Aberforth Geared Income Trust announces proposals for reconstruction and voluntary wind up

As per its announcement on 27 April 2017, Aberforth Geared Income Trust (AGIT) has reached agreement with Aberforth Split Level Income Trust plc (ASLIT) on the terms of the reconstruction and winding up of AGIT, under which ASLIT will act as a rollover option for investors in AGIT. AGIT has published a circular in respect of the Proposals, which are conditional on, among other matters, the approval by Ordinary Shareholders at general meetings of the Company to be held on 15 June 2017 and 30 June 2017.

Under the terms of the proposed reconstruction, Ordinary Shareholders (other than Overseas Shareholders) will be able to exchange some or all of their investment in AGIT for ASLIT Ordinary Shares and ZDP Shareholders (other than Overseas Holders) will be able to exchange some or all of their investment in the Company for ASLIT Ordinary Shares and/or ASLIT ZDP Shares. Shareholders will also be able to realise some or all of their investment in the Company for cash. Overseas Holders will, if the Proposals become effective, receive cash in respect of their holdings.

Under the Proposals, ZDP Shareholders will be entitled to elect to receive a cash amount in respect of their final capital entitlement of 159.7 pence per ZDP Share.  ZDP Shareholders who do not make a valid Election under the Proposals will be deemed to have elected for the ZDP Cash Option. This being the case, in accordance with the Articles, ZDP Shareholders are not entitled to vote on the Proposals.

ASLIT is a new split capital investment trust launching on 3 July 2017 which will invest in a diversified portfolio of small UK quoted companies. ASLIT will have two classes of shares in issue:  the ASLIT Ordinary Shares and the ASLIT ZDP Shares. On Admission, there will be four ASLIT Ordinary Shares in issue for every one ASLIT ZDP Share.  ASLIT’s investment objective is to provide ASLIT Ordinary Shareholders with a high level of income, with the potential for income and capital growth, and to provide ASLIT ZDP Shareholders with a pre-determined final capital entitlement on the planned ASLIT winding up date of 1 July 2024. ASLIT has a similar investment policy to that of AGIT and it will also be managed by Aberforth Partners, the AGIT’s investment manager.  On its launch, ASLIT is not expected to be larger than AGIT.

ASLIT’s dividend policy, similar to that of AGIT, is to distribute a significant proportion of its net revenue (after the payment of expenses and taxation) in the form of dividends and the ASLIT Ordinary Shareholders will be entitled to receive all such dividends.  In the absence of unforeseen circumstances, ASLIT is expecting to pay dividends totalling not less than 4 pence1 per Ordinary Share in respect of the period from its Admission to 30 June 2018. The ASLIT ZDP Shareholders will not be entitled to receive dividend payments. The final capital entitlement for ASLIT ZDP Shareholders on ASLIT’s planned winding up date of 1 July 2024 will be 127.25 pence. This represents a Gross Redemption Yield of 3.5 per cent. per annum over the life of the ASLIT ZDP Shares, based on their issue price of 100 pence per ASLIT ZDP Share under the Issues.

ASLIT is proposing to issue ASLIT Ordinary Shares and ASLIT ZDP Shares to existing Shareholders who elect to participate in the Rollover Options in consideration for the Rollover Funds.

Under the terms agreed with ASLIT (but subject to the success of a placing and offer for subscription by ASLIT), ASLIT is also expecting to acquire part or all of the Company’s remaining assets including securities and cash. The consideration for these assets will be paid by ASLIT in cash. ASLIT is not seeking to raise funds, pursuant to the ASLIT Placing and Offer, in excess of an amount which would enable ASLIT to acquire all of the remaining assets of the Company and to pay certain costs and expenses associated with the Proposals.  In the event that the net proceeds of the ASLIT Placing and Offer exceed the value of the Remaining AGIT Portfolio, applications under the ASLIT Placing and Offer will be scaled back accordingly.  On launch, ASLIT will therefore not be larger than the AGIT.  Furthermore, the total number of ASLIT Ordinary Shares and ASLIT ZDP Shares issued by ASLIT pursuant to the Proposals and its placing and offer for subscription will be in the ratio of 4:1 respectively.

AGIT’s board consider that the proposals have the following benefits for AGIT shareholders:

• they offer Shareholders the opportunity to rollover their investments in a tax efficient manner (without incurring an immediate liability to UK capital gains tax) into ASLIT Shares;
• they enable Shareholders to maintain their exposure to a diversified portfolio of small UK quoted companies through a closed-ended, split capital investment vehicle with a fixed life without incurring significant realisation costs or portfolio reorganisation costs;
• they enable Shareholders who elect for the Rollover Options to continue to benefit from the management expertise of Aberforth Partners;
• they offer Ordinary Shareholders who wish to realise some or all of their investment the opportunity to do so at close to NAV; and
• they avoid the need to realise all of the Company’s small cap investment portfolio in the market, to the extent that all or part of it is transferred to ASLIT under the Proposals, thereby saving potential realisation costs which would otherwise be borne by Ordinary Shareholders on the winding up of the Company.

AGIT will bear all of its own costs in relation to the Proposals.  It says that it estimates that the costs of the Proposals (which would be borne entirely by the Ordinary Shareholders and exclude any portfolio realisation costs) will be approximately £396,000 (including irrecoverable VAT) in aggregate (amounting to approximately 0.36 pence per Ordinary Share). If the Proposals do not become effective, AGITwill proceed to liquidation in accordance with the provisions of its Articles and will suffer the costs in relation to the Proposals and is also expected to suffer increased portfolio realisation costs.

Aberforth Geared Income Trust announces proposals for reconstruction and voluntary wind up