Weiss Korea Opp Regulatory News (WKOF)

Weiss Korea Opportunity Fund - Half-year Report

PR Newswire

London, September 3

WEISS KOREA OPPORTUNITY FUND LTD.LEI 213800GXKGJVWN3BF511(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)

HALF-YEARLY FINANCIAL REPORTFOR THE PERIOD ENDED 30 JUNE 2020

Weiss Korea Opportunity Fund Ltd. (the “Company”) has today, released its Half-Yearly Financial Report for the period ended 30 June 2020. The Report will shortly be available for inspection via the Company's website www.weisskoreaopportunityfund.com.

For further information, please contact:

Summary Information

The Company

Weiss Korea Opportunity Fund Ltd. (“WKOF” or the “Company”) was incorporated with limited liability in Guernsey, as a closed-ended investment company on 12 April 2013. The Company’s Shares were admitted to trading on the Alternative Investment Market (“AIM”) of the London Stock Exchange (the “LSE”) on 14 May 2013.

The Company is managed by Weiss Asset Management LP (the “Investment Manager”), a Boston-based investment management company registered as an investment adviser with the Securities and Exchange Commission in the United States of America.

Investment Objective and Dividend Policy

The Company's investment objective is to provide Shareholders with an attractive return on their investment, predominantly through long-term capital appreciation. The Company is geographically focussed on South Korean companies. Specifically, the Company invests primarily in listed preferred shares issued by companies incorporated in South Korea, which in many cases trade at a discount to the corresponding common shares of the same companies. Since the Company's Admission to AIM, the Investment Manager has assembled a portfolio of South Korean preferred shares that it believes are undervalued and could appreciate based on the criteria that it selects. The Company may, in accordance with its investment policy, also invest some portion of its assets in other securities, including exchange-traded funds, futures contracts, options, swaps and derivatives related to Korean equities, and cash and cash equivalents. The Company does not have any concentration limits.

The Company intends to return to Shareholders all dividends received, net of withholding tax, on an annual basis.

Investment Policy

The Company is geographically focused on South Korean companies. Some of the considerations that affect the Investment Manager’s choice of securities to buy and sell may include the discount at which a preferred share is trading relative to its respective common share, its dividend yield, its liquidity, and the weighting of its common share (if any) in the MSCI Korea 25/50 Net Total Return Index (the “Korea Index”), among other factors. Not all of these factors will necessarily be satisfied for particular investments. The Investment Manager does not generally make decisions based on corporate fundamentals or its view of the commercial prospects of an issuer. Preferred shares are selected by the Investment Manager at its sole discretion, subject to the overall control of the board of directors of the Company (the “Board”).

The Company purchased certain credit default swaps on the sovereign debt of South Korea and put options on iShares MSCI South Korea as general market and portfolio hedges, but generally did not hedge its exposure to interest rates or foreign currencies during the period ended 30 June 2020 (2019: Nil). Please see additional information about the nature of these hedges in the Investment Manager’s Report within.

Realisation Opportunity

In accordance with the Company’s Articles of Incorporation and its Admission Document, the Company offered all Shareholders the right to elect to realise some or all of the value of their Ordinary Shares (the “Realisation Opportunity”), less applicable costs and expenses, on or prior to the fourth anniversary of Company’s admission to AIM and, unless it has already been determined that the Company be wound-up, every two years thereafter, the most recent being 15 May 2019 (the “Realisation Date”) and the next Realisation Date taking place in May 2021.

Share Buybacks

In addition to the Realisation Opportunity, the Company has authority to repurchase on the open market up to 40 percent of its outstanding Ordinary Shares. During the period ended 30 June 2020, the Company purchased none (2019: Nil) of its own Shares at a consideration of £Nil (31 December 2019: £Nil) under its general buyback authority.

Shareholder Information

Northern Trust International Fund Administration Services (Guernsey) Limited (the “Administrator”) is responsible for calculating the Net Asset Value (“NAV”) per Share of the Company. The unaudited NAV per Ordinary Share is calculated on a weekly basis and at the month end by the Administrator, and is announced by a Regulatory News Service and is available through the Company’s website www.weisskoreaopportunityfund.com.

Company financial highlights and performance summary for the period ended 30 June 2020

As at close of business on 02 September 2020, the latest published NAV per Share had increased to £1.8708 (as at 01 September 2020) and the Share price stood at £1.86.

\* The amount by which the market value exceeds or is less than the face value of a stock.

Total Expense Ratio

The annualised total expense ratio for the period ended 30 June 2020 was 1.87 per cent (31 December 2019: 1.85 per cent). The annualised total expense ratio includes charges paid to the Investment Manager and other expenses divided by the average NAV for the period.

