ANW.L Regulatory News (ANW)

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30 July 2021

ABERDEEN NEW THAI INVESTMENT TRUST PLC

LEI: 213800LUTHTZ8LS5UK85

Proposals for the Reconstruction and Voluntary Winding-up of the Company

The Board of Aberdeen New Thai Investment Trust PLC (the "Company") is pleased to announce proposals, as set out below, (the "Proposals") which it believes will benefit shareholders in the Company ("Shareholders") going forward. The Proposals include the reconstruction and voluntary winding-up of the Company, a partial cash exit opportunity and a rollover into Aberdeen Emerging Markets Investment Company Limited ("AEMC") which, following its own extensive review process, is adopting an investment policy of investing directly in the equities of Chinese companies.

Key benefits of the Proposals

· Exposure to investing directly in Chinese equities, which the Board sees as underserved despite China being the world's second largest economy;

· Access to the highly successful Aberdeen Standard Investments equities team specialising in China, locally based in Shanghai and Hong Kong, supported by the team in Singapore;

· Combination with AEMC to help improve liquidity and reduce fixed costs per share and;

· Partial cash exit opportunity to provide shareholders the ability to realise part (or potentially all) of their investment.

Background to the Proposals

In the latest Annual Report for the year ended 28 February 2021, your Board repeated its commitment to providing Shareholders with a strong investment proposition with the objective of delivering relative outperformance of the Company's benchmark over the long term. 

Your Board has kept the investment performance of the Company under constant review, and in the period from 1 March 2020 to 30 June 2021 the Stock Exchange of Thailand Index (the "Benchmark") delivered total returns of 12.8% on a Sterling adjusted basis. By comparison, the Company's net asset value ("NAV") total return was -0.5%. Given the continued relative underperformance and mindful of the commitment to undertake a full review of the Company's investment management arrangements if performance over the three years to 28 February 2023 has not shown outperformance of the Benchmark, the Board has decided to bring forward alternative proposals to Shareholders now. The Proposals seek to provide Shareholders with the ability to gain exposure to investment in Chinese equities, managed by a highly successful Aberdeen Standard Investments ("ASI") equities team with a proven track record of outperformance, all through a larger more liquid vehicle.

Proposals

Combination with AEMC

The Board has in principle agreed the terms for a combination of the Company with AEMC. AEMC is a Guernsey-incorporated, London-listed, investment company managed by Aberdeen Standard Investments with gross assets of £388 million at 30 June 2021 that is proposing to change its investment policy to one of investing directly in Chinese equities.

AEMC's board, like that of the Company, has been considering a move to an All China All Cap investment mandate and consequently the boards, following discussions with shareholders representing 73% of the combined shares in issue, consider that it would be beneficial for the companies to combine. The combination, if approved by each company's shareholders at the requisite general meetings, will be implemented through a scheme of reconstruction pursuant to section 110 of the Insolvency Act 1986 ("section 110 scheme"), resulting in the voluntary liquidation of the Company and the rollover of its assets into AEMC in exchange for the issue of new AEMC shares to the Company's Shareholders.

New AEMC shares that are issued to the Company's shareholders will be issued on a formula asset value ("FAV")-to-FAV basis. FAVs will be calculated using the respective net asset values of each company, adjusted for the costs of implementing the Proposals, any dividends and distributions declared by each party which have a record date prior to the effective date of the combination, an allowance for the costs of liquidation (for the Company), the cash exit option (for the Company) and the tender price pursuant to the tender offer referred to below (for AEMC).

The Board believes that many Shareholders will wish to continue being invested notwithstanding the proposed change of investment exposure that the Proposals will bring and would encourage them to roll over their interest into AEMC as they will be doing with their own holdings. Nevertheless, given the proposed change of investment exposure that the Proposals represent, the Board believes it is appropriate to offer those Shareholders wishing to realise part, or potentially all, of their investment in the Company a chance to do so through a cash exit for up to 15% of the Company's shares in issue, at a two per cent. discount to FAV per share of the Company.

Given the proposed change of investment policy, AEMC's board believes that it is appropriate to offer those shareholders in AEMC wishing to realise part, or potentially all, of their investment in AEMC a chance to do so through a tender offer for up to 15 per cent. of its shares in issue (excluding shares held in treasury) at a two per cent. discount to FAV per share of AEMC.

The combination with AEMC is expected to improve the Company's liquidity for all shareholders as well as spreading the fixed costs of AEMC, as the continuing entity, over a larger pool of assets.

Two current directors of the Company, Anne Gilding and Sarah MacAulay, have been invited to join the board of AEMC from the date of completion of the transaction.

Exposure to an All China All Cap equity investment policy

AEMC's proposed portfolio will be high conviction with an estimated 30 to 60 holdings, with exposure to small companies. The model portfolio has approximately 60% invested in the China A Shares market and will evolve over time. The same portfolio reflects ASI's ESG strengths, with a higher rating and lower carbon profile than the MSCI China All Shares index (in Sterling terms), being the combined entity's proposed benchmark (both as measured by MSCI).

With over £4 billion invested in Chinese equities as at 31 March 2021, ASI has a strong record of performance (both absolute and relative) witnessed in its Aberdeen Standard Luxembourg registered SICAV I China A and All China equity funds. ASI has been investing in China for almost 30 years, and has a large team based in Shanghai and Hong Kong, supported by team members in Singapore. ASI also brings a strong record of ESG integration into its investment processes and engagement with investment managers supported by on-desk ESG specialists, together with a very strong track record of investment in China. ASI's Chinese equities team of thirteen is complemented by three on-desk ESG specialists and underpinned by ASI's global footprint with its central ESG team of 20+ based in Edinburgh. ASI is acknowledged as industry leading with an A+ ESG rating from UN PRI.

