Icg-longbow Regulatory News (LBOW)

11 January 2017

ICG-Longbow Senior Secured UK Property Debt Investments Limited

(the "Company")

Proposals for a change in investment objective and policy, a placing programme for

40 million shares and the continuation vote

Introduction

ICG-Longbow UK Senior Secured UK Property Debt Investments Limited launched in February 2013 with the objective of producing an attractive level of dividends of 6% per annum, derived from investing in a diversified portfolio of good quality defensive senior secured UK real estate loans.

The Company has successfully achieved this objective with great consistency, which the Board believes directly reflects the quality and experience of the team behind Intermediate Capital Managers Limited ("the Investment Adviser)", who have originated and managed the portfolio of loans during the Company's life. Additional value has been created through the reinvestment of the capital and exit fee proceeds following the early repayment of a number of loans.

As a result, the Company has paid a dividend equivalent to 6 pence per share since it became fully invested in April 2014. Since then, the Company has produced a total shareholder return of 7.24% per annum. The share price has also traded with low volatility and generally at a premium to the Company's prevailing NAV, reflecting the value that shareholders have placed on the consistent and attractive returns achieved. 

As at 9 January 2017, the share price was 105.5 pence per Ordinary Share compared with the latest published NAV of 104.02 pence, representing a premium of 1.42%.

Over the coming 24 months and as detailed in the latest factsheet for the Company dated 31 October 2016 (available at www.lbow.co.uk), the majority of the current loans become due for repayment. As previously communicated to Shareholders, given the material changes in the market dynamics affecting the financial market for the UK property sector since 2013, it will not be possible for the relevant proceeds to be reinvested in accordance with both the current investment objective and policy. However, the Board believes that attractive risk adjusted investment returns remain available in the UK real estate debt market. Consequently the Board has undertaken a shareholder consultation programme given the requirement for the Initial Continuation Resolution to be put to Shareholders before February 2018 and has received positive feedback from a wide range of Shareholders, the majority of whom have indicated that they would welcome a more widely drafted and flexible investment policy while remaining true to the prudent philosophy of the current objective and policy.

The Board therefore believes there is a strong appetite for the Company to continue in existence and are therefore proposing a revised investment objective and investment policy which will enable the Company to reinvest the proceeds into new loans in order to take advantage of the continuing attractive opportunities in senior UK property lending. The proposed revised investment policy also permits exposure to some of the highly successful private funds that the Investment Adviser and the direct and indirect subsidiary and parent undertakings of the Investment Adviser ("its Associates") manage in the UK real estate lending sector, without incurring any second layer of fees. 

The Proposals

The Board will shortly be publishing a Circular expected to be dated 11 January 2017 which presents a number of proposals for:

(i) a Revised Investment Policy,

(ii) Continuation Vote ,

(iii) a Follow- On Continuation Resolution and adoption of the Proposed Articles, and

(iv) a placing programme

which, if approved by Shareholders, will allow the Company to continue in existence, subject to Follow-On Continuation Resolutions to be held every five years, with a broader investment objective and investment policy which better reflects the market dynamics within which the Company is currently operating. The Board believes that the Revised Investment Policy will enable the Company to maintain its current dividend policy for the foreseeable future, together with the prospect of some continued modest capital uplift over time and also believes that it will grant sufficient flexibility to enable the portfolio to continue to be managed prudently over the long term.

With such a strong proposition, the Board believes that there is also the opportunity to grow the size of the Company from its current value of approximately £112 million and expect to do this progressively as investment opportunities present themselves. Accordingly, the Proposals also seek authority for the placing of up to 40 million new Ordinary Shares which may be issued over a twelve month period to fund investment opportunities as they arise. In addition, through adoption of the Proposed Articles, the Proposals also seek to renew for a further five year period the Directors' general authority to allot and issue shares under Article 4.4 which is otherwise due to expire on 29 November 2017.

The Board believes that growing the Company is in the best interests of all Shareholders. It will permit greater diversification, will spread the fixed costs of the Company more widely and it should increase the secondary market liquidity in the Ordinary Shares.