Chairman’s ReviewFor the period ended 30 June 2020

We are pleased to provide the 2020 Half Yearly Report on the Company. During the period from 31 December 2019 to 30 June 2020 (the “Period”), the Company’s net asset value increased by 11.3 per cent including reinvested dividends1 (the return was also 11.3 per cent assuming dividends were not reinvested)2 outperforming the reference MSCI Korea 25/50 Net Total Return Index (the “Korea Index”), which decreased 1.7 per cent in Pounds Sterling (“GBP”). Since the admission of the Company to AIM in May 2013, the net asset value has increased by 96.7 per cent including reinvested dividends1 (or 93.4 per cent assuming dividends are not reinvested in the Company)2, compared to the Korea Index returns of 42.9 per cent3. A report from the Investment Manager follows.

The Directors declared a dividend of 3.9549 pence per Share, ex-dividend date 21 May 2020, to distribute the income received by the Company in respect of the year ended 31 December 2019. This dividend was paid to all Shareholders on 12 June 2020.

In my prior letter I commented on the rise of COVID-19, and the disruption and uncertainty the virus would likely introduce to the Korean economy. Compared to many, the Korean government and people have done a good job of containing the virus. However, South Korea entered a technical recession at the end of Q2 and cluster-based virus outbreaks continue to emerge. Until a vaccine is found, and is effectively distributed, we anticipate continued COVID-19 disruption to the South Korean economy and financial markets.

During the Period Korean equity markets fell by approximately 35 per cent then staged a remarkable rebound from the mid-March lows. Trading volumes and volatility were at levels not seen by the Company since its inception. I’m particularly pleased to able to report meaningful outperformance against the reference index during the first half of the year and credit the Investment Manager’s active management of the portfolio during this highly volatile period.

Based on the fact that the assets currently held by the Company consist mainly of securities that are readily realisable, whilst the Directors acknowledge that the liquidity of these assets needs to be managed, the Directors believe that the Company has adequate financial resources to meet its liabilities as they fall due for at least twelve months from the date of this report, and that it is appropriate for the Financial Statements to be prepared on a going concern basis.

The Company has an active share repurchase program as part of its discount management strategy. During the Period, the Board considered buying back Shares on numerous occasions when the discount to NAV appeared to be wide. However, the Korean stock market was so volatile that it was very difficult to ensure that the discount quoted was achievable when realising part of the portfolio to fund buybacks. With the stock market moving 5 per cent to 10 per cent each day, I hope that Shareholders can understand the difficulties the Board and the Investment Manager faced during that difficult period.

The Board is authorised to repurchase up to 40 per cent of the Company's outstanding Ordinary Shares in issue as at 24 July 20204. Since Admission almost six years ago, and as at the date of this document, the Company has repurchased, at a discount to NAV, 12,590,250 Ordinary Shares of the original 105,000,000 Ordinary Shares issued at Admission. The Board also has in place standing instructions with the Company’s broker, N+1 Singer Advisory LLP ("Broker" or "N+1 Singer"), for the repurchase of the Company’s Shares during closed periods when the Board is not permitted to give individual instructions; such closed periods typically occur around the preparation of the Annual and Half Yearly Financial Reports. The Board intends to continue to aggressively repurchase Shares if the Company’s Shares are trading at a significant discount to net asset value. We will continue to keep Shareholders informed of any share repurchases through public announcements.

If you would like to speak with the Investment Manager or learn about potential opportunities to meet with them, please contact N+1 Singer. I would like to thank Shareholders for their support and look forward to the continued success of the Company in the future.

Norman CrightonChairman03 September 2020

1 This return includes all dividends paid to the Company’s Shareholders and assumes that these dividends were reinvested in the Company’s Shares at the next date for which the Company reports a NAV, at the NAV for that date.

2 This return includes the annual cash dividend paid to the Company’s Shareholders but does not assume such dividends are reinvested..

3 MSCI total return indices are calculated as if any dividends paid by constituents are reinvested at their respective closing prices on the ex-date of the distribution.

4 On 24 July 2020, the Company had 81,617,828 Ordinary Shares in issue.

Investment Manager’s ReportFor the period ended 30 June 2020

Performance

In the first half of 2020, WKOF’s NAV in Pounds Sterling (“GBP”) gained 11.3 per cent, including reinvested dividends5 (the return was also 11.3 per cent assuming dividends are not reinvested in WKOF)6 outperforming the reference MSCI South Korea Index (“the Korea Index”)7, which decreased 1.7 per cent when converted to GBP. From its inception in May 2013, WKOF has significantly outperformed the Korean market. The total return to an investor in WKOF since inception was 96.7 per cent including reinvested dividends5 (or 93.4 per cent assuming dividends are not reinvested in WKOF),6 compared to returns of 42.9 per cent for the Korea Index over the same period.

