Barings Emerging EMEA Opportunities (BEMO) has taken the controversial decision not to proceed with a conditional 25% tender offer that it committed to five years ago, saying to buy back up to a quarter of its shares would significantly reduce the size of the £94m fund, worsen liquidity in the stock and push up its cost ratio.
Although the company passed the performance test it set itself in October 2020, beating its benchmark by 1.4% a year on average, its shares have traded at an average 16.8% below net asset value, wider than the 12% discount level set as a trigger for the tender offer.
Having consulted with shareholders, the investment trust’s board now proposes to hold an annual continuation vote and a 100% tender offer in 2028 if it does not outperform in the next three years. If the forthcoming continuation vote fails, the company will wind up.
Shares that have rallied 26% this year dipped 0.8% to 795.9p.
Our view
James Carthew, head of investment company research at QuotedData, said: “Backtracking from a commitment to a discount-triggered tender offer is a controversial move by the BEMO board. However, I understand the reasoning behind the decision. Some shareholders may have bought shares solely in anticipation of a 25% tender, and they will be disappointed. Some may be attracted by the potential upside if BEMO’s Russian assets turn out to have some value. Many others will hold BEMO because they want exposure to the investment approach and a manager that has amply demonstrated its ability to beat its benchmark.
“There is no obvious solution that will please everybody and this feels like a good attempt to make the best of a bad situation. Of the various components of the proposals, I am least convinced of the merits of the new performance-triggered tender offer, since persistent underperformance would likely lead to sizeable votes against continuation. I also think shareholders need greater clarity around the circumstances when directors would approve buybacks.”
