Notes form an integral part of these Condensed Financial Statements.
Condensed Statement of Changes in Equity
For the period ended 30 June 2021 (Unaudited)
Continuation Pool Realisation Pool
Share Other Share capital Other Total
capital reserves reserves
Notes £ £ £ £ £
Balance at 1 January 68,124,035 135,000,918 - - 203,124,953
2021
Total comprehensive - 29,572,100 - 494,913 30,067,013
income for the period
Transactions with
Shareholders, recorded
directly in equity
Redesignation of 10 (32,417,757) - 32,417,757 - -
Realisation Shares
Distributions paid 4 - (4,238,125) - - (4,238,125)
Redemption of Realisation 10 - - (25,000,000) - (25,000,000)
Shares
Repurchase of Ordinary 10 (1,719,432) - - - (1,719,432)
Shares
Balance at 30 June 2021 33,986,846 160,334,893 7,417,757 494,913 202,234,409
For the period ended 30 June 2020 (Unaudited)
Continuation Pool Realisation Pool
Share Other Share Other Total
capital reserves capital reserves
Notes £ £ £ £ £
Balance at 1 January 2020 68,124,035 58,864,697 - - 126,988,732
Total comprehensive - 14,318,073 - - 14,318,073
income for the period
Transactions with
Shareholders, recorded
directly in equity
Distributions paid 4 - (3,227,903) - - (3,227,903)
Balance at 30 June 2020 68,124,035 69,954,867 - - 138,078,902
The Notes form an integral part of these Condensed Financial Statements.
Condensed Statement of Cash Flows
For the period For the period
ended ended
30 June 2021 30 June 2020
(Unaudited) (Unaudited)
Notes £ £
Cash flows from operating activities
Profit for the period 30,067,013 14,318,073
Adjustments for:
Net change in fair value of financial assets (32,569,379) (14,276,196)
held at fair value through profit or loss
Net change in fair value of derivative (82,819) (1,581,263)
financial instruments held at fair value
through profit or loss
Dividend received 4,248,379 2,841,992
Effect of foreign exchange rate fluctuations (311,025) 53,624
Increase in receivables* (14,171) (8,923)
Decrease in other payables (102,038) (170,422)
Dividend income (619,918) (506,542)
Net cash generated from operating activities 616,042 670,343
Cash flows from investing activities
Purchase of financial assets at fair value through (76,849,505) (50,381,604)
profit or loss
Opening of derivative financial instruments 9 (358,461) 1,720,421
Proceeds from the sale of financial assets at 108,036,164 48,487,308
fair value through profit or loss
Closure of derivative financial instruments 9 - 1,213,148
Decrease/(increase) in margin account 388,301 (1,768,698)
Net cash generated from/(used in) investing 31,216,499 (729,425)
activities
Cash flows from financing activities
Repurchase of Ordinary Shares (1,719,433) -
Repurchase of Realisation Shares (25,000,000) -
Distributions paid 4 (4,238,125) (3,227,903)
Net cash used in financing activities (30,957,558) (3,227,903)
Net increase/(decrease) in cash and cash 874,983 (3,286,985)
equivalents
Cash and cash equivalents at the beginning of 5,972,867 6,430,069
the period
Cash and cash equivalents at the end of the 6,847,850 3,143,084
period
The Notes form an integral part of these Condensed Financial Statements.
Notes to the Unaudited Condensed Financial Statements
For the period ended 30 June 2021
1. General information
The Company was incorporated with limited liability in Guernsey, as a
closed-ended investment company on 12 April 2013. The Company's Shares were
admitted to trading on AIM of the LSE on 14 May 2013.
The Investment Manager of the Company is Weiss Asset Management LP.
At the AGM held on 27 July 2016, the Board approved the adoption of the new
Articles of Incorporation in accordance with Section 42(1) of the Companies
(Guernsey) Law, 2008 (the "Law").
