India Capital Growth wants time to recover – This morning, India Capital Growth has announced that it will hold a continuation vote on 12 June. A vote looked likely to be triggered later this year as the fund has failed to beat its benchmark over the period since 30 June 2017. The manager has been investing in people and rethinking its investment approach. It will see its fee drop as the calculation basis shifts to market cap rather than NAV. The board sees significant potential upside when the 36% discount closes, valuations of Indian companies return to trading at historical averages and the Indian economy returns to normal levels of growth. It is offering investors an exit at a 6% discount in December 2021 and every two years after that.
Webinars
The manager will hold two webinars, open to all investors, at which he will discuss the proposals – these are in the events section of our website.
Proposal details
India Capital Growth will hold an extraordinary general meeting on 12 June 2020, in Guernsey, where shareholders will be asked whether they want the fund to continue.
The board undertakes a performance assessment every three years and a vote on the trust’s continued existence is put to shareholders only in the event that either of the following criteria are met:
- the company’s monthly average market capitalisation million over the past year is below £30m; or
- the company’s published diluted NAV per ordinary share has underperformed the benchmark by more than a cumulative 5% over the previous three years.
While the first of these criteria has been satisfied, IGC’s performance is very unlikely to improve sufficiently to meet the second threshold by 6 August 2020 (the date for the next three yearly assessment). Diluted NAV per share fell 45.8% from 7 August 2017 to 15 May 2020, representing a cumulative underperformance against the benchmark (BSE Mid Cap Total Return Index) of 14.1%.
The board has therefore decided to bring forward the date for proposing the continuation resolution and its proposals.
In order for IGC to have a future, the board recognises that the following parameters must be satisfied:
- performance will need to improve significantly;
- the level of the discount must be brought in significantly;
- a pathway to liquidity must be provided to investors; and
- costs must be competitive.
The board believes there is potential for IGC’s performance to improve significantly and is proposing the company continues. To this end, the board has put forward the following, to redress the underperformance, subject to the passing of continuation resolution:
- the introduction of a redemption facility, giving shareholders the right to request the redemption of part or all of their shareholding on 31 December 2021, and every second year thereafter, at an exit discount equal to a maximum of a 6% discount to NAV per redemption share;
- a change to the investment manager’s fee from 1.25% of total assets per annum, to the lower of 1.25% of average market capitalisation (calculated on a daily basis) per annum or 1.25% of total assets per annum with effect from 1 July 2020 (which gives the manager an incentive to narrow the discount) with a further review to the investment manager’s fee in 2022; and
- IGC may seek to satisfy redemption requests by matching such requests with demand for new ordinary shares from incoming investors.
If the resolution is not passed, proposals to wind-up, reorganise or reconstruct the company, will be put to shareholders. Given the extremely volatile market environment and the as yet unknown impact of COVID-19 on India, the board considers that the realisation of the company’s portfolio of investments at the present time is likely to result in sub-optimal returns for shareholders.
This morning, we have published a note that explains, in much more detail what has been happening at Ocean Dial, goes into the reasons for the fund’s poor performance and describes how the new approach is showing early signs of success.
Finally David Cornell, of Ocean Dial, will be on our weekly Friday show.
IGC : India Capital Growth wants time to recover