Invesco Asia and Asia Dragon have published circulars ahead of the proposed combination of the two trusts. The combination will be undertaken through a scheme of reconstruction and winding-up of Asia Dragon under section 110 of the Insolvency Act 1986.

As at 12 December 2024, Invesco Asia and Asia Dragon have each received an irrevocable undertaking from City of London Investment Management Limited representing 20.4% of Invesco Asia’s issued share capital and 29.9% of Asia Dragon’s issued share capital (in each case excluding shares held in treasury) and letters of intent or indications of support from shareholders representing a further 17.7% and 26.5%, respectively, to support the transaction.

The announcement outlines the following benefits for shareholders:

• Access to the market leading resources of Invesco: Invesco, a global asset manager with $1,795.6bn of assets under management (as at 30 September 2024), including $15.9bn managed by the Invesco Asian & Emerging Market Equities Team based in the UK, which will remain as the investment manager of the enlarged Invesco Asia Dragon. The co-portfolio managers will continue to be Fiona Yang and Ian Hargreaves, supported by the wider team.
• Strong investment performance track record: Invesco Asia’s long-term performance record is strong, with NAV total returns of 9.9%, 47.2% and 134.8% over three, five and ten years respectively (to 30 November 2024), outperforming the benchmark Index total returns of 0.4%, 23.1% and 84.6% over the corresponding periods.
• Larger scale and likely FTSE 250 inclusion: the company is expected to have net assets of approximately £800m (based on the NAVs of Invesco Asia and Asia Dragon as at 12 December 2024, and assuming that the cash option is taken up in full). It is also expected that the company will be eligible for inclusion in the FTSE 250 Index and will benefit from improved secondary market liquidity.
• Lower management fees: the board has agreed a new management fee structure, which will result in a more competitive blended fee rate for the combined entity.
• Lower ongoing charges: the new reduced management fee structure and the economies of scale, which the combination will bring, will allow the company to target an ongoing charges ratio of approximately 70bps in future financial years, a material improvement on Invesco Asia’s current ongoing charges ratio of 103bps and on Asia Dragon’s current ongoing charges ratio of 86 bps.
• Increased frequency of dividend payments: quarterly dividends of 1% of NAV per quarter rather than semi-annual dividends amounting to an aggregate annual dividend equal to 4.0% of its NAV;  payments made in January, April, July and October of each year. It is the intention of the board to pay a dividend of 3.9p in each of January and April 2025.
• Significant contribution to costs from the manager: the manager has agreed to make a significant contribution to the costs of the transaction. The value of the contribution will be applied initially to meet Invesco Asia’s costs, with any excess applied for the benefit of all shareholders in the combined entity. Shareholders are thus not expected to suffer any NAV dilution from the direct costs of a successful transaction. For illustrative purposes the value of the Invesco costs contribution is estimated to be approximately £2.26m. In the event that the investment management agreement were to be terminated by the company (other than for cause) during the three-year period following the deal, the company would be obliged to repay all or part of the contribution depending on the date of termination, with the repayment obligation reducing by one-third on each anniversary of the effective date of the transaction.
• Unconditional tender offers: unconditional tender offers will be introduced every three years for up to 100% of the issued share capital of the enlarged vehicle at a 4.0% discount to the prevailing NAV (debt at fair value, cum income), replacing the triennial continuation votes and the performance-related conditional tender offer currently utilised by Invesco Asia. The statement says that unconditional tender offers will provide the board with a strong discount management tool which should constitute an effective and attractive initiative for shareholders and potential new investors alike, unlocking the ability to buy and hold shares with the certainty that the size of their shareholding can be adjusted periodically thereafter, regardless of relative performance or share rating.

The cash exit option comes at a 2% discount to formula asset value and is available for up to 25% of Asia Dragon’s issued share capital (excluding shares held in treasury). A proportion of Asia Dragon’s assets will go into a cash pool and be liquidated. Shares in Invesco Asia will be the default option.

The first continuation vote will be held in September 2025.The first unconditional tender offer is expected to be put forward to Invesco Asia Dragon shareholders in 2028, by no later than the date of announcement of its final results for the financial year ended 30 April 2028.

Aggregate cap on directors’ remuneration included in the Articles will rise from £200,000 to £400,000. The size of the board will grow as James Will, Matthew Dobbs, Nicole Yuen and Susan Sternglass Noble (directors of Asia Dragon,) are appointed to the board. The number of directors would then jump from four to eight, before reducing down to six directors over the medium term.

The Invesco Asia meeting will be on 16 January. The first Asia Dragon meeting will be on 4 February and its shares will stop trading on 6 February. The calculation date for the FAVs is 6 February. The second Asia Dragon meeting will be on 13 February. New Invesco Asia Dragon shares should start trading on 14 February.

IAT / DGN : More details published on Invesco Asia / Asia Dragon combination