2. Significant accounting policies
a) Statement of compliance
The Condensed Financial Statements of the Company for the period ended 30 June
2021 have been prepared in accordance with IFRS adopted by the European Union
and the AIM Rules of the London Stock Exchange. They give a true and fair view
and are in compliance with the Law.
b) Basis of preparation
The Condensed Financial Statements are prepared in Pounds Sterling (£), which
is the Company's functional and presentational currency. They are prepared on a
historical cost basis modified to include financial assets at fair value
through profit or loss.
The Condensed Financial Statements, covering the period from 1 January to 30
June 2021, are not audited.
The accounting policies adopted are consistent with those used in the Annual
Report and Audited Financial Statements for the year ended 31 December 2020.
The Condensed Financial Statements do not include all the information and
disclosures required in the Annual Report and Audited Financial Statements and
should be read in conjunction with the Annual Report and Audited Financial
Statements for the year ended 31 December 2020. The Auditor's Report contained
within the Annual Report and Audited Financial Statements provided an
unmodified opinion.
The preparation of the Condensed Financial Statements requires management to
make estimates and assumptions that affect the reported amounts of revenues,
expenses, assets, and liabilities at the date of these Condensed Financial
Statements. If in the future such estimates and assumptions which are based on
management's best judgement at the date of the Condensed Financial Statements,
deviate from the actual circumstances, the original estimates and assumptions
will be modified as appropriate in the period in which the circumstances
change.
c) Going concern
The Board reviews the liquidity of the Portfolio quarterly and is satisfied
that positions are sufficiently liquid to meet current and future obligations.
The Board notes the Realisation Opportunity and is again satisfied that the
balance of the realisation requests can be made from liquidating investments.
The Board has reviewed the level of assets following the Realisation Date and
determined that the Company retains the ability to continue as a going concern
(based primarily on asset size). The Board and the Investment Manager believe
the investment thesis continues to be valid.
In accordance with the Company's Articles of Incorporation and its Admission
Document, the Company offers all Shareholders the right to elect to realise
some or all of the value of their Ordinary Shares (the "Realisation
Opportunity"), less applicable costs and expenses, on or prior to the fourth
anniversary of Company's admission to AIM and, unless it has already been
determined that the Company be wound-up, every two years thereafter, the most
recent being 14 May 2021 (the "Realisation Date").
On 15 March 2021, the Company announced that pursuant to the Realisation
Opportunity, Shareholders who are on the register as at the record date may
elect, during the Election Period, to redesignate all or part (provided that
such part be rounded up to the nearest whole Ordinary Share) of their Ordinary
Shares as Realisation Shares. The Election Period commenced on 14 April 2021
and closed at 1pm, 7 May 2021. Elections were received from shareholders
totalling of 11,710,750 Ordinary Shares, representing 14.5 per cent of the
Company's issued share capital.
Subject to the aggregate NAV of the continuing Ordinary Shares at the close of
business on the last Business Day before the Realisation Date being not less
than £50 million, the Ordinary Shares held by the Shareholders who have elected
for Realisation were redesignated as Realisation Shares and the Portfolio split
into two separate and distinct Pools, namely the Continuation Pool (comprising
the assets attributable to the continuing Ordinary Shares) and the Realisation
Pool (comprising the assets attributable to the Realisation Shares). If one or
more future Realisation Elections are duly made and the NAV of the continuing
Ordinary Shares at the close of business on the last Business Day before the
Reorganisation Date is less than £50 million, the Directors may propose an
ordinary resolution for the winding up of the Company and may pursue a
liquidation of the Company instead of splitting the Portfolio into the
Continuation Pool and the Realisation Pool.
3. Taxation
The Company has been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its
liability is an annual fee of £1,200 (2020: £1,200). The amounts disclosed as
taxation in the Condensed Statement of Comprehensive Income relate solely to
withholding tax levied in South Korea on distributions from South Korean
companies at an offshore rate of 22 per cent.