Market Outlook

Introduction

The Company has benefited from attractive commercial real estate ("CRE") and CRE finance market dynamics since its launch in 2013. In particular, through the Investment Adviser's market access, the Company was able to invest in a diversified portfolio of senior CRE loans with initial loan to value ratios no higher than 65% and a weighted average contracted return in excess of 8% per annum. Since early 2014 the market has evolved with the gradual return of banks to the market, along with new entrants, and now similar senior debt loans secured by investment property offer a return in the range of 4% to 5% per annum.

However, the Board believes that CRE debt continues to represents an attractive investment opportunity, potentially offering investors the combination of:

i) the benefit of strong underlying property market fundamentals, underpinned by occupational demand created by record employment, low levels of property development and steady economic growth over recent years, notwithstanding the uncertainties caused by the result of the UK's referendum on Brexit;

ii) participation in a market with demonstrable potential for capital deployment on a favourable risk/reward basis due to the retrenchment of UK and European banks; and

iii) attractive returns relative to alternative investment opportunities with a similar risk profile.

Occupational demand/ supply

Since 2009, demand for commercial real estate has been bolstered by the consistent steady growth in the UK economy and strong employment growth, with 31.8 million people in work as at October 2016, up by 342,000 over the year.

Over the same period, the supply of new commercial real estate floor space has been constrained, especially outside London, with construction orders in each year commencing 2009 being lower than every year before 2009 going back to 1985. Additionally, early indications are that Brexit is likely to further constrain near term supply, with a 42% decrease in London office construction starts reported in Q3 2016 compared to six months before. This combination of growing employment and restricted supply has contributed to the low commercial real estate vacancy rates being experienced across the UK.

Looking forward, the potential impact of Brexit on demand remains uncertain but the Investment Adviser's experience is that leasing activity has remained robust in the small to medium size assets market, whilst the largest negative impact is expected on City of London offices, given increased risk to jobs.

Property Investment Market

As at November 2016, UK commercial property market capital values, as measured by the IPD All Property Monthly Index, had increased by circa 22% since the Company's IPO in 2013 and by 37% since the index low point in July 2009 but the index remains 22% below its level ten years ago. This compares with the FTSE 100 index at November 2016, which has grown 82% since its low point in February 2009 and is 14% above its level of ten years ago.

Reflecting the growth in capital values described above, the average UK commercial property initial yield has fallen by over 1% since February 2013. However, property initial yields have remained attractive relative to gilts over the period, maintaining a premium of between 300 bps and 400 bps over the 10 year gilt yield (353bps as at October 2016).

Whilst the future impact of the Brexit vote on capital values will remain unclear until investors can fully assess its effect on the occupational market, we expect the largest impact to be on shorter let City of London offices, given increased risk to jobs from the potential loss of financial services passporting leading to a potential reversal of rental growth expectations and an outward yield shift. Further, the Investment Adviser believes there is less potential in the regions for adverse capital value correction due to the less stretched rental levels and wider initial yields.

The IPD capital values monthly index fell c. 4% between February and November 2016 and market forecasters expect the index to show a further modest decline in values in 2017 (which is likely to already be factored into transactional activity today). However, the Board and Investment Adviser are confident that there will be no re-run of the 2008/9 market correction due to the strength of occupational markets, lower gearing in both the property and the banking markets and the attractive relative value in the property market demonstrated by the enduring premium over gilts.

Finance Markets

As mentioned above, the UK CRE finance market has evolved significantly over the period since the Company launched, with traditional lenders returning to the market and new entrants joining the market, leading to annual financing flows increasing from c. £35bn in 2012/ 13 to circa £50bn in 2015, although such flows are expected to have fallen in 2016 due to the Brexit vote.

However, within this increase in activity over the last 5 years, there have been some structural changes in the market place. The traditionally dominant UK, German and other international banks have retrenched from the market - having accounted for 100% of new lending in 2010, their market share had reduced to 61% in 2015, with new entrant institutional and debt fund capital filling the gap. Over the same period, the proportion of lending activity focused on London has increased from 25% to 44% with more lenders favouring the big ticket market.