The outperformance against the Korea Index during the first half of 2020 was largely due to discount narrowing of preference shares owned, which contributed 9.6 per cent of the 11.3 per cent NAV performance as described in the table below.

Macroeconomic Impact of COVID-19

The major theme for the first half of 2020 was the emergence of the COVID-19 virus from Wuhan, China, and the resulting global pandemic. The economic impact of COVID-19, quarantine measures and government intervention around the world led to a tumultuous first half of the year across markets. We stated in our 2019 Investment Manager’s Report that it would be difficult for us to predict the full effects of the virus on the global economy, much less how equity markets would react to new information about infection rates, government stimulus, and the likelihood and timing of a vaccine.

Despite South Korea recording one of the highest numbers of cumulative COVID-19 cases in early March, the South Korean government’s containment policies, based on a test, trace and isolate strategy, appear to have been relatively effective at abating the spread of the virus.11 Government tactics have included establishing testing facilities at gas stations across the country and forming teams of contact tracers who are empowered to access credit card and mobile phone records for confirmed cases-typically within minutes. Perhaps due to these government policies and compliance by the South Korean population, South Korea has so far avoided the worst consequences of the pandemic without incurring the massive budget deficits we’ve seen in the U.S. and Western Europe. GDP in South Korea for the second quarter showed a year-on-year fall of 3 per cent compared with falls of 9.5 per cent in the U.S., 15 per cent in the Euro area and 21.7 per cent in the U.K.12. As of August 24, South Korea had one of the lowest per capita death tolls due to COVID-19 at 6.03 per million population. By comparison, the COVID-19 death toll in Japan was 9.33, 19.69 in Australia, 110.67 in Germany, 198.62 in Switzerland, 534.15 in the USA, and 610.27 in the U.K. As of the same date, South Korea reported a seven-day rolling average of 0.01 deaths per million people. This compares with a seven-day rolling average for the U.S. of 2.91 and 0.13 for the United Kingdom. These results for South Korea are particularly impressive given the age of its population—South Korea’s median age is 43.7, which compares with a median age in the USA of 38.3 and a median age in the U.K. of 40.5.

Macroeconomists have proposed several models to estimate the speed of eventual economic recovery and the forms that equity market rebounds might take in a post COVID-19 world. The broader Korean index experienced a “V”-shaped rebound during the second quarter of 2020, with the closing price of the KOSPI 200 index on June 30 a mere 3.5 per cent lower than the closing price on January 2 of this year. To illustrate the velocity of the market drawdown and recovery, the peak-to-trough change for the first half of 2020 for the KOSPI 200 was 35 per cent, and that drawdown had been almost fully recovered by June 30. As of August 24 the KOSPI was up 6.0 per cent for the year. This has been one of the strongest performing markets so far in 2020.

The Korean economy, however, still faces significant uncertainty due to the likely lasting impacts of the pandemic on global aggregate demand and aggregate supply. Weak global demand from Korea’s main trading partners resulted in total exports falling by approximately 11 per cent year-on-year to end June.13 A recovery in exports to China and resilience in the semiconductor sector helped avoid a steeper decline. Ultimately, the success of South Korea’s containment of COVID-19 and the strength of demand from its largest trading partners, China and the US, will likely determine the speed of economic recovery.

In the meantime, the South Korean government has aggressively expanded its stimulus spending by implementing broad measures including emergency cash handouts to all South Korean households and longer term investments like the “Korean Green New Deal” described below.

We believe that our competitive advantage is in investing into inefficiencies caused by preference share discounts, not in timing macroeconomic trends. Consequently, while our trading strategy is premised on a narrowing of preference share discounts rather than on any specific macroeconomic condition, the rapid rebound of the broader index was a welcome sight, as preference shares are equity investments in Korean companies and the discounts are partially driven by the companies’ earnings and dividend payout ratios.

Portfolio Activity

One interesting observation during the first half of 2020 was a lack of crowdedness in WKOF’s investments. During the middle of March, the most violent drawdowns largely occurred in less liquid asset classes. Despite preference shares generally having lower liquidity than the corresponding ordinary shares, we did not observe a corresponding general widening of discounts in the preference shares owned by WKOF.

During and after March, preference share trading volumes and the volatility of discounts of preference shares in WKOF’s portfolio substantially increased. This was most visible in certain illiquid securities, but also occurred in larger capitalization preference shares. The increased volatility provided WKOF with exceptional trading opportunities and resulted in rebalancing within the top ten positions as WKOF continued to reallocate monies to those preference shares that offered the best opportunities. In the past, this entailed substantially reducing WKOF’s exposure to Hyundai Motors. In the first half of 2020 WKOF reduced its weighting in Samsung Electronics, its largest holding, from 22 per cent to 12 per cent. WKOF did this because the expected returns from holding other preference shares were substantially higher than from holding Samsung Electronics, whose preference share discount narrowed, at one point reaching the tightest level since 1994.

