CQS Natural Resources Growth and Income (CYN) has announced the results of a wide-ranging strategic review, unveiling a proposed 100% tender offer alongside a package of initiatives designed to enhance long-term shareholder value. Investors will be offered the flexibility to exit the trust in full or remain invested under improved terms that include a significantly enhanced dividend policy and a reduction in fees.

Key proposal: 100% tender offer, but with safeguards

The board has proposed a tender offer for up to 100% of the issued share capital of the trust, open to shareholders on the register as of 29 May 2025. Shareholders will be able to exit at a price based on the realisation of a separately managed “Tender Pool.” Importantly, if valid tenders exceed 60% of the shares in issue, the offer will be withdrawn and the board will instead propose a liquidation of the company.

The process is structured to protect continuing shareholders. The Tender Pool will absorb all costs related to the offer, meaning those who stay invested will not bear any of the associated expenses. The board anticipates the realisation process will complete by the end of September, although market conditions could impact timing.

Value-enhancing measures for remaining investors

Shareholders who stay invested can expect the following benefits:

• Enhanced dividend: A new policy targeting annual dividends of around 8%, paid quarterly at 2% of the preceding quarter-end NAV. The first of these payments will be based on the 30 June NAV and paid in September.
• Fee cut: Management fees will be reduced to a flat 1% of NAV from 1 May 2025. This replaces the current tiered structure, representing a 20bps cut at the highest tier.
• Stability commitment: The next continuation vote will be postponed until 2028, with biennial votes thereafter. This is supported by a standstill agreement with Saba Capital, which has also pledged to tender its holding (excluding Saba RICs) and vote in favour of the proposals.

Rationale and background

The proposals follow a formal strategic review initiated in response to a shareholder requisition from Saba in late 2024. The board evaluated a range of options, including mergers with other trusts and transitioning to an open-ended structure. After concluding that maintaining the closed-end structure with refreshed incentives offered the best balance of growth and income, the board chose to proceed with the current course.

Comments from chairman, Christopher Casey

“We are pleased to put forward proposals that allow all shareholders to choose to remain invested in the Company or to exit for cash. Importantly, the structure proposed protects those shareholders that choose to remain.”

Performance and outlook

Despite volatile markets, CYN’s NAV total return rose 5.6% year-to-date to 30 April 2025, comfortably ahead of the MSCI World Metals & Mining Index (+2.9%) and the MSCI World Energy Index (-8.0%). The managers highlight current positioning favouring precious metals, citing attractive valuations and rising demand from central banks.

The board remains confident in the manager’s flexible, value-driven approach to under-researched mid- and small-cap companies in the natural resources space. The trust’s closed-ended structure allows it to take a long-term approach to sectors exposed to cyclical pricing and geopolitical change.

Next steps

A circular detailing the proposals has been published and a general meeting will be held on 25 June 2025 to seek shareholder approval. If passed, the tender offer will proceed, with results expected in early July and payments anticipated by early October.

[QD comment MR: The proposals strike a balance between offering an exit route for shareholders that wish to exit – most notably the US hedge fund Saba Capital, who have been pressing hard for an exit opportunity – while strengthening the case for remaining invested. The enhanced dividend yield and simplified fee structure are likely to appeal to income-focused investors, while the longer interval between continuation votes gives the trust room to implement its strategy without the overhang of frequent votes. The structure of the tender pool – with costs falling solely on those choosing to exit – protects remaining investors.

In our view, CYN offers differentiated investment remit in natural resources and we observe that it has a loyal shareholder following. However, the strategy currently faces cyclical headwinds – which has weighed on its performance and discount – and we think offering a 100% tender for a trust of CYN’s size, that was trading around a 10% discount at last night’s close, has the potential to leave it subscale. The proposals rightly have a safety mechanism built in to allow for a full liquidation if this is the case, but it would be a shame to see this happen.

We firmly believe CYN’s offering is perfectly suited to a closed-ended structure and, in an ideal world, the managers should be able to utilise this structure to look through the current noise and take a long-term view to build positions that will enhance long-term performance. Instead, CYN could be forced to liquidate a substantial proportion, if not all, of its portfolio, at precisely the wrong time.]