Consequently, the regions and particularly the small to medium sized investment market are relatively undersupplied with debt capital. Coupled with less stretched underlying property valuations and rental levels in the regions, the Investment Adviser believes that this has resulted in the availability of attractive risk adjusted returns in this part of the market and has consequently focused much of its activity in recent years in these areas.

Even though capital has returned to the market, the imposition of more stringent capital allocation requirements on the banking market under Basel III, coupled with the credit losses experienced by banks in their CRE debt books following the global financial crisis, has resulted in a reduced CRE risk appetite of banks, with the average LTV reducing to 63% at the end of 2015, from 77% at the peak in 2006.

Given the dynamics in the CRE finance market described above, the Investment Adviser expects to see increased opportunities for funding in support of small to medium sized acquisition or refinancing transactions across the UK, especially where there is a leverage requirement above 70% LTV, which is particularly undersupplied with capital. 

By targeting this market opportunity and through applying its extensive experience and knowledge of the UK commercial property market, coupled with a deep understanding of the drivers of the CRE financing market, the Investment Adviser anticipates that the Company will be able to deliver attractive returns without compromising the Company's and Investment Advisers shared long-standing prudent investment philosophies.

The Revised Investment Policy

The restrictions contained within the Company's existing investment objective and policy were set in market conditions which existed at the Admission Date of 5 February 2013, when interest rates achievable on senior secured loans with relatively low loan to values ("LTVs") were materially higher than today. As the Company's current portfolio of senior secured loans are redeemed, either early or on maturity, it will not be possible for the proceeds to be re-invested in accordance with the Existing Investment Policy with the same LTVs.

The objective of the Revised Investment Policy is to facilitate the Company's access to a significantly wider commercial real estate debt market opportunity through an investment exposure to a diversified mix of senior and whole loans which are originated directly and managed by the Investment Adviser and also investments in ICGL Private Funds. These investments will focus on the Investment Adviser's target mid-market space and apply its cautious lending philosophy.

The Revised Investment Policy contains a range of restrictions which are designed to ensure that the Company's investment risk profile is managed in a prudent manner, with restrictions covering both the Company's directly originated loan portfolio and its potential investments in ICGL Private Funds. In particular, the Board would like to highlight that the restrictions on the ICGL Private Funds have been designed to ensure that on a look-through basis, at the time an investment is made, the Company's aggregate investment portfolio will be at least 97% invested in UK real estate debt and at least 88% will be in first ranking senior secured debt (although the Board expects that each of these numbers will be higher in practice).

The Revised Investment Policy also permits the use of borrowings from time to time, limited to 20% of the Company's NAV. The Board believes that the ability to use modest gearing will be a critical tool in facilitating the future growth of the Company, with the objective of minimising the return-dilutive effects of un-invested cash without materially increasing risk.

The Board believes that investment in UK commercial real estate debt continues to represent an attractive investment opportunity which should deliver capital protection coupled with predictable income streams.

Resolution 1 in the Circular, which is being proposed as an ordinary resolution requiring a simple majority of Shareholders and duly appointed proxies entitled to attend and vote at the Extraordinary General Meeting or, on a poll, of the votes cast, seeks to approve the adoption by the Company of the Revised Investment Policy to replace in its entirety the Company's Existing Investment Policy.

Existing Investment Policy

Investment Objective and Policy

The investment objective of the Company is to construct a portfolio of good quality, defensive, senior debt investments secured by first ranking fixed charges predominantly against UK commercial property investments, providing dividends of circa 6% pa, paid quarterly, with an underlying target portfolio IRR of 8% pa. The Portfolio will be constructed to offer:

· low risk of capital or income loss;

· high degree of control over the underlying investments;

· highly predictable quarterly income distributions; and

· attractive pricing through capitalising on the pricing power available in the market.

The Company aims to be fully invested within six to nine months from the Admission Date.

The Company's investment policy is to invest in a loan portfolio comprised of senior loans to property investors secured on UK commercial property with some potential exposure to UK investment residential property. The individual loans that will comprise the Portfolio are expected to be between £10 million and £40 million with four to six year terms. The Portfolio will target a 6.5% to 7.5% per annum loan coupon (paid quarterly) with arrangement and exit fees, each of approximately 2% paid by the borrower. All costs directly associated with entering into the loan transaction will be paid for by the borrower.