Another theme we observed in the first half of 2020 was the ongoing international focus on developing green energy resources and combating climate change. For example, the European Union proposed to allocate 30 per cent of its 750 billion euro COVID-19 response stimulus to climate action and building a sustainable green future. Similarly, the South Korean government has made the “Korean Green New Deal” an important part of its 2020 economic policy, focusing on green energy, electric vehicles, and contactless/digital payments. While the specific details of this policy have not been formally announced, the market expects government subsidies and investments into eco-friendly industries. As a result, companies involved in the production of lithium-ion batteries, renewable energy, and electric vehicles rallied strongly following the announcement.

Selling activity has resulted in WKOF holding a larger Samsung Kodex 200 ETF position than has been typical, as proceeds from sales were partially invested into the ETF. We anticipate, considering the heightened volatility of current market conditions, opportunistically reallocating from the ETF into wider discount preference shares over the second half of the year.

Hedging

WKOF’s portfolio is generally long only. However, as described more fully in WKOF's Annual Report and Audited Financial Statements for the year ended 31 December 2019, because of political tensions in Northeast Asia, the Board approved a hedging strategy in September 2017 intended to reduce exposure to extreme events that would be catastrophic to its Shareholders’ investments in WKOF. As a result, WKOF has purchased credit default swaps when deemed cost effective. These are securities that we believe would generate high returns without introducing material new risks into the portfolio or exacerbating existing risks if WKOF experienced an East Asian geo-political disaster. These catastrophe hedges are not intended to make money. We expect that WKOF’s hedges will lose money most of the time - as with any insurance policy. The table below provides details about the hedges as of 30 June 2020. Note that outside of the general market and portfolio hedges described herein, WKOF has generally not hedged interest rates or currencies.

Conclusion

Financial markets, as well as life in general, were profoundly impacted by the emergence of COVID-19 during the first half of 2020. As nations and companies re-evaluate their priorities in light of the pandemic, some themes that have been beneficial to WKOF, such as corporate governance reforms, will likely be temporarily de-prioritized. At the same time, uncertainty and price volatility may provide WKOF with exceptional trading and investment opportunities.

Weiss Asset Management LP

03 September 2020

5 This return includes all dividends paid to the Company’s Shareholders and assumes that these dividends were reinvested in the Company’s Shares at the next date for which the Company reports a NAV, at the NAV for that date.

6 This return includes the annual cash dividend paid to the Company’s Shareholders but does not assume such dividends are reinvested. 

7 MSCI Korea 25/50 Net Total Return Index denominated in GBP. MSCI total return indices are calculated as if any dividends paid by constituents are reinvested at their respective closing prices on the ex date of the distribution. 

8 MSCI Korea 25/50 Net Total Return Index denominated in KRW

9 WKOF Common Shares vs Korea Index (KRW) is calculated as the return of a portfolio of common shares issued by the same issuers as the preference shares the Company has owned, as if a hypothetical investor bought or sold an equal quantity of those common shares on the same days that the Company purchased or sold its preference share investments.

10 Excess dividend yield of preference shares owned relative to a portfolio of the respective common shares. In Korea dividends are typically paid to the entities who owned shares at the end of December, although the dividend amounts are not declared until the next year, so while we received dividend income in the first half of the year, those dividends were generally attributed to the performance during the last half of 2019. The annual and semi-annual financials include dividends with a record date prior to the end of the reporting period, even if they had not been paid or even announced prior to the end of the reporting period. In contrast, the weekly and monthly NAV announcements published by the Company only include dividends upon receipt, with an additional note stating the amount of announced but as yet unpaid dividends.

11 “Emerging COVID-19 success story: South Korea learned the lessons of MERS”, Oxford University’s Our World in Data project, June 30, 2020, https://ourworldindata.org/covid-exemplar-south-korea

12 Data from Haver Analytics, as reported in The Economist

13 “Korea’s June exports decrease 10.9 per cent to 39.2 billion, show signs of improvement” South Korea Ministry of Trade, Industry and Energy, July 1 2020, https://english.motie.go.kr/en/pc/pressreleases/bbs/bbsView.do?bbs_seq_n=787&bbs_cd_n=2¤tPage=1&search_key_n=&search_val_v=&cate_n=

Statement of Principal and Emerging Risks and Uncertainties

For the period ended 30 June 2020

The Company’s risk exposure and the effectiveness of its risk management and internal control systems are reviewed by the Audit Committee at its meetings and annually by the Board. The Board believes that the Company has adequate and effective systems in place to identify, mitigate, and manage the risks to which it is exposed.

