Asia Dragon Regulatory News (DGN)

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO, THE UNITED STATES OF AMERICA (INCLUDING ITS TERRITORIES AND POSSESSIONS, ANY STATE OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA), AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, THE REPUBLIC OF SOUTH AFRICA, IN ANY MEMBER STATE OF THE EEA OR IN ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL

This announcement is not an offer to sell, or a solicitation of an offer to acquire, securities in the United States or in any other jurisdiction in which the same would be unlawful. Neither this announcement nor any part of it shall form the basis of or be relied on in connection with or act as an inducement to enter into any contract or commitment whatsoever.

21 July 2023

Asia Dragon Trust plc

Legal Entity Identifier: 549300W4KB0D75D1N730

Proposed combination with abrdn New Dawn Investment Trust plc

Introduction

The Board of Asia Dragon Trust plc ("DGN" or the "Company") is pleased to announce that it has agreed heads of terms with the Board of abrdn New Dawn Investment Trust plc ("ABD") in respect of a proposed combination of ABD with DGN. The combination, if approved by each company's shareholders, will be effected by way of a scheme of reconstruction and winding up of ABD under section 110 of the Insolvency Act 1986 and the associated transfer of part of the assets and undertaking of ABD to DGN in exchange for the issue of new ordinary shares in DGN ("New DGN Shares") (the "Scheme").

Following implementation of the Scheme, the enlarged DGN will continue to be managed by abrdn Fund Managers Limited ("AFML"). However, in connection with the Scheme, the DGN Board will propose certain amendments to the Company's investment policy (the "Investment Policy Change") which will be subject to FCA and shareholder approval. The principal amendment will be to permit investment in Australasia in order to provide the management team with greater geographic flexibility. The portfolio managers of the enlarged DGN will be Pruksa Iamthongthong and James Thom.

The Scheme and the Investment Policy Change are together referred to as the "Proposals".

The Board of DGN believes that, if the Proposals are implemented, DGN shareholders will benefit from, amongst other things, the greater economies of scale that are expected to result from the enlarged asset base, including greater secondary market liquidity in DGN shares and cost efficiencies.

The Proposals will be subject to approval by the shareholders of both DGN and ABD in addition to regulatory and tax approvals. DGN and ABD have received irrevocable undertakings to support the Proposals from shareholders representing 29.7 per cent. of DGN's issued share capital and 27.0 per cent. of ABD's issued share capital (both measured as at 19 July 2023).

Summary of the Scheme

The Proposals will be effected by way of a scheme of reconstruction of ABD under section 110 of the Insolvency Act 1986, resulting in the voluntary winding up of ABD and the transfer of part of ABD's assets to DGN on a Formula Asset Value ("FAV") for FAV basis. In accordance with customary practice for such transactions involving investment trusts, the City Code on Takeovers and Mergers is not expected to apply to the Proposals. However, the Proposals will be subject to other regulatory and tax approvals. The Proposals will also be subject to, inter alia, approval by the shareholders of each of DGN and ABD. 

Under the Scheme, ABD shareholders will be entitled to elect to receive in respect of some or all of their ABD shares:

· New DGN Shares (the "Rollover Option"); and/or

· cash (the "Cash Option").

The Cash Option is limited to 25 per cent. of ABD's shares in issue (excluding treasury shares). Should total elections for the Cash Option exceed 25 per cent. of ABD's shares in issue (excluding treasury shares), excess elections for the Cash Option will be scaled back into New DGN Shares on a pro rata basis.

The Cash Option will be offered at a discount of 2 per cent. to the ABD FAV (the "Cash Discount") less the costs of realising the assets allocated to the cash pool for the benefit of the shareholders electing for the Cash Option. The Cash Discount will be for the benefit of the enlarged DGN.

New DGN Shares will be issued as the default option under the Scheme in the event that ABD shareholders do not make a valid election under the Scheme or to the extent elections for the Cash Option are scaled back as a result of the Cash Option being oversubscribed.

Rationale and Benefits of the Scheme

DGN and ABD both invest in the Asia Pacific (ex-Japan) region and both are managed by AFML with a high level of commonality across their shareholder bases. In light of these similarities, the Boards believe a combination of the companies will create an enlarged vehicle that offers similar investment exposure for each set of shareholders while offering shareholders in the enlarged DGN the following benefits.

· Enhanced profile: The enlarged DGN is expected to have net assets in excess of £700 million (as at 19 July 2023), creating a leading closed-ended vehicle for investment in the Asia Pacific (ex-Japan) region. On the basis of the current market capitalisations of DGN and ABD, the enlarged DGN would be expected to qualify for inclusion in the FTSE 250 raising the profile and enhancing the marketability of the enlarged DGN.

