Aberdeen Frontier Mkts Inv Co Ltd Tender Offer (0170B)

TIDMAFMC

RNS Number : 0170B

Aberdeen Frontier Mkts Inv Co Ltd

17 September 2018

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO

Aberdeen Frontier Markets Investment Company Limited

LEI: 213800X9N731I4IPK361

Publication of Tender Offer circular

Publication of Tender Offer circular and proposed adoption of a new discount control policy

17 September 2018

Aberdeen Frontier Markets Investment Company Limited (the "Company") will later this week publish a circular (the "Circular") in connection with a Tender Offer to purchase up to 15 per cent. of the Ordinary Shares in issue at the Tender Price and the proposed adoption of a new discount control policy.

1 INTRODUCTION

On 2 July 2018, the Company announced its intention to implement a tender offer to purchase up to 15 per cent. of the Ordinary Shares currently in issue. The decision to implement the Tender Offer was made in the light of the Company's adoption, in March 2017, of a discount control policy whereby should the average Ordinary Share price discount to the underlying ex income NAV over the three month period immediately prior to the Company's year-end (30 June) exceed ten per cent. then, at the discretion of the Board, the Company would, subject to any legal or regulatory requirements, implement a tender offer. Over the relevant period the average Ordinary Share price discount to the underlying ex income NAV was 10.47 per cent. and hence the Board's decision to implement the Tender Offer.

2 BACKGROUND TO THE TER OFFER

Global equity market sentiment was constructive through most of our financial year to 30 June 2018, supported by firming global growth and hopes that the passage of US tax legislation would give a boost to the world's largest economy. Towards the end of the period, however, there was a marked return of volatility and renewed US dollar strength, stoked by raised expectations in respect of the US Federal Reserve's withdrawal of monetary stimulus, as well as heightened risk aversion over trade tensions between the US and China over tariffs. Risk assets saw a broad sell-off during the final quarter, which was compounded by weakness witnessed in many frontier market currencies.

During the twelve months to 30 June 2018 the Company's NAV per Ordinary Share and share price total returns were -10.3 per cent. and -12.0 per cent. respectively. As a point of reference, the MSCI Frontier Markets Index gained 1.7 per cent. over the same period. Clearly for Shareholders, the Board and the Manager this underperformance was very disappointing. However, the Board and the Manager are aware that it was only in June 2017 that the Portfolio was transitioned away from the fund of funds investment mandate over to a direct equity investing mandate managed by the Manager's very well resourced emerging market equity team led by Devan Kaloo. Despite this underperformance over the year to 30 June 2018 the Board believes that the Manager should be given a reasonable investment period to prove its investment process in these markets.

Absolute and relative performance was hindered by four factors: the Portfolio's exposure to Pakistan, which left the benchmark last year and suffered equity declines for the reasons outlined above; the Company's overweight exposure to Sri Lanka, whose market declined as a result of a poor harvest, fiscal austerity, and a rise in the tax burden; the exposure to Vietnam via off-benchmark names, which lagged the liquidity-fuelled rally of the MSCI Vietnam index due to foreign-ownership restrictions; and the Company's underweight exposure to Kuwait, which made gains as a result of the stronger oil price and news that the market is under review by MSCI with a view to upgrading to emerging markets status.

The investment policy of the Company is benchmark aware but importantly not benchmark driven. In this respect the Manager looks across a wide array of countries with frontier market characteristics, including outside of the Index, seeking out quality companies to invest in. This diversified portfolio of companies is managed with a mind to delivering strong performance over the medium to longer term at a low level of volatility. That said, there will be divergences away from the Benchmark, at times quite marked, as well as in relative performance. The Manager remains committed to this investment approach, which entails rigorous interaction and engagement with investee companies. This allows the Manager to identify those with solid long-term prospects and progressive management teams that will negotiate cycles and safeguard Shareholder interests.

The Board recognised the importance to investors of the Ordinary Shares not trading at a significant discount to the prevailing NAV. Accordingly, in March 2017, the Board introduced a discount control policy whereby should the average Ordinary Share price discount to the underlying ex income NAV over the three month period immediately prior to the Company's year-end (30 June) exceed 10 per cent. then, at the discretion of the Board, the Company would, subject to any legal or regulatory requirements, implement a tender offer. Such tender offer would be for up to 15 per cent. of the issued share capital of the Company.

Unfortunately, despite the Ordinary Share price trading in a relatively tight discount band below 10 per cent. prior to the three month period to 30 June 2018, dislocation in markets and negative sentiment in emerging markets generally caused by US tariff threats led to share price weakness and the discount widening through the monitoring period. This meant that, despite the discount tightening below 10 per cent. at certain times, the average discount for the monitoring period was 10.47 per cent.

Having triggered the discount target set out above, the Board is also aware that there exists appetite for the liquidity that can be provided by a tender offer at a price close to NAV. Accordingly, and in line with the current discount control policy, Shareholders are being asked to approve the Tender Offer for up to 15 per cent. of the issued share capital of the Company (excluding Ordinary Shares held in treasury) at a Tender Price equal to 98 per cent. of the prevailing NAV (less the direct costs, including any realisation costs of underlying investments, of implementing the Tender Offer) on the Calculation Date.