Emerging Risks

In order to recognise any new risks that may impact the Company and to ensure that appropriate controls are in place to manage those risks, the Audit Committee undertakes a regular review of the Company’s Risk Matrix.

COVID-19

The Board continues to monitor the impact of the COVID-19 outbreak and the impact that COVID-19 will continue to have on the future of the Company and the performance of the Portfolio. Notwithstanding the impact the outbreak has already had on the Company’s share price and NAV performance, there remains continued uncertainty as to the consequences of the COVID-19 outbreak on the economy in general.

From an operational perspective, the Company uses a number of service providers who have established, documented and regularly test their Business Resiliency Policies to cover various possible scenarios whereby staff cannot be present at the designated office and conduct business as usual. Since the COVID-19 pandemic outbreak, service providers have deployed these alternative working policies to ensure continued business service.

Principal Risks and Uncertainties

In respect to the Company’s system of internal controls and reviewing its effectiveness, the Directors:

• are satisfied that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency, or liquidity; and

• have reviewed the effectiveness of the risk management and internal control systems, including material financial, operational, and compliance controls (including those relating to the financial reporting process) and no significant failings or weaknesses were identified.

The principal risks and uncertainties which have been identified and the steps which are taken by the Board to mitigate them are as follows:

Investment Risks

The Company is exposed to the risk that its portfolio fails to perform in line with its investment objective and policy if markets move adversely or if the Investment Manager fails to comply with the investment policy. The Board reviews reports from the Investment Manager at the quarterly Board Meetings, with a focus on the performance of the portfolio in line with its investment policy. The Administrator is responsible for ensuring that all transactions are in accordance with the investment restrictions.

Operational Risks

The Company is exposed to the risk arising from any failures of systems and controls in the operations of the Investment Manager, Administrator, and the Custodian. The Board and its Committees regularly review reports from the Investment Manager and the Administrator on their internal controls. The Administrator will report to the Investment Manager any valuation issues which will be brought to the Board for final approval as required.

Accounting, Legal and Regulatory Risks

The Company is exposed to the risk that it may fail to maintain accurate accounting records, fail to comply with the requirements of its Admission Document and fail to meet its listing obligations. The accounting records prepared by the Administrator are reviewed by the Investment Manager. The Administrator, Broker, and Investment Manager provide regular updates to the Board on compliance with the Admission Document and changes in regulation.

Discount Management

The Company is exposed to Shareholder dissatisfaction through inability to manage the Share price discount to NAV. The Board and its Broker monitor the Share price discount (or premium) continuously and have engaged in Share buybacks from time to time to help minimise any such discount. The Board believes that it has access to sufficiently liquid assets to help manage the Share price discount.

Liquidity of Investments

The Korean preferred shares typically purchased by the Company generally have smaller market capitalisations and lower levels of liquidity than their common share counterparts. These factors, among others, may result in more volatile price changes in the Company’s assets as compared to the South Korean stock market or other more liquid asset classes. This volatility could cause the NAV to go up or down dramatically.

Going Concern

The Company has continued in existence following the second Realisation Opportunity and will continue to operate as a going concern unless a determination to wind up the Company is made. Given this, the Directors will propose further realisation opportunities for Shareholders who have not previously elected to realise all of their Ordinary Shares. Such opportunities will be made using a similar mechanism to previously announced Realisation Opportunities. The next Realisation Opportunity will take place during May 2021.

Based on the fact that the assets currently held by the Company consist mainly of securities that are readily realisable, whilst the Directors acknowledge that the liquidity of these assets needs to be managed, the Directors believe that the Company has adequate financial resources to meet its liabilities as they fall due for at least twelve months from the date of this report and that it is appropriate for the Unaudited Half-Yearly Financial Report to be prepared on a going concern basis.

DirectorsFor the period ended 30 June 2020

The Company has three non-executive Directors, all of whom are considered independent of the Investment Manager and details are set out below.

Norman Crighton (aged 54)

Mr Crighton is Chairman of the Company. He is also a non-executive chairman of RM Secured Direct Lending plc and AVI Japan Opportunity Trust. Norman was, until May 2011, an investment manager at Metage Capital Limited where he was responsible for the management of a portfolio of closed-ended funds and has almost three decades of experience in closed-ended funds having led teams at Olliff and Partners, LCF Edmond de Rothschild, Merrill Lynch, Jefferies International Limited and latterly Metage Capital Limited. His experience covers analysis and research as well as sales and corporate finance. Norman is British and resident in the United Kingdom. Norman was appointed to the Board in 2013.

Stephen Charles Coe (aged 54)

Stephen is Chairman of the Audit Committee. He is also a director (and Chairman of the Audit Committee) of Leaf Clean Energy Company and Merian Chrysalis Investment Company. He has been involved with offshore investment funds and managers since 1990 with significant exposure to property, debt, emerging markets, and private equity investments.