4. Dividends to Shareholders
Dividends, if any, will be paid annually each year. An annual dividend of
5.2311 pence per Share (£4,238,125) was approved on 4 May 2021 and paid on
4 June 2021 in respect of the year ended 31 December 2020. An annual dividend
of 3.9549 pence per Share (£3,227,903) was approved on 13 May 2020 and paid on
12 June 2020 in respect of the year ended 31 December 2019.
5. Significant accounting judgements, estimates and assumptions
The preparation of the Condensed Financial Statements in conformity with IFRS
requires management to make judgements, estimates, and assumptions that affect
the application of policies and the reported amounts of assets and liabilities,
income and expense, and the accompanying disclosures. Uncertainty about these
assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities affected in future
periods. The significant judgements, estimates, and assumptions made by
management when applying the Company's accounting policies, as well as the key
sources of estimation uncertainty, were the same for these Condensed Financial
Statements as those that applied to the Annual Report and Audited Financial
Statements for the year ended 31 December 2020.
6. Basic and diluted earnings per Share
The basic and diluted earnings per Share for the Company have been calculated
based on the total comprehensive income for the period and the weighted average
number of Ordinary Shares in issue during the period as shown in the tables
below.
For the period ended For the period ended
30 June 2021 30 June 2020
£ £
Profit and total comprehensive income for the
period
Continuation Pool 29,572,100 14,318,073
Realisation Pool 494,913 -
Total profit and total comprehensive income 30,067,013 14,318,073
for the period
Weighted average number of Ordinary Shares
Continuation Pool 77,981,628 81,617,828
Realisation Pool 5,537,079 -
7. Net Asset Value per Ordinary Share
The NAV of each Share is determined by dividing the net assets of the Company
attributed to the Ordinary Shares by the number of Ordinary Shares in issue at
the end of the period/year.
For the period ended For the year ended
30 June 2021 31 December 2020
£ £
Net assets:
Continuation Pool 194,321,739 203,124,953
Realisation Pool 7,912,670 -
Net Assets at the end of the period/year 202,234,409 203,124,953
No. of Shares No. of Shares
Total Shares in issue at the end of the
period/year:
Continuation Pool 69,307,078 81,617,828
Realisation Pool 2,730,865 -
Net assets per share at the end of the
period/year:
Continuation Pool 2.8038 2.4887
Realisation Pool 2.8975 -
8. Financial assets at fair value through profit or loss
As at As at
30 June 31 December
2021 2020
£ £
(Unaudited) (Audited)
Cost of investments at beginning of 137,878,681 106,419,418
the period/year
Purchases of investments in the 106,552,181 109,275,618
period/year
Disposal of investments in the (137,750,267) (111,376,783)
period/year
Proceeds from disposal of investments in the 39,426,189 33,560,428
period/year
Cost of investments held at end of 146,106,784 137,878,681
the period/year
Unrealised gain on investments 48,634,428 55,180,213
Financial assets at fair value 194,741,212 193,058,894
through profit or loss
9. Derivative financial instruments at fair value through profit or loss
As at As at
30 June 31 December
2021 2020
£ £
(Unaudited) (Audited)
Cost of derivatives at beginning of the (1,745,063) (1,174,737)
period/year
Opening of derivatives in the period/ 358,463 (1,457,636)
year
Closure of derivatives in the period/ - (1,422,226)
year
Realised (loss)/gain on closure of derivatives (262,783) 2,309,536
in the period/year
Net cost of derivatives held at end of the (1,649,383) (1,745,063)
period/year
Unrealised gain on derivative financial 565,302 219,700
instruments at fair value through profit or
loss
Net fair value on derivative financial (1,084,081) (1,525,363)
instruments at fair value through profit or
loss
The following are the composition of the Company's derivative financial
instruments at period/year end:
As at As at
30 June 31 December
2021 2020
Assets Liabilities Assets Liabilities
(Unaudited) (Unaudited) (Audited) (Audited)
Derivatives held for £ £ £ £
trading:
Options 231,331 - 62,951 -
Credit default swaps - (1,315,412) - (1,588,314)
Total 231,331 (1,315,412) 62,951 (1,588,314)
10. Share capital
The share capital of the Company consists of an unlimited number of Ordinary
Shares of no par value.
