CIN.L Regulatory News (CIN)

CITY OF LONDON GROUP PLC

16 July 2015

PROPOSALS TO ISSUE NEW SHARE CAPITAL, TRANSFER TRADING TO AIM AND AMEND INVESTMENT POLICY

City of London Group plc ("COLG" or the "Company"), a closed-ended investment company, investing in financial services businesses which provide finance to the SME and professional services sectors, is pleased to announce its intention to raise new equity through a subscription for new ordinary shares, to transfer the admission to trading of its ordinary shares to the AIM market of the London Stock Exchange ("AIM") from the London Stock Exchange's main market for listed securities, to cancel the listing of its ordinary shares on the Official List of the UK Listing Authority and to change its investment policy (together, the "Proposals").

· Following a period of consolidation and stabilisation, COLG is now focused on 2 SME platforms with a clear strategy for growth.

· COLG has conditionally agreed an equity fund raising of between £3 million and approximately £4.5 million through a direct subscription with investors which will provide new capital to fuel growth and bring in Cain Hoy Enterprises, LLC ("Cain Hoy") as a new investor (the "Subscription").

· The Company has reserved the right to increase the size of the Subscription to up to £6 million in aggregate in the case of additional demand from third parties.

· The Board believes AIM is a more appropriate market for the trading of COLG's shares and will provide the Company with greater flexibility going forward.

· COLG is now entirely focused on SME and professional services funding and consequently is proposing an amended, more focused investment policy.

· The Proposals are conditional, inter alia, on the approval of the Company's shareholders and the admission to trading on AIM of the Company's entire issued and to be issued ordinary share capital ("Admission").

· A detailed explanatory circular convening a general meeting and containing details of the resolutions to be proposed by the Board will be circulated as soon as practicable.

John Kent, Acting Chief Executive Officer, commented:

"Our results for last year announced today demonstrate a substantial improvement in the performance of both the holding company and its investee companies. The Group is now streamlined and focused on SME and professional services funding following the recent sale of its litigation funding associate. With the additional funding announced today we shall have the capital necessary to continue this improvement. The proposed move to AIM will further help the implementation of COLG's plans for the next stage of growth"

The Subscription

The Company has entered into subscription letters dated 16 July 2015 with Savoylane Limited ("Savoylane"), the Estate of the late John Greenhalgh (deceased) (the "JG Estate"), both existing shareholders, and Cain Hoy (together the "Investors"). The Subscription will raise a minimum of £3 million of new equity (before expenses). The Company has reserved the right to increase the size of the Subscription to up to £6 million in aggregate in the case of additional demand from third parties. If third party investors are found, the Investors have committed to increase their participation in the equity fund raising to a maximum of approximately £4.5 million. Cain Hoy may procure subscribers for some of the Subscription Shares set out in its subscription letter in accordance with the terms of that letter. The proceeds will provide the capital that the Company needs in order to pursue its proposed investment policy and to support its existing investments.

Details of the Subscription

The number of shares to be issued pursuant to the Subscription (the "Subscription Shares") will be between 10,000,000 and 20,000,000 in aggregate, representing between approximately 33 and 50 per cent. of the enlarged issued share capital of the Company at Admission. The subscription price of 30p per share represents a premium of approximately 29 per cent. to the closing middle market price of 23.25p per share on 15 July 2015, being the day before this announcement and a premium of 7 per cent. compared to the consolidated NAV per share of 28p per share on 31 March 2015. The Subscription will be satisfied in cash payable on Admission.

The table below sets out the minimum and maximum number of Subscription shares that may be subscribed for under the terms of the subscription letters:

(1) The Estate of the late John Greenhalgh (deceased) has agreed to subscribe for 110,927 shares

The Subscription is conditional, inter alia, upon the passing of certain resolutions, including to authorise the allotment of the Subscription Shares on a non-preemptive basis, to approve the cancellation of the listing of the Company's ordinary shares on the Official List of the UK Listing Authority, to approve the participation of Savoylane in the Subscription as a related party for the purposes of the Listing Rules, and to approve the adoption of a revised investment policy upon Admission and to Admission.

The Subscription Shares will be issued credited as fully paid and will rank in full for all dividends and other distributions declared, made or paid after Admission and pari passu in all respects with the existing ordinary shares. The Subscription Shares have not been made available to the public and are not being offered or sold in any jurisdiction where it would be unlawful to do so.

Application will be made to the London Stock Exchange for the issued and to be issued ordinary shares of the Company (including the Subscription Shares) to be admitted to trading on AIM.

Credit Asset Management Limited (CAML) preference share issue

CAML is also announcing today that it has secured £5 million of new fixed rate, preference share capital from an associate of Savoylane. The proceeds of the preference share issue will enable CAML to seek £15 million of senior debt to build a £20 million portfolio of leases and loans. This is a welcome complement to COLG's equity raise.