He qualified as a Chartered Accountant with Price Waterhouse Bristol in 1990 and remained in audit practice, specialising in financial services, until 1997. From 1997 to 2003 he was a director of the Bachmann Group of fiduciary companies and Managing Director of Bachmann Fund Administration Limited, a specialist third party fund administration company. From 2003 to 2006 Stephen was a director with Investec in Guernsey and Managing Director of Investec Trust (Guernsey) Limited and Investec Administration Services Limited. He became self-employed in August 2006 providing services to financial services clients. Stephen is British and resident in Guernsey. Stephen was appointed to the Board in 2013.

Robert Paul King (aged 57)

Rob is a non-executive director for a number of open and closed-ended investment funds including Tufton Oceanic Assets Limited (chairman), Chenavari Capital Solutions Limited (chairman), and CIP Merchant Capital Limited. Before becoming an independent non-executive director in 2011, he was a director of Cannon Asset Management Limited and their associated companies. Prior to this he was a director of Northern Trust International Fund Administration Services (Guernsey) Limited (formerly Guernsey International Fund Managers Limited) where he had worked from 1990 to 2007. He has been in the offshore finance industry since 1986 specialising in administration and structuring of offshore open and closed-ended investment funds. Rob is British and resident in Guernsey. Rob was appointed to the Board in 2013.

Directors’ Responsibility StatementFor the period ended 30 June 2020

The Directors are responsible for preparing the Unaudited Half-Yearly Financial Report (the “Condensed Financial Statements”), which have not been audited by an independent auditor, and confirm that to the best of their knowledge:

· these Condensed Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and in accordance with International Accounting Standard 34 “Interim Financial Reporting” issued by the European Union and the AIM Rules of the LSE;

· these Condensed Financial Statements include a fair review of important events that have occurred during the period and their impact on the Condensed Financial Statements, together with a description of the principal risks and uncertainties of the Company for the remaining six months of the financial period as detailed in the Investment Manager’s Report; and

· these Condensed Financial Statements include a fair review of related party transactions that have taken place during the six month period which have had a material effect on the financial position or performance of the Company, together with disclosure of any changes in related party transactions in the last Annual Report and Audited Financial Statements which have had a material effect on the financial position of the Company in the current period.

The Directors confirm that the Condensed Financial Statements comply with the above requirements.

On behalf of the Board,Norman CrightonChairman03 September 2020Robert KingDirector03 September 2020

Condensed Statement of Financial Position

The Notes form an integral part of these Condensed Financial Statements.

The Condensed Financial Statements were approved and authorised for issue by the Board of Directors on03 September 2020.

Norman CrightonChairman

Robert KingDirector

Condensed Statement of Comprehensive Income

All items derive from continuing activities.

The Notes form an integral part of these Condensed Financial Statements.

Condensed Statement of Changes in Equity

The Notes form an integral part of these Condensed Financial Statements.

Condensed Statement of Cash Flows

The Notes form an integral part of these Condensed Financial Statements.

*Decrease in debtors includes dividends receivable.

Notes to the Unaudited Condensed Financial Statements

For the period ended 30 June 2020

1. General information

The Company was incorporated with limited liability in Guernsey, as a closed-ended investment company on12 April 2013. The Company’s Shares were admitted to trading on AIM of the LSE on 14 May 2013.

The Investment Manager of the Company is Weiss Asset Management LP.

At the AGM held on 27 July 2016, the Board approved the adoption of the new Articles of Incorporation in accordance with Section 42(1) of the Companies (Guernsey) Law, 2008 (the “Law”).

2. Significant accounting policies

a) Statement of compliance

The Condensed Financial Statements of the Company for the period ended 30 June 2020 have been prepared in accordance with IFRS adopted by the European Union and the AIM Rules of the London Stock Exchange. They give a true and fair view and are in compliance with the Law.

b) Basis of preparation

The Condensed Financial Statements are prepared in Pounds Sterling (£), which is the Company’s functional and presentational currency. They are prepared on a historical cost basis modified to include financial assets at fair value through profit or loss.

The Condensed Financial Statements, covering the period from 1 January to 30 June 2020, are not audited.

The accounting policies adopted are consistent with those used in the Annual Report and Audited Financial Statements for the year ended 31 December 2019.

The Condensed Financial Statements do not include all the information and disclosures required in the Annual Report and Audited Financial Statements and should be read in conjunction with the Annual Report and Audited Financial Statements for the year ended 31 December 2019. The Auditor’s Report contained within the Annual Report and Audited Financial Statements provided an unmodified opinion.

