City of London writes to shareholders of Lazard World Trust – City of London Investment Management (CLIG), who run the investment trust City of London (CTY), has written a letter to the Directors of Lazard World Trust Fund (WTR) explaining its intention to oppose renewing the WTR’s buyback authority at the EGM to be held on 30 August, 2018.
CLIG comments that whilst WTR have the right to buy back shares to keep the discount down below 10%. However, this hasn’t always happened. In the letter below, they explain what they want WTR to do, including voting against their ability to buy back their own shares and potentially winding up the company “with a facility for shareholders who so wish to roll into the Lazard Emerging World Fund UCITS. ”
The letter:
Dear Directors,
Lazard World Trust Fund (the “Company” or “WTR” )
City of London Investment Management Company Limited (“CLIM”) will oppose renewing the buyback authority at the Extraordinary General Meeting (EGM) to be held on 30 August, 2018. CLIM’s clients are interested in 8,165,214 shares in the Company (24.5% of issued shares, excluding shares held in treasury) as at 14 August, 2018.
CLIM is surprised that the EGM is being held only 3 weeks before the previously convened Annual General Meeting (AGM) which we had understood is being held one month later than usual to avoid the summer holiday season. The EGM is an additional and unnecessary cost to shareholders. The purpose of this open letter is to explain why CLIM will oppose renewing WTR’s authority to make market purchases of its own shares at the EGM.
In May 2010, in connection with the placing of shares in what was then known as the World Trust Fund by RIT Capital Partners Limited, the board set out a discount management policy which undertook to
1. take an active approach to managing the discount;
2. buy back shares in the event that the discount exceeded 10%; and
3. offer up to a 15% tender at a 5% discount to NAV in the event that the average discount exceeded 10% over the 90 days preceding WTR’s financial year end.
These measures worked reasonably well for a time but from around March 2013 the board’s appetite for discount control waned. In 2014 the tender policy was abandoned. In 2015, although WTR consistently traded wider than a 10% discount, no shares were bought back. The Company subsequently purchased 41,000 shares in March 2016 and in September 2016 offered shareholders a modest 10% tender. The board has otherwise shown no discernible commitment to credible discount control until June this year.
Since 1st June 2018, WTR has repurchased c.3m shares at an average discount between 3% and 4%. At the time of writing, the board can repurchase an additional 2,413,885 shares (c. 7.2% of issued shares, excluding shares held in treasury) from the approval granted at the 2017 AGM. We therefore question the need to convene an additional shareholder meeting so close to the delayed 2018 AGM, for the sole purpose of renewing the buyback authority. The EGM circular gives shareholders no clarity regarding why the board resumed the buyback program at narrow discounts after a prolonged hiatus during which the discount has been much wider. There are also no clear assurances given regarding how the buyback will operate in future.
At the 2017 AGM many shareholders expressed their dissatisfaction with WTR when the Company narrowly passed its annual continuation vote. In the event that shareholders do not pass the continuation resolution at the 2018 AGM, we repeat our suggestion which we have previously discussed with you: that the board bring forward proposals for WTR’s liquidation with a facility for shareholders who so wish to roll into the Lazard Emerging World Fund UCITS.
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City of London’s objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange. The Board says it continues to recognise the importance of dividend income to shareholders. City of London invests in a broad spread of mainly UK-listed companies, aims to grow capital and income over time and adopts a consistent, cautious approach over the long term.
CTY : City of London writes to shareholders of Lazard World Trust