· Lower management fee: AFML has agreed that, with effect from the admission to listing and trading of the New DGN Shares ("Admission"), the management fee payable by DGN to AFML will be reduced to 0.75 per cent. (currently 0.85 per cent.) on the initial £350 million of DGN's net assets and 0.5 per cent. on DGN's net assets in excess of £350 million. In addition, DGN will benefit from lower costs following implementation of the Proposals as DGN's tiered fee structure will have the effect of reducing the weighted average fee given the increase in DGN's net assets.

· Lower ongoing charges: Existing and new shareholders in DGN are expected to benefit from a lower ongoing expense ratio with the Company's fixed costs spread over a larger asset base.

· Enhanced liquidity: The scale of the enlarged company is expected to improve the secondary market liquidity of DGN's shares.

· Shareholder register: The Proposals will allow a number of shareholders to consolidate their holdings across the two companies while also creating a more diversified shareholder base through a combination of the balance of the two share registers.

· Contribution to costs: As described below, AFML has agreed to make a cost contribution in respect of the Proposals which, in addition to the contribution to the costs from the Cash Discount described above, is expected to offset the direct transaction costs for DGN shareholders.

Costs of the Proposals and AFML Contribution

Each company intends to bear its own costs incurred in relation to the Proposals and the direct costs will be reflected in the FAV for each company.

AFML has agreed to make a contribution to the costs of the Scheme by means of a reduction in the management fee payable by DGN to AFML. The fee reduction will constitute a waiver of the management fee that would otherwise be payable to AFML in respect of the assets transferred by ABD to DGN pursuant to the Scheme for the first six months following the completion of the Scheme (the "AFML Contribution"). The AFML Contribution will be for the benefit of the shareholders of the enlarged DGN following implementation of the Scheme.

Management Fees

As noted above, AFML has agreed that, with effect from Admission, the management fee payable by DGN to AFML will be reduced to 0.75 per cent. on the initial £350m of net assets and 0.5 per cent. on net assets in excess of £350m. This is a reduction from the existing DGN management fee of 0.85 per cent. on the initial £350m of net assets, reducing to 0.5 per cent. on net assets in excess of £350m.

Change of Investment Policy

It is intended that DGN will seek shareholder approval for the Investment Policy Change at the general meeting to be held by the Company in connection with the Proposals. The proposed amendments to the DGN investment policy will, inter alia, allow for investment in Australasia in order to provide the management team with greater geographic flexibility, which is in line with ABD's current investment policy. DGN's existing benchmark comparative index (MSCI AC Asia (ex-Japan) Index) will be retained. In addition, other modernising and clarificatory amendments will also be proposed. The proposed amended investment policy will be set out in full in the circular to be sent to shareholders in connection with the Proposals.

Performance Related Conditional Tender Offer

DGN offers a five-yearly performance related conditional tender ("Conditional Tender") with the current performance period running from 1 September 2021 to 31 August 2026 ("2026 CTO"). It is proposed that, in the light of the Proposals and conditional on the Scheme being implemented, the 2026 CTO will be amended such that, in the event DGN underperforms the Benchmark over the performance period, DGN will offer shareholders the opportunity to tender up to a maximum of 15 per cent. of their shares; a reduction from the maximum of 25 per cent. previously proposed. This reflects the revised Conditional Tender being of broadly a similar size to that previously proposed for the 2026 CTO, given the greater scale of the enlarged DGN.

Board Structure

Following completion of the Proposals, it is expected that the Board of the enlarged DGN will consist of eight directors and will include the five existing DGN directors and three of the existing ABD directors. After a transition period that will end on the six month anniversary of Admission, it is intended that the Board of the enlarged DGN will reduce to five directors consisting of three existing DGN directors and two existing ABD directors.

Expected Timetable

A circular to shareholders of the Company, providing further details of the Proposals and convening a general meeting to approve the Proposals, and a prospectus in respect of the issue of New DGN Shares in connection with the Scheme are expected to be published by the Company in September 2023. The Proposals are anticipated to become effective in October 2023. 

The Chairman of DGN, James Will, commented:

"The Proposals will create a combined entity with significantly greater scale through the bringing together of two trusts with a similar investment approach and management style and the same investment manager, while also providing the Company with greater investment flexibility. The transaction is expected to lead to improved liquidity in the Company's shares and a lower ongoing charges ratio, further benefiting from the tiered fee structure and reduced management fee arrangements. We expect the enlarged Company will be of sufficient size to enter the FTSE250 in due course and will allow abrdn to focus its marketing efforts on one all-cap growth trust in the Asia Pacific (ex-Japan) sector, rather than two; all of which has the potential to broaden investor interest in the Company over time."

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Important Information

This announcement contains information that is inside information for the purposes of Article 7 of the UK version of Regulation (EU) No. 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended (the Market Abuse Regulation). The person responsible for arranging for the release of this announcement on behalf of Asia Dragon Trust plc is Charles Mearns of abrdn Holdings Limited.

This announcement is not for publication or distribution, directly or indirectly, in or into the United States of America. This announcement is not an offer of securities for sale into the United States. The securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States, except pursuant to an applicable exemption from registration. No public offering of securities is being made in the United States.