Crystal Amber sets out wind-down plans – having failed to get its continuation resolution passed, Crystal Amber is now publishing its plans for a managed wind-down of the portfolio.
The Fund has accumulated several strategic holdings: 28.9% in Hurricane Energy, 13% in Equals Group, 18.2% of Allied Minds, 10% of De La Rue, and 10.8% of Sutton Harbour. Crystal Amber expects to have realised these investments by 31 December 2023. Within this timescale, the fund also anticipates selling its holding in Board Intelligence, an unquoted company in which it has been a shareholder since 2018.
Since 2013, £60m has been returned to shareholders and the fund intends to return all net proceeds from the above holdings (after providing for ongoing operational costs as necessary). Based on the investment manager’s assessment of the status and timing of anticipated corporate transactions, Crystal Amber is targeting additional shareholder returns of at least £40m or 50p per share before 30 June 2022. The payment of a 10p dividend on 9 February 2022 (£8.3m in total) was the first shareholder return towards achieving that target. Whilst the fund is confident that this is achievable, after consulting with several shareholders, it is no longer considered to be in the interests of the fund to impose a fixed deadline, but will be keeping it as a target.
Subject to shareholder approval of the change of strategy, the fund will not make any new investments and will only make further opportunistic investments in existing holdings where, in the view of the board and investment manager, such investment is considered necessary to protect the interests of shareholders and/or provide the investment manager with additional influence to maximise value and facilitate and accelerate an exit. Any such investment will require the prior approval of the board and will only be permitted where it is not expected to compromise the timescale for realisations.
GI Dynamics
In 2014 the fund began to accumulate a shareholding in GI Dynamics. GI Dynamics is the developer of the EndoBarrier, a minimally invasive therapy for the treatment of Type 2 diabetes and obesity. EndoBarrier is a temporary bypass sleeve that is endoscopically delivered to the duodenal intestine. It offers similar effects to the surgical gastric bypass, without the risks of a major surgical procedure.
Last year, GI Dynamics delisted from the Australian stock exchange. Its board and CEO were replaced with new executives and directors with medical device experience. As part of a US$10m investment in preferred stock, the fund’s senior secured loan was converted, and warrants were cancelled. The fund currently owns 81.3% of the fully diluted share capital of GI Dynamics, together with a $4.9m convertible loan note.
After delays due to the COVID-19 surge in India, the I-STEP application for a randomised clinical trial of the EndoBarrier (to be conducted in conjunction with Apollo Sugar Clinics) was reviewed by regulators in India in June 2021. In December 2021, regulators approved the commencement of this trial.
The manager thinks that the timescale needed to maximise the value of this stake goes beyond 31 December 2023. [As the end 2023 deadline approaches, assuming the stake hasn’t been sold, it might make sense to reverse the stake into the shell of what remains of Crystal Amber, leaving shareholders with a stake in a listed company that they can hold or sell-on as they wish – a bit like Electra has done with Unbound.]
Investment Manager incentive fee
From 1 April 2022, the management fee will be reduced to £106,666 per month until 30 June 2022, falling to £90,000 per month until 31 December 2022, falling to £70,000 per month until 30 June 2023, falling to £50,000 per month until 30 September 2023 and falling to £40,000 per month until 31 December 2023 (or if earlier, the date on which all the Fund’s investments have been substantially realised) when the management fee will cease. For these purposes “substantially realised” means the date on which all of the Fund’s investments (other than the Fund’s investment in GI Dynamics) have been realised.
The manager gets 20% of cash returned to shareholders above £216m. The £216m figure is equivalent to where the current high watermark for its performance fee sits. It is a premium of approximately 81% over end December 2021 NAV of 143.2p per share and a premium of approximately 127% over the market capitalisation of the fund at that date [that’s a suitably challenging hurdle].
The fund will be able to terminate the new agreement with immediate effect within the period of six months following (i) the passing of a resolution of shareholders for the winding up of the company; (ii) 31 December 2023; and (iii) the date on which all the investments (other than the investment in GI Dynamics) have been realised.
CRS : Crystal Amber sets out wind-down plans