The preparation of the Condensed Financial Statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities at the date of these Condensed Financial Statements. If in the future such estimates and assumptions, which are based on management’s best judgement at the date of the Condensed Financial Statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.

c) Going concern

The Company has continued in existence following the second Realisation Opportunity and will continue to operate as a going concern unless a determination to wind up the Company is made. Given this, the Directors will propose further realisation opportunities for Shareholders who have not previously elected to realise all of their Ordinary Shares. Such opportunities will be made using a similar mechanism to previously announced Realisation Opportunities. The next Realisation Opportunity will take place during May 2021.

Based on the fact that the assets currently held by the Company consist mainly of securities that are readily realisable, whilst the Directors acknowledge that the liquidity of these assets needs to be managed, the Directors believe that the Company has adequate financial resources to meet its liabilities as they fall due for at least twelve months from the date of this report, and that it is appropriate for the Condensed Financial Statements to be prepared on a going concern basis.

3. Taxation

The Company has been granted Exempt Status under the terms of The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its liability is an annual fee of £1,200 (2019: £1,200).

The amounts disclosed as taxation in the Condensed Statement of Comprehensive Income relate solely to withholding tax levied in South Korea on distributions from South Korean companies at an offshore rate of 22 per cent.

4. Dividends to Shareholders

Dividends, if any, will be paid annually each year. An annual dividend of 3.9549 pence per Share (£3,227,904) was approved on 13 May 2020 and paid on 12 June 2020 in respect of the year ended 31 December 2019.

An annual dividend of 4.1195 pence per Share (£3,475,415) was approved on 1 May 2019 and paid on 31 May 2019 in respect of the year ended 31 December 2018.

5. Significant accounting judgements, estimates and assumptions

The preparation of the Condensed Financial Statements in conformity with IFRS requires management to make judgements, estimates, and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The significant judgements, estimates, and assumptions made by management when applying the Company’s accounting policies, as well as the key sources of estimation uncertainty, were the same for these Condensed Financial Statements as those that applied to the Annual Report and Audited Financial Statements for the year ended 31 December 2019.

6. Basic and diluted earnings per Share

The basic and diluted earnings per Share for the Company has been calculated based on the total comprehensive gain for the period of £14,318,073 (period ended 30 June 2019: £10,719,795) and the weighted average number of Ordinary Shares in issue during the period of 81,617,828 (period ended 30 June 2019: 83,666,809).

7. Net Asset Value per Ordinary Share

The NAV of each Share of £1.6918 (as at 31 December 2019: £1.5559) is determined by dividing the net assets of the Company attributed to the Ordinary Shares of £138,078,091 (as at 31 December 2019: £126,988,732) by the number of Ordinary Shares in issue at 30 June 2020 of 81,617,828 (as at 31 December 2019: 81,617,828 Ordinary Shares in issue).

8. Financial assets at fair value through profit or loss

9. Derivative financial instruments at fair value through profit or loss

The following are the composition of the Company’s derivative financial instruments at year end:

10. Share capital

The share capital of the Company consists of an unlimited number of Ordinary Shares of no par value.

Ordinary Shares

The Company has a single class of Ordinary Shares, which were issued by means of an initial public offering on 14 May 2013, at 100 pence per Share.

The rights attached to the Ordinary Shares are as follows:

a) The holders of Ordinary Shares shall confer the right to all dividends in accordance with the Articles of Incorporation of the Company.

b) The capital and surplus assets of the Company remaining after payment of all creditors shall, on winding-up or on a return (other than by way of purchase or redemption of own Ordinary Shares) be divided amongst the Shareholders on the basis of the capital attributable to the Ordinary Shares at the date of winding up or other return of capital.

c) Shareholders present in person or by proxy or (being a corporation) present by a duly authorised representative at a general meeting have, on a show of hands, one vote and, on a poll, one vote for every Share.

d) On 20 March 2019, being 46 days before the Subsequent Realisation Date, the Company published a circular pursuant to the Realisation Opportunity, entitling the Shareholders to serve a written notice during the election period (a “Realisation Election”) requesting that all or a part of their Ordinary Shares be re-designated to Realisation Shares, subject to the aggregate NAV of the continuing Ordinary Shares on the last business day before the Reorganisation Date being not less than £50 million. As Shareholders elected to participate in the Realisation Opportunity, the Company’s portfolio was divided into two pools: the Continuation Pool; and the Realisation Pool.

e) On 15 May 2019, 2,747,153 Ordinary Shares, which represented 3.3 per cent of the Company’s issued Ordinary Share capital were redesignated as Realisation Shares. On the 7 June 2019 the Board approved the compulsory redemption of the Realisation Shares in issue. The redemption price was 142.53 pence per Realisation Share, being the net assets of the Realisation Pool of £3,915,557, divided by the number of outstanding Realisation Shares in issue, being 2,747,153 Realisation Shares. The redemption proceeds were paid to the Realisation Shareholders on 18 June 2019, after which the Realisation Shares were cancelled and were no longer in issue.