Related party transaction

Savoylane is an associate of Harvey Bard, who has nominated a director to the Company's board and is the largest creditor of the Company. As such, Mr Bard is considered a related party for the purposes of the Listing Rules. Pursuant to the Subscription, Savoylane has agreed to subscribe for between 3,877,957 and 6,872,957 Subscription Shares representing between approximately £1.2 million and £2.1 million in gross proceeds for the Company at the subscription price of 30 pence per Subscription Share. Given the Company's market capitalisation of approximately £4.7 million, this transaction will be above the 5 per cent. threshold for smaller related party transactions under LR 11.1.10R, and as such, will be subject to the approval of the Company's shareholders (excluding Mr Bard and his associates) at the general meeting of the Company referred to above.

The JG Estate and associates have a combined holding of 3,170,575 shares in the Company, which represents approximately 15.7 per cent. of the issued share capital. Additionally, Andrew Crowe, whom is acting as Sole Executor of the JG Estate, is a Director of the Company. As such the JG Estate is considered a related party under the Listing Rules. Pursuant to the Subscription, the JG Estate has agreed to subscribe for 110,927 Subscription Shares representing £33,278.10 in gross proceeds for the Company at the subscription price of 30 pence per Subscription Share. Given the Company's market capitalisation of approximately £4.7m, this transaction is considered a smaller related party transaction under LR 11.1.10R.

Reasons for the move to AIM 

The Board believes that given the size of the Company, the AIM market is a more appropriate market on which to develop. AIM has the benefit of lower transactional costs, lower annual costs and simpler administration and regulatory requirements more appropriate to a company of COLG's size and which will help the implementation of COLG's plans for the next stage of growth.

The Board, however, envisages no significant alteration in the standards of reporting and governance which the Company has always achieved. Following Admission, the Company will be subject to the regulatory and disciplinary controls of the AIM Rules for Companies.

Further details on the regulatory and other consequences of moving to AIM will be set out in the circular to be published and distributed to shareholders.

Details of move to AIM

Listing Rule 5.2.5R(2) requires that a company wishing to cancel its listing on the Official List may only do so if at least 75 per cent. of the votes cast at a general meeting on a resolution to delist are in favour.

The continued listing of the Company on the Official List would prevent the implementation of the Proposals (including the receipt of the proceeds of the Subscription), as these are conditional on Admission and completion of the Subscription, which can only occur once the de-listing has taken place.

As COLG's existing shares are currently listed on the premium segment of the Official List, the AIM Rules for Companies do not require an AIM admission document to be published by the Company in connection with its application for Admission. However, in order to achieve Admission, the Company will be required to publish an announcement which complies with the requirements of Schedule One to the AIM Rules for Companies comprising information required to be disclosed by companies transferring their securities from the Official List, as an AIM Designated Market, to AIM.

Although it is their intention, there is no guarantee that the Directors will be successful in achieving Admission or that the conditions of the Subscription set out in the subscription letters will be satisfied.

Proposed investment policy

As part of its new growth strategy the Board believes that COLG should have a more focused but flexible investment policy. The Board intends to propose the following revised investment policy at the general meeting for the approval by shareholders.

The principal investment objective of the Company will be to achieve total returns for Shareholders in excess of 8 per cent. per annum, measured on a 5 year rolling basis.

· The majority of the Company's portfolio will be invested in the financial services sector through a series of equity and non-equity investments in unquoted companies and platforms which provide specialist financing and alternative asset management services. The Company will give particular focus to the SME market and professional services.

· The Company's main strategy will be to provide equity, working capital and seed funding to management teams and early stage companies to establish their business platforms and demonstrate a track record. When appropriate, the Company will assist those platforms in expanding their activities further by raising third party funding. The Company will then be able to progressively redeploy its initial working capital and seed funding whilst retaining its long term equity interests.

· The Company will be able to hold majority and minority equity positions in its investee platforms. Where it has a majority of the equity, the day to day control will remain with each management team within those platforms, and the Company will exercise its rights as a shareholder in order to ensure appropriate investor protection and strategic direction. The Company will not generally have a fixed timescale for the realisation of investments and these will be assessed periodically in order to optimise their value.

· It is the long term intention of the Company to hold a concentrated portfolio of two to four platforms but during a transition period of up to eighteen months the Company may hold only one platform or as many as six platforms pending capital raisings, reinvestment and platform realisations.

· Each of the investee platforms will be separate from all others, stand alone and there will be no cross financing or funding requirements between them.

· Borrowing will take place when the Company believes it to be in its best interests but the amount borrowed will not exceed 100 per cent. of its total gross assets at the time of borrowing.

· Compliance with investment restrictions and guidelines will be monitored continuously by the Board. Any material changes to the investment policy must be approved by the shareholders in accordance with the AIM Rules for Companies.

General Meeting and Circular

A detailed explanatory circular convening a General Meeting and containing details of the resolutions proposed by the Board will be circulated as soon as practicable.

For further information:

Notes to Editors

City of London Group plc is fully listed on the London Stock Exchange plc (LSE symbol CIN).

COLG is an investment company focused on providing finance to the SME sector, including professional services firms. It does this through investments in companies providing trade finance, lease finance and loan finance.

Headquartered in Greenwich, Connecticut, Cain Hoy Enterprises, LLC is a private investment company financed with permanent capital that owns a diversified portfolio of primarily real estate assets. Cain Hoy invests across capital structures with significant focus on the UK.

www.cityoflondongroup.com