Australian Listed Investment Company Report November 2023

Australia | Nov 02 2023

A Listed Investment Company (LIC) is a listed investment vehicle that offers investors access to a diversified portfolio of shares in other companies also listed on the stock market. Also known as Listed Investment Trusts or Listed Managed Investments.

For comprehensive comparative data tables for LICs please see attached (logon first).

LMI Market News

Magellan Fight to Keep Closed-Ended Global Fund Structure Until After Options Expire
On 16 October 2023, Magellan Global Fund ((MGF)) announced the Board of Magellan would consider a conversion of MGF to open class units to address the discount to NAV while providing unitholders with a means to still transact on the exchange.

The trust outlined that it would update unitholders once details regarding a conversion proposal is developed with a unitholder meeting targeted for 1H’CY24, subject to market conditions and the determination that the conversion proposal is in the best interests of unitholders.

On the same day, the trust announced that Keybridge Capital Limited together with other members of the Fund had submitted a request to convene a meeting of unitholders to consider and vote on a special resolution to remove the units from the ASX and redeem all closed class units at a redemption price that is determined in accordance with the Fund’s constitution.

Subsequent to the announcement, the trust announced that the Responsible Entity (RE) had filed a summons with the Supreme Court of New South Wales seeking advice and direction with regards to the justification in declining the call to arrange of meeting of MGF unitholders and treating the meeting request as invalid and ineffective.

MGF has stated it believes the meeting request received from unitholders was not made in accordance with the constitution with unitholders carrying less than 5% of votes.

The events that have unfolded have made the position of Magellan clear: (1) They do not want to wind up the trust and repay the capital to unitholders. They would prefer to restructure the units as open class units; and (2) Magellan want to retain control of the timing of the proposal to unitholders to restructure to open class units.

The timing in the announcement indicates a meeting will not be held until after the options have expired. As we discussed in our previous monthly report, Magellan have a liability with regards to making up the 7.5% discount for options exercised. A liability they would likely prefer to avoid given the current state of the business.

NBI Loses Patience
On 24 October 2023 NB Global Corporate Income Trust ((NBI)) announced its intent de-list from the ASX and operate the fund as an unlisted registered managed investment scheme with daily applications and redemptions based on the NAV.

In the event the trust receives the ASX’s approval an Extraordinary General Meeting (EGM) will be scheduled to be held in the 1Q’CY24 seeking unitholder approval.

NBI has traded at a discount to NAV for a prolonged period of time as demand for fixed rate high yield bonds softened in the increasing interest rate environment. NBI have implemented a number of initiatives in an attempt to narrow the discount however have been unsuccessful. Given closed-ended structures are typically oversold during periods of asset class underperformance, it is IIR’s view that the discount would have narrowed when the cycle became more favourable for the asset class, however NBI and likely its unitholders have lost patience.

The Manager will be proposing to apply a transitional 12-month exit fee which is designed to benefit the remaining unitholders in the trust. This fee will not be paid to the Manager or the Responsible Entity. During the 12-month transitional period, redemption requests are proposed to be subject to a gating mechanism with ongoing liquidity for redemptions being provided by either using NBI’s cash balances or selling its assets.

Further information will be provided to the market in due course.

FOR Looks to Transition Back to an Open-Ended Trust
On 12 October 2023, Forager Australian Shares Fund ((FOR)) announced that it will be seeking to transition back to an open-ended trust. The decision was a result of the vehicle continuing to trade at a discount to NAV despite initiatives implemented by the Fund to improve the trading price of FOR units.

FOR was an open-ended trust for the first seven years before transitioning to a closed-ended trust. The Manager has considered a range of additional measures to improve the trading price of FOR however it is the Manager’s view that smaller, less liquid closed-ended vehicles are unlikely to trade at NAV for the foreseeable future.