As at As at
30 June 31 December
2021 2020
(Unaudited) (Audited)
Authorised
Unlimited Ordinary Shares at no par value - -
Issued at no par value
69,307,078 (2020: 81,617,828) unlimited Ordinary Shares at no - -
par value
Reconciliation of number of Shares
As at As at
30 June 31 December
2021 2020
No. of Shares No. of Shares
Continuation Shares (Unaudited) (Audited)
Ordinary Shares at the beginning of the 81,617,828 81,617,828
period/year
Repurchase of Ordinary Shares (600,000) -
Redesignation of Realisation Shares (11,710,750) -
Total Ordinary Shares in issue at the end of the 69,307,078 81,617,828
period/year
Share capital account As at As at
30 June 31 December
2021 2020
£ £
(Unaudited) (Audited)
Share capital at the beginning of the 68,124,035 68,124,035
period/year
Repurchase of Ordinary Shares (1,719,433) -
Redesignation of Realisation Shares (32,417,756) -
Total Share capital at the end of the 33,986,846 68,124,035
period/year
Ordinary Shares
The Company has a single class of Ordinary Shares, which were issued by means
of an initial public offering on 14 May 2013, at 100 pence per Share.
The rights attached to the Ordinary Shares are as follows:
a) The holders of Ordinary Shares shall confer the right to all dividends in
accordance with the Articles of Incorporation of the Company.
b) The capital and surplus assets of the Company remaining after payment of
all creditors shall, on winding-up or on a return (other than by way of
purchase or redemption of own Ordinary Shares) be divided amongst the
Shareholders on the basis of the capital attributable to the Ordinary Shares at
the date of winding up or other return of capital.
c) Shareholders present in person or by proxy or (being a corporation)
present by a duly authorised representative at a general meeting have on a show
of hands, one vote and, on a poll, one vote for every Share.
d) On 15 March 2021, being 44 days before the Subsequent Realisation Date, the
Company published a circular pursuant to the Realisation Opportunity, entitling
the Shareholders to serve a written notice during the election period (a
"Realisation Election") requesting that all or a part of their Ordinary Shares
be re-designated to Realisation Shares, subject to the aggregate NAV of the
continuing Ordinary Shares on the last business day before the Reorganisation
Date being not less than £50 million. As Shareholders elected to participate in
the Realisation Opportunity, the Company's portfolio was divided into two
pools: the Continuation Pool; and the Realisation Pool.
e) On 14 May 2021, 11,710,750 Ordinary Shares, which represented 14.5 per
cent of the Company's issued Ordinary Share capital were redesignated as
Realisation Shares. On 23 June 2021, the Board approved the First Redemption
representing approximately 76.7 per cent of the Realisation Shares in issue.
Accordingly, 8,979,885 Realisation Shares were redeemed at the First Redemption
price. The First Redemption price was 278.40 pence per Realisation Share. The
net assets of the Realisation Pool of £32,602,728, divided by the number of
outstanding Realisation Shares in issue, being 11,710,750 Realisation Shares.
The redemption proceeds were paid to the Realisation Shareholders during the
week commencing 28 June 2021. The redeemed Realisation Shares were
re-designated as Ordinary Shares and held in Treasury with effect from the
First Redemption Date.
Share buyback
During the period ended 30 June 2021, the Company purchased 600,000 of its own
Ordinary Shares (31 December 2020: Nil) at a consideration of £1,719,433 (31
December 2020: £Nil) under the Share buyback authority originally granted to
the Company in 2014.
Following the Share buyback and redesignation of Realisation Shares, the
Company has 69,307,078 Ordinary Shares in issue as of 30 June 2021 (as at 31
December 2020: 81,617,828).
At the AGM held on 22 July 2021, Shareholders granted the Company a general
buy-back authority of up to 40% of the Company's issued share capital. Any
Ordinary Shares bought back may be cancelled or held in treasury.