ASI believes that several key themes are providing interesting opportunities in China:

· rising affluence is leading to fast growth in premium consumption in areas including education, travel, and food and beverage;

· growing integration amid the widespread adoption of technology means a bright future for plays on e-commerce, gaming, cybersecurity and data centres supporting cloud services;

· growing prosperity means structural growth for consumer finance, increasing investor participation on stock exchanges, and a need for financial protection - especially given the under-penetration of life insurance;

· rising disposable incomes are driving demand for healthcare products and services;

· policy makers globally are committing to a greener and lower carbon world and China, presently the world's largest emitter of greenhouse gases, is expected to have a transformational role to play. Investments in renewable energy, batteries, electric vehicles, related infrastructure, and environmental management all have a bright future. 'Grid parity' will be game-changing.

ASI will manage the investment portfolio so that it does not include any company currently sanctioned under the Chinese Military-Industrial Complex Companies, or CMIC, list as per the United States Executive Order 14032. ASI will monitor the position for any future developments associated with this list of companies and any change to compliance with this approach would be communicated to the market.

Management arrangements

Aberdeen Standard Fund Managers Limited ("ASFML") has agreed to make a contribution to the costs of implementing the Proposals by means of a waiver of the management fee otherwise payable by AEMC to ASFML for the first six months following the completion of the section 110 scheme, which will be for the benefit of all remaining shareholders of the enlarged company. In addition, in future the fee for the management of the enlarged AEMC will be calculated with regards to the market capitalisation of the enlarged company, rather than net assets. This aligns ASFML with shareholder aims such that it is better incentivised to ensure that the share price discount to net asset value is kept close to zero. The annual management fee will be structured on a tiered basis, with the first £150 million of market capitalisation being charged at 0.80%, 0.75% on the next £150 million and 0.65% thereafter.

AEMC's Continuation vote and future performance linked tender

AEMC is currently required to hold a continuation vote every five years with the last vote held at the AGM in April 2018. If the Proposals put to AEMC's shareholders are approved, it is the intention that the requirement for this vote will be reset with the next continuation vote put to shareholders at AEMC's AGM to be held in 2027.

In addition, the AEMC board intends that, if the company's NAV total return over five years ending December 2026 does not exceed the total return of the MSCI China All Shares Index (in Sterling terms) the company will undertake a tender offer for up to 25 per cent. of the company's issued share capital (excluding any shares held in treasury) at a 2 per cent. discount to the then prevailing FAV.

City Code

In accordance with customary practice for section 110 schemes, the City Code on Takeovers and Mergers is not expected to apply to the combination of the Company and AEMC.

Approvals

Implementation of the Proposals is subject to the approval, inter alia, of the Company's Shareholders as well as regulatory and tax approvals and approval by the shareholders of AEMC. A circular providing further details of the Proposals and convening general meetings to seek the necessary shareholder approvals will be published by the Company as soon as practicable. It is anticipated that the Proposals will be implemented in Q4 2021.

The Company has consulted with a number of its major shareholders who have indicated support for the Proposals. These comprise over 58% of the Company's share register.

Nicholas Smith, Chairman of the Company, commented:

"Despite providing shareholders with a strong absolute total return since launch in December 1989, relative performance against the benchmark index has disappointed. The Board has engaged with the Manager over the past three years to seek to improve this but relative results have not improved.

I mentioned in my two most recent Chairman's Statements the Board's continuing commitment to providing shareholders with an investment proposition of producing relative outperformance over the long term. I also noted that should the performance over the three years to 28 February 2023 not show outperformance of the SET Index ('three year test') the Board would undertake a full review of the Company's investment management arrangements.

Recently, the Board received a proposal to join with AEMC to support its new investment objective of investing in Chinese equities. With the continuing lacklustre performance in the portfolio since 1 March 2021, the likelihood of the three year test not being met, and the lack of investor interest in small country funds, the Board believes this proposal will offer our shareholders the opportunity to be invested in one of the fastest growing countries in the world with rising affluence and disposable incomes. The Chinese economy continues to innovate and prosper with policy objectives such as digital innovation, green technology and access to better healthcare and we believe shareholders will benefit over the longer term from a larger, more liquid vehicle investing in China.

I, and the Board, would like to extend our thanks to Orsen Karnburisudthi and Adrian Lim at ASI for their time and dedication as investment managers of the Company and we should like to take this opportunity to wish them both all the best for the future."

Enquiries

Notes:

The Company is the only UK-listed investment trust specialising in Thai equities with a long-term track record of investing in quoted Thai stocks. Its investment objective is to provide shareholders with a high level of long-term, above-average capital growth through investing in companies listed in Thailand.

The portfolio is managed by the ASI Asian team, which includes experienced investment professionals based in Bangkok. Orsen Karnburisudthi heads up the Bangkok investment team.

During 2018-19 the strategy moved increasingly towards smaller companies and allowed for investment in companies approaching IPO. In 2020 the Board committed to a full review of the Company's investment management arrangements if performance over the three years to 28 February 2023 did not show outperformance of the Stock Exchange of Thailand Index, which might include, but was not limited to, an option for shareholders to redeem shares for cash. At the latest practicable date of 28 July 2021 the net assets of the Company amounted to £72.5 million and the number of Ordinary shares in issue was 15,986,569. Each Ordinary share entitles the holder to one vote.