Vietnam Enterprise (VEIL) has said that it proposes to introduce a five-year performance-related 100% tender offer that will be conditional on VEIL’s NAV total return underperforming against its reference index, currently the Vietnam Ho Chi Minh Stock Index (VN Index), over the five-year period from close of business on 31 March 2025 to close of business on 31 March 2030 (both in USD terms).
VEIL’s board has confidence that the company’s manager will outperform the index over the next five years but feels there should be a mechanism for shareholders to realise up to 100% of their interests in the company if it doesn’t. Furthermore, VEIL’s board says that the introduction of the conditional tender offer will not affect the board’s current approach to discount management, adding that it will continue to buy back shares when it believes this to be in shareholders’ interests.
VEIL puts discontinuation resolutions to its shareholders every five years. The next is due at the 2025 AGM and then again in 2030. If shareholders do not approve the discontinuation resolutions, the company is permitted to continue. The conditional tender offer proposal is subject to the discontinuation resolutions not passing in 2025 or 2030.
Comments from Sarah Arkle, VEIL’s chair
“The Board remains confident in the Company’s future prospects. However, we are disappointed with the level of the discount at which the Company’s shares have been trading, which has widened in common with other listed investment company discounts. In recognition of this, and to give shareholders an opportunity to exit their holding if the Company underperforms, and with the full support of the Investment Manager, the Board is introducing a 100% Conditional Tender Offer, allowing shareholders to realise up to 100% of their investment if the Company’s NAV performance underperforms its reference index over the next five years. This ensures that, in the event of underperformance against the reference index, shareholders who wish to exit have a structured option, while long-term investors can continue to benefit from Dragon Capital’s investment process and commitment to active fund management, which will remain unchanged. We believe this strikes the right balance between confidence in our future performance and our commitment to shareholder value.”
[QD comment: At the time of writing, VEIL is trading at a low 20s discount, which feels excessive given the scale of the opportunity in Vietnam and VEIL’s longer-term track record. The board is no doubt concerned about the size of the discount, with the 2025 discontinuation vote rapidly approaching, which is why it is proposing this conditional tender as an incentive for shareholders to remain invested a bit longer: if the thesis doesn’t play out, shareholders can pull the plug in five years’ time.
While we see the logic in what VEIL’s board is proposing, we think that offering shareholders a 100% tender in 2030 leaves the fund a hostage to fortune. In the event that the sector is out of favour when the tender falls due, VEIL could find itself facing a wall of requests to exit and disposing of securities at depressed valuations just when shareholders should be hunkering down and utilising the closed end structure to look through the noise and take advantage of the opportunity.]