On 6 March 2021, the Company reappointed Singer Capital Markets to manage the
Closed Period Buy-Back Programme to buy back Ordinary Shares within certain
pre-set parameters during the closed period leading up to the date of
publication of these Unaudited Half-Yearly results. Any Ordinary Shares
purchased in the Closed Period Buy-Back Programme will count towards the
Company's Ordinary Share buy-back authority of 40% of the Company's issued
Ordinary Share capital, as approved at the Company's AGM.
As at As at
30 June 31 December
2021 2020
Realisation Shares (Unaudited) (Audited)
Redesignated at no par value
2,730,865 (2020: Nil) Realisation Shares at no - -
par value
As at As at
30 June 31 December
2021 2020
No. of Shares No. of Shares
(Unaudited) (Audited)
Redesignation of Realisation Shares 11,710,750 -
Repurchase of Realisation Shares (8,979,885) -
Total Realisation Shares in issue at the end of 2,730,865 -
the period/year
Share capital account As at As at
30 June 31 December
2021 2020
£ £
(Unaudited) (Audited)
Redesignation of Realisation Shares 32,417,757 -
Repurchase of Realisation Shares (25,000,000) -
Total Realisation Shares in issue at the end of 7,417,757 -
the period/year
With effect from the Realisation Date, the assets in the Realisation Pool have
been managed in accordance with an orderly realisation programme with the aim
of making progressive returns of cash, as soon as practicable, to those
Shareholders who have elected to redesignate their Ordinary Shares as
Realisation Shares. Ordinary Shares held by Shareholders who did not submit a
valid and complete election in accordance with the Articles during the Election
Period have remained Ordinary Shares.
The Portfolio was split into two separate and distinct Pools, namely the
Continuation Pool (comprising the assets attributable to the continuing
Ordinary Shares) and the Realisation Pool (comprising the assets attributable
to the Realisation Shares).
Unless it has already been determined that the Company will be wound up, every
two years after the Realisation Date, the Directors will propose further
realisation opportunities for Shareholders who have not previously elected to
realise their Ordinary Shares using a similar mechanism used in the previously
announced Realisation Opportunity.
11. Related-party transactions and material agreements
Related-party transactions
a) Directors' remuneration and expenses
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine provided that the aggregate amount of such fees does
not exceed £150,000 per annum.
The annual Directors' fees comprise £30,000 payable to Mr Crighton as the
Chair, £27,500 to Mr Coe as Chair of the Audit Committee and £24,000 to Mr
King. On 13 August 2021, the Board announced the appointment of Mrs Morris, who
has joined the Audit and the Management & Engagement committees of the Board
and will replace Stephen Coe as Chair of the Audit Committee prior to 31
December 2021. The annual Director's fees payable to Mrs Morris will be £24,000
and these will increase to £27,500 following Mr Coe's retirement.
During the period ended 30 June 2021, Directors' fees of £40,750 (period ended
30 June 2020: £40,750) were charged to the Company and £Nil remained payable at
the end of the period (as at 31 December 2020: £Nil).
b) Shares held by related parties
The Directors who held office at 30 June 2021 and up to the date of this Report
held the following number of
Ordinary Shares beneficially:
As at 30 June 2021 As at 31 December 2020
(Unaudited) (Unaudited) (Audited) (Audited)
Ordinary % of issued Ordinary % of issued
Shares share capital Shares share capital
Norman Crighton 20,000 0.03% 20,000 0.02%
Stephen Coe 10,000 0.01% 10,000 0.01%
Robert King 15,000 0.02% 15,000 0.02%
The Investment Manager is principally owned by Dr Andrew Weiss and certain
members of the Investment Manager's senior management team.
As at 30 June 2021, Dr Andrew Weiss and his immediate family members held an
interest in 6,486,888 Ordinary Shares (as at 31 December 2020: 6,486,888)
representing 9.36 per cent. (as at 31 December 2020: 7.95 per cent.) of the
Ordinary issued share capital of the Company.
