Atlantis Japan to scrap subscription rights – Atlantis Japan Growth’s Board announced on 2 August 2017 that it was reviewing the appropriateness of continuing with the annual subscription rights mechanism following the 2017 subscription date (2 October 2017). The annual subscription rights mechanism enables shareholders to subscribe for one new ordinary share for every five ordinary shares held on 1 October in each year, commencing in 2015 and ending in 2019, at a price equal to the undiluted NAV on 2 October one year prior (or, if that is not a business day, the next business day).
One of principal reasons for introducing the subscription rights mechanism in 2014 was to facilitate increasing the net assets and market capitalisation, which should widen its appeal to new investors thus increasing demand for the ordinary shares which, in turn, could have a positive effect on the share price and the discount.
The 2016 subscription rights ended “in the money” as at the 2016 subscription date (3 October 2016), resulting in a 20% increase in size of the fund (approximately GBP11 million). The exercise price payable in respect of the 2017 subscription rights at the 2017 subscription date (2 October 2017) is GBP1.7279, which, as at close of business on 14 September 2017, represented:
- a discount of 17.7% to the diluted NAV of 209.83p per ordinary share; and
- a discount of 8.6% to the middle market price of 189.0p per ordinary share.
Accordingly, the 2017 subscription rights are currently “in the money” and, if fully exercised on 2 October 2017, will add another 20% to the size of the fund, increasing net assets from GBP95.9 million to GBP111.1 million (based on its net assets as at close of business on 14 September 2017) and its market capitalisation from GBP84.5 million to GBP101.4 million (based on the closing mid-market price on 14 September 2017).
Whilst the Board is aware of the importance of continuing to increase the size of the company, as this can assist in improving liquidity in the ordinary shares, based on feedback from investors
the Board has concluded that the subscription rights mechanism complicates the capital structure and, accordingly, makes the fund a less attractive investment. they are also concerned about the dilution of headline NAV performance that comes with the use if the subscription rights. By way of illustration, for the period from 1 May 2016 (when the lead fund adviser was changed) to 13 September 2017 and in sterling terms:
- the diluted NAV total return per ordinary share was 41.4%, resulting in the Company being the second best performing trust in its peer group (the best performing investment trust in the peer group delivered a diluted NAV total return of 45.3%); but
- the undiluted NAV total return per ordinary share was 50.8%, resulting in the Company being the best performing trust in its peer group (the second best performing investment trust in the peer group delivered an undiluted NAV total return of 45.3%).
Against the backdrop of the above, the Board believes that it is in the best interests of shareholders as a whole to discontinue the subscription share mechanism following the subscription date for the 2017 subscription rights. This will require shareholder approval. A circular convening a general meeting at which such shareholder approval will be sought will be posted to shareholders shortly.
Semi-annual Redemption Facility
The semi-annual redemption facility, which is operated at the discretion of the Board, enables shareholders to redeem all or part of their holding of ordinary shares at 31 March and 30 September each year, subject to total redemptions at each redemption point being limited to 5% of the Company’s issued share capital at that time. The Board has decided that it is appropriate to continue with the semi-annual redemption facility.
AJG : Atlantis Japan to scrap subscription rights