The Company will only invest in loans that:

· are originated by ICG-Longbow;

· benefit from a first ranking fixed charge over the relevant properties, including in respect of any receivable income;

· are bilateral, non-syndicated and senior and which have no subordinated debt;

· have a maximum LTV of 65%; and

· benefit from loan covenants structured to ensure that a material decrease in the income or value from the underlying property will trigger an event of default, providing control to the lender, and the opportunity to: (1) decrease the risk through the introduction of new borrower equity; and/or (2) capture additional pricing.

The following investment restrictions apply to the Portfolio, in each case measured at the time an investment is made:

· the maximum percentage of the Company's gross assets allocated to a single loan shall be 10%, provided that the limit may be increased to 20% for loans benefitting from diversified and/or Investment Grade Tenants (as determined by MIS and/or S&P, being credit rating agencies registered in accordance with Regulation (EC) No 1060/2009);

· the maximum percentage of the Company's gross assets allocated to a single borrower (together with its parents, subsidiaries and/or affiliates) shall be 20%;

· following the Initial Investment Period, the maximum exposure of the gross rents receivable on all investments to a single underlying tenant shall be 10%, except:

o in the case of an Investment Grade Tenant (as determined by MIS and/or S&P, being credit rating agencies registered in accordance with Regulation (EC) No 1060/2009), the maximum exposure shall be 20%; and

o in the case of the UK Government (including any of its ministries, departments and/or executive agencies), the maximum exposure shall be 50%;

· the maximum exposure to a Property Sector (as defined below) shall be 50% of the Company's gross assets, on the basis that:

o where 60% or more of the value of a loan's collateral real estate assets falls in a Single Property Sector (as defined below), 100% of the value of the relevant loan will be attributed to that Single Property Sector; and

o where less than 60% of the value of a loan's collateral real estate assets falls in any Single Property Sector, then the value of the relevant loan will be attributed to the Mixed Portfolio Property Sector (as defined below); and

· the maximum exposure to residential property shall be 15% of the Company's gross assets and any such exposure shall be restricted to multi-family investment properties.

For the purposes of the investment restrictions, a "Property Sector" is defined as any of the Single Property Sectors and the Mixed Portfolio Property Sector. "Single Property Sectors" comprise the office, retail or industrial/warehousing sectors as well as the Other Sector, being all other real estate sectors. A "Mixed Portfolio Property Sector" denotes the situation where less than 60% of the value of a loan's collateral real estate assets falls in any Single Property Sector.

The Company will not employ gearing or invest in derivatives for investment purposes. However, the Company may enter into hedging transactions for the purposes of efficient portfolio management.

Any material change in the Company's published investment policy will only be made with the prior approval of Shareholders by ordinary resolution.

Revised Investment Policy

Investment Objective

The objective of the Company is to construct a portfolio of UK real estate debt related investments predominantly comprising loans secured by first ranking fixed charges against Commercial Property investments, with the aim of providing shareholders with attractive, quarterly dividends, capital preservation and, over the longer term, a degree of capital appreciation.

Investment Policy

The Company's investment policy is to invest in:

· direct real estate debt investments via a diversified loan portfolio comprised of first ranking loans secured on UK Commercial Property, with an aggregate LTV of no more than 75% (based on the initial valuations at the time of loan origination or acquisition once fully invested); and

· ICGL Private Funds acquired in primary or secondary transactions, including from the Investment Adviser or its Associates.

Investment Restrictions

A. The following restrictions apply to loan investments within the portfolio.

The Company will, subject as set out below, only invest in loans that:

· are originated by the Investment Adviser or its Associates;

· are denominated in sterling;

· benefit from a first ranking fixed charge over the relevant properties, including in respect of any receivable income;

· benefit from loan covenants structured to ensure that a material decrease in the income or value from the underlying property will trigger an event of default or cash-flow lock-up;

· have a term of no greater than ten years from the date of investment;

· have an LTV no higher than 85% at the time of origination or acquisition provided however that the aggregate value of the loans with an LTV of greater than 80% shall be no greater than 20% of the Company's gross asset value; and

· are bilateral (other than where syndicated with other funds managed by the Investment Adviser or its Associates).