As at 30 June 2021, employees and partners of the Investment Manager other than
Dr Andrew Weiss, their respective immediate family members or entities
controlled by them or their immediate family members held an interest in
2,844,333 Ordinary Shares (as at 31 December 2020: 2,844,333) representing 4.10
per cent (as at 31 December 2020: 3.48 per cent.) of the Ordinary issued share
capital of the Company.
c) Investment management fee
The Company's Investment Manager is Weiss Asset Management LP. In consideration
for its services provided by the Investment Manager under the Investment
Management Agreement (IMA) dated 8 May 2013, the Investment Manager is entitled
to an annual management fee of 1.5 per cent of the Company's NAV accrued daily
and payable within 14 days after each month end. The Investment Manager is also
entitled to reimbursement of certain expenses incurred by it in connection with
its duties.
The IMA will continue in force until terminated by the Investment Manager or
the Company, giving to the other party thereto not less than 12 months' notice
in writing.
For the period ended 30 June 2021, investment management fees and charges of £
1,599,511 (for the period ended 30 June 2020: £907,692) were charged to the
Company and £261,300 (as at 31 December 2020: £456,843) remained payable at the
period end.
12. Financial risk management
IFRS 13 'Fair Value Measurement' requires the Company to establish a fair value
hierarchy that prioritises the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
The three levels of the fair value hierarchy under IFRS 13 'Fair Value
Measurement' are set as follows:
· Level 1 Quoted prices (unadjusted) in active markets for identical
assets or liabilities;
· Level 2 Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly (that is, as prices) or
indirectly (that is, derived from prices); and
· Level 3 Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. For this purpose, the
significance of an input is assessed against the fair value measurement in its
entirety.
If a fair value measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a Level 3
measurement. Assessing the significance of a particular input to the fair value
measurement requires judgement, considering factors specific to the asset or
liability.
The determination of what constitutes 'observable' requires significant
judgement by the Company. The Company considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market.
The following table presents the Company's financial assets and liabilities by
level within the valuation hierarchy as of 30 June 2021:
Total
As at
30 June
Level 1 Level 2 Level 3 2021
£ £ £ £
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Financial assets/(liabilities) at
fair value through
profit or loss:
Korean preferred shares 194,741,212 - - 194,741,212
Financial derivative assets 231,331 - - 231,331
Financial derivative - (1,315,412) - (1,315,412)
liabilities
Total net assets 194,972,543 (1,315,412) - 193,657,131
Total
As at
31 December
Level 1 Level 2 Level 3 2020
£ £ £ £
(Audited) (Audited) (Audited) (Audited)
Financial assets/(liabilities) at
fair value through
profit or loss:
Korean preferred shares 193,058,894 - - 193,058,894
Financial derivative assets 62,951 - - 62,951
Financial derivative - (1,588,314) - (1,588,314)
liabilities
Total net assets 193,121,845 (1,588,314) - 191,533,531
The Company recognises transfers between levels of the fair value hierarchy as
of the end of the reporting period during which the transfers have occurred.
During the period ended 30 June 2021, financial assets of £Nil were transferred
from Level 2 to Level 1 (for the year ended 31 December 2020: £Nil).
Investments whose values are based on quoted market prices in active markets,
and are therefore classified within Level 1, include Korean preference shares,
exchange traded funds, and exchange traded options.
The Company holds investments in derivative financial instruments which are
classified as Level 2 within the fair value hierarchy. These consist of credit
default swaps with a fair value of (£1,315,412) (as at 31 December 2020: (£
1,588,314).
As at 30 June 2021, Level 1 financial derivative assets of £231,331 were held
(as at 31 December 2020: £62,951).
13. NAV reconciliation
The Company announces its NAV to the LSE after each weekly and month-end
valuation point. The following is a reconciliation of the NAV per Share
attributable to participating Shareholders as presented in these Condensed
Financial Statements, using IFRS to the NAV per Share reported to the LSE:
As at 30 June 2021 As at 31 December 2020
(Unaudited) (Audited)
NAV per NAV per
Participating Participating
NAV Share NAV Share
£ £ £ £
Continuation Pool
Net Asset Value reported to the LSE 194,097,647 2.8005 199,269,014 2.4415
Adjustment to accruals and (3,387) - - -
cash
Adjustment for dividend 227,478 0.0033 3,855,939 0.0472
income
Net Assets Attributable to 194,321,738 2.8038 203,124,953 2.4887
Shareholders per Financial
Statements
Realisation Pool
Net Asset Value reported to the LSE 7,912,670 2.8975 - -
Net Assets Attributable to 7,912,670 2.8975 - -
Shareholders per Financial
Statements
The Continuation Pool's published NAV per Share of £2.8005 (31 December 2020: £
2.4415) is different from the accounting NAV per Share of £2.8038 (31 December
2020: £2.4887) due to the adjustment noted in the table above. The Realisation
Pool's published NAV per Share of £2.8975 (31 December 2020: Nil) is the same
as the accounting NAV per Share.