Share buyback and cancellation

During the period ended 30 June 2020 and throughout 2019, the Company did not purchase any of its own Ordinary Shares under the Share buyback authority originally granted to the Company in 2014.

At the AGM held on 23 July 2020, Shareholders approved the authority of the Company to buy back up to 40 per cent of the issued Ordinary Shares to facilitate the Company’s discount management. Any Ordinary Shares bought back may be cancelled or held in treasury.

11. Related party transactions and material agreements

Related party transactions

a) Directors’ remuneration and expenses

The Directors of the Company are remunerated for their services at such a rate as the Directors determine provided that the aggregate amount of such fees does not exceed £150,000 per annum.

The annual Directors’ fees comprise £30,000 payable to Mr Crighton as the Chairman, £27,500 to Mr Coe as Chairman of the Audit Committee and £24,000 to Mr King.

During the period ended 30 June 2020, Directors’ fees of £40,750 (period ended 30 June 2019: £40,750) were charged to the Company and £Nil remained payable at the end of the period (as at 31 December 2019: £Nil).

b) Shares held by related parties

The Directors who held office at 30 June 2020 and up to the date of this Report held the following number of

Ordinary Shares beneficially:

The Investment Manager is principally owned by Dr Andrew Weiss and certain members of the Investment Manager’s senior management team.

As at 30 June 2020, Dr Andrew Weiss and his immediate family members held an interest in 6,486,888 Ordinary Shares (as at 31 December 2019: 6,486,888) representing 7.95 per cent. (as at 31 December 2019: 7.95 per cent.) of the issued share capital of the Company.

As at 30 June 2020, employees and partners of the Investment Manager other than Dr Andrew Weiss, their respective immediate family members or entities controlled by them or their immediate family members held an interest in 2,844,333 Ordinary Shares (as at 31 December 2019: 2,844,333) representing 3.48 per cent (as at 31 December 2019: 3.48 per cent.) of the issued share capital of the Company.

c) Investment management fee

The Company’s Investment Manager is Weiss Asset Management LP. In consideration for its services provided by the Investment Manager under the IMA dated 8 May 2013, the Investment Manager is entitled to an annual management fee of 1.5 per cent of the Company’s NAV accrued daily and payable within 14 days after each month end. The Investment Manager is also entitled to reimbursement of certain expenses incurred by it in connection with its duties.

The IMA will continue in force until terminated by the Investment Manager or the Company, giving to the other party thereto not less than 12 months’ notice in writing.

For the period ended 30 June 2020, investment management fees and charges of £907,692 (for the period ended 30 June 2019: £935,306) were charged to the Company and £176,829 (as at 31 December 2019: £310,841) remained payable at the period end.

12. Financial risk management

IFRS 13 ‘Fair Value Measurement’ requires the Company to establish a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy under IFRS 13 ‘Fair Value Measurement’ are set as follows:

· Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;

· Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices); and

· Level 3 Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.

If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes ‘observable’ requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following table presents the Company’s financial assets and liabilities by level within the valuation hierarchy as of 30 June 2020:

The Company recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfers have occurred. During the period ended 30 June 2020, financial assets of £Nil were transferred from Level 2 to Level 1 (for the year ended 31 December 2019: £Nil).

Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include Korean preference shares, exchange traded funds, and exchange traded options.

The Company holds investments in derivative financial instruments which are classified as Level 2 within the fair value hierarchy. These consist of credit default swaps with a fair value of (£2,023,106) (as at 31 December 2019: (£704,019).

As at 30 June 2020, Level 1 financial derivative assets of £Nil were held (as at 31 December 2019: £33,218).

13. NAV reconciliation

The Company announces its NAV to the LSE after each weekly and month end valuation point. The following is a reconciliation of the NAV per Share attributable to participating Shareholders as presented in these Condensed Financial Statements, using IFRS to the NAV per Share reported to the LSE:

The published NAV per Share of £1.6905 (as at 31 December 2019: £1.5258) is different from the accounting NAV per Share of £1.6918 (as at 31 December 2019: £1.5559) due to the adjustments noted above.

14. Subsequent events

These Condensed Financial Statements were approved for issuance by the Board on 03 September 2020. Subsequent events have been evaluated until this date.

Since the start of 2020, the outbreak of COVID-19 has adversely impacted global commercial activities and financial markets. The rapid development and fluidity of this situation precludes any prediction as to its ultimate impact, which may have a continued adverse impact on economic and market conditions and may trigger a period of global economic slowdown. The Company, consistent with other in the industry, does not believe there is any impact to the financial statements as of 30 June 2020 as a result of this subsequent event. No additional events or transactions require further disclosure.