At the time any investment is made:

· the maximum percentage of the Company's gross assets allocated to a single loan shall be 10%, provided that the limit may be increased to 15% in respect of loans benefitting from Investment Grade Tenants and 20% in respect of loans benefitting from a Diversified Tenant Profile;

· the maximum percentage of the Company's gross assets allocated to a single borrower (together with its parents, subsidiaries and/or affiliates) shall be 20%;

· the maximum exposure of the gross rents receivable on all loan investments to a single underlying tenant shall be 10%, except in the case of the UK Government, when the maximum exposure shall be 25%;

· the maximum exposure to a Mainstream Property Sector or the Mixed Property Sector shall be 50% of the Company's gross assets;

· the maximum exposure to an Alternative Property Sector shall be 25% of the Company's gross assets;

· the maximum exposure to property which is not a Mainstream Property Sector, an Alternative Property Sector or the Mixed Property Sector shall be 5% of the Company's gross assets;

· the maximum exposure to property within a single UK Economic Region shall be 30% of the Company's gross assets, provided that the maximum exposure to Greater London property shall be 60% of the Company's gross assets; and the value of the Company's security which is not freehold tenure or long-leasehold tenure with an unexpired term of more than 50 years shall not be greater than 5% of the total value of the Company's security.

The Company will not invest in subordinated loans and mezzanine loans, bridge loans, development loans or loan-on-loan financings.

B. The following restrictions apply to the portfolio's indirect real estate exposure.

The Company may only invest in ICGL Private Funds where at the date of making an investment or commitment:

· the relevant ICGL Private Fund's investment parameters, investment policy and/ or investment objective, as the case may be, require that at least 90% of that ICGL Private Fund's capital is invested in sterling denominated loans secured by commercial real estate and at least 60% in loans secured by first ranking security over Commercial Property;

· the maximum percentage of the Company's gross assets committed to a single ICGL Private Fund shall be 20%, where gross assets are calculated on the assumption that the Company's commitment to such fund is fully utilised; and

· the maximum percentage of the Company's gross assets committed to all ICGL Private Funds shall be 30%, where gross assets are calculated on the assumption that the Company's commitment to such funds is fully utilised.

Gearing

The Company may utilise borrowings from time to time in order to finance its working capital requirements provided that such borrowings will not exceed an amount equal to 20% of the Company's net asset value immediately following the drawdown of the borrowings.

Cash Management Policy

Cash held by the Company pending investment or distribution will be held in either cash or cash equivalents. The Company may invest in quoted bond and other debt instruments with a final maturity of less than 365 days as well as money market funds for the purposes of cash management provided any such instrument has a Minimum Credit Rating. The Company will not apply gearing to these temporary investments.

The Company will not invest in other listed or unlisted closed-ended funds.

Any material change to the Company's published investment policy will be made only with the prior approval of Shareholders by ordinary resolution.

Definitions in relation to the Revised Investment Policy

Capitalised terms contained in this Investment Policy shall have the following meanings:

Dividend Policy

On the basis of the current portfolio and anticipated changes to the portfolio over the medium term as a result of the proposed continuation of the Company coupled with the proposed change in the investment policy outlined above, the Company will continue to target a dividend at an annualised rate of 6 pence per Ordinary Share in respect of the accounting period ending on 31 January 2018 and thereafter.

(The Company's dividend target is a target only and is not intended to be, and should not be taken as, a profit forecast or estimate. Actual dividend payments cannot be predicted and may differ materially from the target figures detailed in this policy. There can be no assurance that this target will be met or that any dividend will be paid)

The Continuation Vote Resolution

In order for the Company to be able to exploit fully the opportunities which the Board believes the Revised Investment Policy will afford, the Board believes that, subject to the Revised Investment Policy being approved, it is in the best interests of the Company and the Shareholders as a whole for the Initial Continuation Resolution to be approved to allow the Company the opportunity to realise this expanded investment opportunity. Article 51 of the Articles requires the Directors to convene a general meeting on or before 5 February 2018 (being the fifth anniversary of the Admission Date) at which an ordinary resolution of Shareholders must be proposed as to whether the Company should continue its business as a closed ended collective investment scheme.

