The board of Aberforth Split Level Income Trust (ASIT) had, in its interim report published on 29 January 2024, shared its views on a possible wind-up of the company. Today it has provided an update.
The board has reached agreement in principle with Aberforth Geared Value & Income Trust (AGVIT), a soon-to-be-launched trust, on the initial terms of a scheme of reconstruction and voluntary winding-up of ASIT. The scheme will involve the transfer of part of the assets to AGVIT in exchange for the issue of new ordinary shares and new ZDP shares in AGVIT. If ASIT’s shareholders approve the proposal, the scheme is expected to become effective on 28 June 2024 and AGVIT will act as a rollover option for investors in ASIT.
ASIT shareholders will be given the option to exchange some or all of their investment in ASIT for ordinary shares in AGVIT and/or to realise some or all of their investment in ASIT for cash. Similarly ZDP shareholders will be able to exchange some or all of their investment for ZDP shares in AGVIT and/or ordinary shares in AGVIT and/or to realise some or all of their investment for cash.
The extent to which investors can elect to receive AGVIT shares or ZDP shares will be in the context of a ratio determined by AGVIT’s level of gearing (i.e the max issuance for one share class is restricted by the level of demand for the other). The board will also scale the offering to ensure that AGVIT does not exceed ASIT in size. Aberforth Partners will contribute £450,000 to the launch costs of AGVIT.
AGVIT will be a new investment trust, expected to launch on 1 July 2024, which will invest in a diversified portfolio of small UK quoted companies. Aberforth Partners, ASIT’s investment managers, will also be the investment managers of AGVIT. AGVIT’s capital structure will comprise ordinary shares with gearing via ZDP shares. The level of gearing for the ordinary shareholders in AGVIT at launch would be similar to the current gearing level of ASIT, in a range of 30 to 40%.
AGVIT’s investment objective will be to achieve high total returns, incorporating an attractive level of income, and to provide AGVIT’s ZDP shareholders with a pre-determined final capital entitlement on AGVIT’s planned winding-up date of 30 June 2031. The gross redemption yield of the AGVIT ZDP shares at launch will be announced when the AGVIT prospectus is published by the end of May 2024. AGVIT’s portfolio construction will be aimed at delivering an attractive yield and will also be designed to take advantage of the significant recovery potential of UK equities in general and smaller companies in particular.
Of the benefits the board outlines, we note that there are three key advantages to the proposed wind-up:
- Shareholders may have the opportunity to roll over their investments in a tax efficient manner (without incurring an immediate liability to UK capital gains tax) and avoid incurring significant realisation costs or portfolio reorganisation costs that can come from trading a smaller investment trust.
- It offers an exit point close to NAV for those wishing to do so.
- ASIT will be able to transfer its assets to AGVIT without incurring the costs associated with liquidating a portfolio of UK small caps.
ASIT’s board, in conjunction with the AGVIT board, and advisers to both companies, is working towards publishing final proposals by the end of May 2024, with a view to offering shareholders a vote on the proposal at the June AGM.
ASIT’s board has also announced that it intends to increase ASIT’s upcoming interim dividend payment from 2.75p per share to 3.25p per share, reflecting the increased revenues received by the trust.