FOR will seek to finalise a delisting proposal in the coming months with further details and a unitholder meeting expected in the 1H’CY24. The Manager currently intends to propose a transition period of up to 12 months where investors that wish to redeem their units pay a redemption fee that declines throughout the transition period which would accrue to the remaining investors in the Fund and there may be restrictions on monthly redemptions. The details of any restrictions have not yet been determined.

MEC Discount Narrows however Board Continues to Explore Mechanisms to Eliminate the Discount
In a letter to shareholders, the Chair of Morphic Ethical Equities Fund Limited ((MEC)) noted the narrowing of the discount which the Company attributed to the initiatives implemented by the Company including the share buyback and increased dividend through the policy to pay out the entire amount of profits reserve of the Company as dividends before the expiry of the initial term of the Investment Management Agreement, which is due to expire in May 2027.

The Company has bought back 9.4% of the shares on issue since the launch of the buyback. At the AGM, shareholders approved the resolution to buy back a further 20% of shares on issue.

The Chair also stated that the Company continues to explore potential mechanisms to effect a reasonable priced restructure of the Company that would eliminate the discount. The Company have agreed to seek senior counsel’s opinion on the viability of a potential solution that may eliminate the discount. At the AGM, shareholders approved the resolution to amend the constitution to provide the Company the ability to make in specie distributions of shares and units in a trust or managed investment scheme, which highlights the Boards intention to explore a restructure as an openended trust.

QVE Intends to Maintain Quarterly Dividend of 1.3 Cents per Share for Remainder of FY24
During the month, QVE Equities Limited declared an interim quarterly dividend for the September quarter of 1.3 cents per share in line with the previous quarterly dividend. The Company announced its intention to maintain a quarterly dividend of 1.3 cents per share for the remainder of the FY24 period, subject to the Company maintaining profit reserves and there being no material impacts, change or unforeseen events.

The announcement would see a FY24 annual dividend of 5.2 cents per share, in line with the annual dividend for FY22. Based on the share price as at 31 October 2023, the FY24 annual dividend represents a yield of 6.1% (8.7% grossed up).

LSX Announce Dividend of 1.5 Cents per Share
On 18 October 2023, Lion Selection Group Limited ((LSX)) announced the payment of an unfranked dividend of 1.5 cents per share scheduled to be paid on 10 November 2023.

Post exiting the Pani investment, the Company has $75 million in cash and cash equivalents to deploy. The Company stated that under the current market conditions, in which the prices of investment opportunities in the micro cap resources sector have weakened, the use of capital for new investments is favourable over dividend payments. The Company is actively seeking to deploy capital in investment opportunities identified in the junior resources market.

During 2022 and 2023, the Company has made investments in Saturn Metals ((STN)), Plutonic Limited, Alto Metals ((AME)), Sunshine Metals ((SHN)) and Great Boulder Resources ((GBR)).

VG1 Updates Target Dividend Policy
VGI Partners Global Investments Limited ((VG1)) announced the Company will be seeking to pay a semi-annual dividend of at least 5 cents per share, up from the previous target of at least 4.5 cents per share. The new target will result in an annual dividend of at least 10 cents per share, up form the FY23 annual dividend of 9.5 cents per share. Dividends will be franked to the maximum extent possible.

D2O Issues Bonus Options
During the month, Duxton Water Limited ((D2O)) lodged the Prospectus for the issue of 38.18 million Bonus Options exercisable at $1.92 on or before 10 May 2026. The issue of the Bonus Options was announced on 3 July 2023 with options issued on a 1-for-4 basis. The options are listed of the ASX with the ticker D2OO. The options have an issue date of 9 November 2023 and are scheduled to be quoted on the ASX on 10 November 2023. The maturity date for the options was extended from May 2025 to May 2026 due to market factors.

If all options are exercised the Company will raise $73.3 million. The exercise price represents a 14.3% premium to the share price of D2O as at 31 October 2023. and a premium of 3.2% and 14.3% to the pre-tax NTA and post-tax NTA, respectively, as at 30 September 2023.

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