The Circular therefore also contains a resolution for the continuation of the Company ( Resolution 2) , which is being proposed as an ordinary resolution requiring a simple majority of Shareholders and duly appointed proxies entitled to attend and vote at the Extraordinary General Meeting or, on a poll, of the votes cast and comprises the Initial Continuation Resolution.

The Board is recommending all Shareholders support the Initial Continuation Resolution. 

If the Initial Continuation Resolution is not approved by Shareholders, the Board will formulate proposals to be put to the Shareholders which may include, but are not limited to, the managed wind down of the Company.

The Follow-On Continuation Resolutions and adoption of the Proposed Articles

Article 51 of the Articles further requires that in circumstances where the Initial Continuation Resolution has been passed, the Directors are required to convene a general meeting on or before the anniversary of the date on which the Initial Continuation Resolution was passed at which an ordinary resolution of Shareholders must be proposed as to whether the Company should continue its business as a closed ended collective investment scheme. The Directors are then required to hold further general meetings to propose resolutions as to whether the Company should continue its business as a closed ended collective investment scheme on or before the anniversary of each such Follow-On Continuation Resolution. On the assumption that Resolutions set out above are passed, the Board considers the requirement for annual continuation votes to be incompatible with the new proposed investment mandate and investment loan portfolio, which are both by their nature longer term, and is therefore proposing that the Articles be amended by the adoption of the Proposed Articles to remove the requirement for Follow-On Continuation Resolutions to be held on an annual basis with effect from and conditional upon the Initial Continuation Resolution being passed. Instead, with effect from and conditional upon the passing of Resolution 2, Follow-on Continuation Resolutions will be required to be held at or prior to the annual general meeting to be held in the fifth year following the passing of the Initial Continuation Resolution or most recent Follow-On Continuation Resolution (as the case may be). On the assumption that Resolution 2 is passed at the Extraordinary General Meeting, the first Follow-On Continuation Resolution would be required on or before the annual general meeting of the Company to be held in 2022 (being the year falling five years after the date upon which the Initial Continuation Resolution is expected to be passed). These proposed changes will be implemented by adopting the Proposed Articles.

Additionally, it is proposed that the mechanism contained in article 49 of the Articles pursuant to which, if over certain prescribed time periods the Ordinary Shares have traded at a discount of more than 5%, the Board may implement a redemption offer by which each holder of Ordinary Shares is permitted to redeem up to 50% of his Ordinary Shares, is deleted as this is also incompatible with the new proposed investment mandate and investment loan portfolio which are both by their nature longer term. Moreover, the illiquid nature of the Company's portfolio would make it difficult and potentially expensive for the Company to realise investments in order to fund Redemption Offers in an efficient and expedient manner, and the Board therefore recommends this term is removed from the Articles.

It is also proposed that Article 4.4 be amended in order to renew the Directors' general authority to allot and issue shares which is otherwise due to expire on 29 November 2017. On the assumption that the Proposed Articles are adopted, the Directors will be generally and unconditionally authorised to allot and issue, grant rights to subscribe for, or to convert securities into, up to an unlimited number of shares of each class in the Company, which authority will expire 5 years after the date of adoption of the Proposed Articles (unless previously renewed, revoked or varied by the Company in general meeting).

Resolution 3 in the Circular is being proposed as a special resolution requiring the approval of not less than 75% of the Shareholders and duly appointed proxies entitled to attend and vote at the Extraordinary General Meeting or, on a poll, not less than 75% of the votes cast.

In the event that the Proposed Articles are not adopted but Shareholders vote in favour of both the Revised Investment Policy and the Continuation the Company will continue in existence and operate in accordance with the terms of the Revised Investment Policy but will continue to be subject to annual Follow-On Continuation Resolutions and the Board will still be obligated to implement Redemption Offers.

