AVI Japan Opportunity Trust (AJOT) has launched its third uncapped annual tender offer, giving shareholders a chance to sell all their shares at a 2% discount to the value of its investments if they wish.
Given the shares currently stand around 2% below net asset value (NAV), there is likely to be limited demand for the exit, although there is always the risk with 100% tenders that an investment trust suffers a destabilising large outflow of money.
Should the £397m smaller companies activist see net assets (excluding debt) fall below £100m, the tender offer will be scrapped and alternative proposals for the future of the company put to shareholders. This could lead to a wind-up of AJOT which was launched eight years ago.
However, AJOT’s two previous annual exits saw relatively modest sums sold. When the board replaced the previous biennial 100% tender two years ago, the trust saw just 2.6% of shares put up for sale.
This jumped to 10.9% last year after the merger with Fidelity Japan meant there were more shareholders looking to rebalance their holdings.
Shareholders are not obliged to tender their shares and should not fill in a tender form or submit instructions if they don’t not want to participate. Those who do want to sell must state their intention by 10.30am on 6 November. A general meeting of shareholders to approve the tender offer will take place on 10 November. The board of directors and the investment manager will not be selling any of their shares.
Under Joe Bauernfreund, AJOT fund manager and chief executive of Asset Value Investors, the investment trust has generated a 65% total return to shareholders over five years, beating the 56% of the MSCI Japan Small Cap index.
Our view
QuotedData senior analyst Matthew Read said: “AVI Japan Opportunity’s annual tender offer has proven to be very effective at keeping the trust trading close to asset value – the discount is 2.2% at the time of writing and has been consistently within single digits during the last 12 months despite this being a volatile period in markets. While AJOT’s annual tender has clearly been a success, we still think that 100% tender offers can leave a trust a hostage to fortune should the tender fall due at a time when markets have dislocated or the style has fallen out of favour as this could turn the fund into a source of liquidity at a time when the manager should be taking advantage of depressed valuations.”
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