14. Subsequent events
These Condensed Financial Statements were approved for issuance by the Board on
7 September 2021. Subsequent events have been evaluated until this date.
At the AGM held on 22 July 2021, Shareholders approved the authority of the
Company to buy back up to 40 per cent of the issued Ordinary Shares to
facilitate the Company's discount management. Any Ordinary Shares bought back
may be cancelled or held in treasury. Shareholders also approved the authority
of the Company to issue, to grants rights to subscribe for, or to convert and
make offers or agreements to issue Ordinary Shares for cash, provided that this
power shall be limited so that it:
i. Expires at the earlier of either the conclusion of the next AGM or 15
months from the granting of this authority; and
ii. Shall be limited to the issued of Ordinary Shares up to 6,930,707
Ordinary Shares being approximately 10 per cent. of the Issued Share Capital of
the Company, as at 22 July 2021.
On 20 July 2021, the Board announced that it expected to appoint Gill Morris to
the Board of the Company as Non-Executive Director, subject to the completion
of customary due diligence checks by the Company's Nominated Adviser. On 13
August 2021, the Board announced that it had appointed Gill Morris to the Board
of the Company as Non-Executive Director with immediate effect following the
successful completion of customary due diligence checks by the Company's
Nominated Adviser. Mrs Morris has joined the Audit and the Management &
Engagement committees of the Board and will replace Stephen Coe as Chair of the
Audit Committee prior to 31 December 2021.
On 7 September 2021, the Company announced the Second Redemption of 2,457,780
Realisation Shares at 275.55 pence per Realisation Share. All Realisation
Shares will be redesignated as Ordinary Shares and held in Treasury. Following
the Second Redemption 273,085 Realisation Shares will remain in issue.
No further subsequent events have occurred.
Corporate Information
Directors Company Secretary, Administrator
Norman Crighton (Non-executive Chair) and
Stephen Charles Coe (Non-executive Designated Manager
Director) Northern Trust International Fund
Robert Paul King (Non-executive Director) Administration Services (Guernsey)
Gillian Yvonne Morris (Non-executive Limited
Director) appointed 13 August 2021 PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
GY1 3QL
Registered Office Financial Adviser, Nominated
PO Box 255 Adviser and Broker
Trafalgar Court Singer Capital Markets
Les Banques 1 Bartholomew Lane
St. Peter Port London
Guernsey EC2N 2AX
GY1 3QL
Investment Manager Guernsey Legal Adviser to the
Weiss Asset Management LP Company
222 Berkeley Street, 16th Floor Mourant Ozannes
Boston, MA 02116 PO Box 186
USA 1 Le Marchant Street
St. Peter Port
Guernsey
GY1 4HP
English Legal Adviser to the Registrar
Company Link Market Services (Guernsey)
Stephenson Harwood LLP Limited
1 Finsbury Circus Mont Crevelt House
London Bulwer Avenue
EC2M 7SH St. Sampson
Guernsey
GY2 4LH
Custodian and Principal Bankers Independent Auditor
Northern Trust (Guernsey) Limited KPMG Channel Islands Limited
PO Box 71 Glategny Court
Trafalgar Court Glategny Esplanade
Les Banques St. Peter Port
St. Peter Port Guernsey
Guernsey GY1 1WR
GY1 3DA
END
(END) Dow Jones Newswires
September 07, 2021 08:19 ET (12:19 GMT)
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