The Placing Programme and the Share Authorities

Further to the proposed changes to the Existing Investment Policy outlined above, the Board believes that it will have the opportunity over time to acquire investments and the ability to issue new shares will provide the Directors with the necessary flexibility to participate and complete such opportunities should they deem the market conditions to be suitable. To this end the Board therefore proposes a Placing Programme to issue up to 40 million Ordinary Shares.

The Company is limited in the number of Ordinary Shares it is able to issue without the publication of a Prospectus. Accordingly, the Board intends, subject to the requisite regulatory approvals, to publish the Placing Programme Prospectus early in 2017 in connection with the Placing Programme.

In accordance with the requirements of the Listing Rules in relation to companies with a premium listing, the Articles give Shareholders pre-emption rights over the issue for cash of further shares of a class held by such Shareholders. The pre-emption rights may be disapplied pursuant to an extraordinary resolution of Shareholders at a general meeting.

As the Placing Programme will not be pre-emptive, Shareholders are being asked to approve at the Extraordinary General Meeting, by way of Resolution 4 (Share Authorities), the allotment and issue for cash of up to 40 million Ordinary Shares (being the maximum number of Ordinary Shares that could be issued pursuant to the Placing Programme) on a non-pre-emptive basis. The maximum number of Ordinary Shares that could be issued pursuant to the Placing Programme would represent 36.96% of the total issued Ordinary Share capital of the Company .

The Share Authorities that are being sought in connection with the Placing Programme are in addition to any other share authorities that are currently in place, or may in the future be put in place, from time to time.

If the Placing Programme meets its maximum size of 40 million Ordinary Shares, the share capital of the Company in issue at the date of this Circular will, following the Placing Programme and on the assumption that no other Ordinary Shares are issued in that time under any other authorities, be increased by 36.96% as a result of the Placing Programme. On this basis, if a Shareholder as at the date of this Circular does not acquire Ordinary Shares pursuant to the Placing Programme, his or her proportionate economic interest in the Company will be diluted by 26.99%.

The issue of any new Ordinary Shares under the Placing Programme will only be at a premium to the then prevailing NAV per Ordinary Share and will not therefore be dilutive to Shareholders. When issued and fully paid, the new Ordinary Shares issued under the Placing Programme will rank equally in all respects with the existing Ordinary Shares, including the right to receive all dividends made, paid or declared (if any) out of the profits of the Company attributable to the Ordinary Shares by reference to a record date after their issue. The allotment and issue of Ordinary Shares under the Placing Programme will only be undertaken when the Investment Adviser has identified opportunities for the Company to make investments using the net proceeds of any such issue and the Board has approved such opportunity.

Application will be made to the UK Listing Authority for all Ordinary Shares to be issued pursuant to the Placing Programme to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange. It is expected that admission of Ordinary Shares issued pursuant to the Placing Programme will become effective, and that dealings for normal settlement in new Ordinary Shares issued pursuant to the Placing Programme will take place, between the date of publication of the Placing Programme Prospectus and the date that is twelve months after the date of such publication.

The authority in Resolution 4 will, if granted, expire on the date that is twelve months after the date of publication of the Placing Programme Prospectus which it is expected will be published in early 2017 and which will contain full details of the Placing Programme.

Resolution 4 is being proposed as an extraordinary resolution requiring the approval of not less than 75% of the Shareholders and duly appointed proxies entitled to attend and vote at the Extraordinary General Meeting or, on a poll, not less than 75% of the votes cast.

Extraordinary General Meeting

The Circular contains the Resolutions set out above and convenes an Extraordinary General Meeting to be held at Lefebvre Place, Lefebvre Street, St Peter Port, Guernsey, GY1 2JP at 2.30 p.m. on 1 March 2017.

The Board unanimously believes that the Proposals are in the best interests of the Company and Shareholders as a whole and recommends that Shareholders vote in favour of them. 

The Directors are all Shareholders and will themselves be voting in favour of all the Proposals.

An electronic copy of the Circular and Notice has been submitted to the National Storage Mechanism and will shortly be available for inspection at:  http://www.morningstar.co.uk/uk/NSM and can also be obtained from the Company's website at: http://www.lbow.co.uk.

EXPECTED TIMETABLE