The Board believes that the Tender Offer strikes a fair balance between those Shareholders who wish to realise part of their investment in the Company at a value close to the NAV per Ordinary Share and those who wish to maintain their investment in the Company. The fixed costs and expenses payable by the Company in respect of the Tender Offer, together with portfolio realisation costs, will be deducted from the NAV in terms of calculating the Tender Price on the Calculation Date.

3 DISCOUNT CONTROL POLICY

As part of its ongoing programme of Shareholder engagement the Board has received feedback suggesting that it would be appropriate to allow the revised direct equity investment policy, which was adopted in March 2017, a defined period of time to prove itself without being distracted by the potential for further annual tender offers or other discount control mechanisms. If, however, at the end of that defined period, the Company has failed to outperform its reference benchmark, the Board is mindful that Shareholders should be given the opportunity to fully exit their investment for cash. The Board is conscious that the revised investment policy saw the Portfolio only fully re-aligned in June 2017.

In the light of the above the Board is proposing to adopt a new discount control policy. Discount triggered tenders (other than that set out in the Circular) or other discount control mechanisms will no longer be proposed. Instead, Shareholders will be given the opportunity to fully exit their investment in the Company for cash at the then prevailing NAV less applicable direct costs, including any realisation costs of underlying investments, in the event that the Share Price Total Return for the two year period from 1 July 2018 to 30 June 2020 fails to exceed the Portfolio's reference benchmark, being the MSCI Frontier Markets Index (in sterling terms).

The Board also intends to seek annual renewal of the usual authority to buyback Ordinary Shares in the market and will exercise such authority where it believes it is in the best interests of Shareholders to do so.

4 TER OFFER

4.1 General

The Board proposes to make available a Tender Offer for up to 15 per cent. of the Ordinary Shares in issue (excluding Treasury Shares) on the Record Date to enable those Shareholders (other than Restricted Shareholders) who wish to realise a portion of their holding of Ordinary Shares, to do so. The Tender Price will be equal to 98 per cent. of the prevailing NAV per Ordinary Share as at the Calculation Date (less the direct costs, including any realisation costs of underlying investments, of implementing the Tender Offer) and will be expressed and paid in Sterling. The Tender Price has been set at this level, as indicated in the circular published by the Company on 3 February 2017, to allow Shareholders who wish to realise a portion of their holding of Ordinary Shares to do so at a price close to NAV whilst providing for a small uplift to NAV per Ordinary Share for continuing Shareholders.

The Tender Offer is not conditional on Ordinary Shares trading at a discount to NAV as at the Calculation Date (i.e. the share price per Ordinary Share being at a discount to the NAV per Ordinary Share on the Calculation Date). In the event that the Ordinary Shares are trading at a premium to NAV per Ordinary Share as at the Calculation Date (i.e. the share price per Ordinary Share being at a premium to NAV per Ordinary Share on the Calculation Date), Shareholders who tender Ordinary Shares may receive less than they may otherwise be able to realise by way of market sale.

The Company intends to fund the Tender Offer through its available cash and through the realisation of a portion of its Portfolio.

The Record Date for the Tender Offer is the close of business on 15 October 2018.

Under the terms of the Tender Offer, Shareholders (other than Restricted Shareholders) will be entitled to tender up to their Basic Entitlement, being 15 per cent. of the Ordinary Shares they held as at the Record Date rounded down to the nearest whole number of Ordinary Shares. Shareholders will also be able to tender additional Ordinary Shares, but any such excess tenders will only be satisfied on a pro rata basis, to the extent that other Shareholders tender less than their Basic Entitlement. Tender applications will be rounded down to the nearest whole number of Ordinary Shares.

The results of the Tender Offer and the Tender Price are expected to be announced on 19 October 2018.

4.2 Conditions of the Tender Offer

The Tender Offer is subject to, (i) the Tender Resolution being passed at the EGM, and (ii) certain other conditions set out in paragraph 1 of Part 4 of the Circular. In addition, the Tender Offer may be suspended or terminated in certain circumstances as set out in paragraph 2 of Part 4 of the Circular.

The Tender Offer is also conditional upon Numis having received payment from the Company in respect of the Tender Price for the Ordinary Shares tendered in accordance with the Repurchase Agreement.

4.3 Further details of the Tender Offer

Shareholders (other than Restricted Shareholders) on the Register on the Record Date are invited to tender for sale some or all of their Ordinary Shares (subject to the overall limits of the Tender Offer) to Numis who, as principal, will purchase at the Tender Price the Ordinary Shares validly tendered (subject to the overall limits of the Tender Offer) and, following the completion of all those purchases, sell the relevant Tendered Shares on to the Company at the Tender Price by way of an on-market transaction, in accordance with the terms of the Repurchase Agreement. All transactions will be carried out on the London Stock Exchange and Ordinary Shares bought by the Company will be cancelled.

Further details of the calculation of the Tender Price are set out in paragraph 1 of Part 4 of the Circular. Shareholders' attention is drawn to the letter from Numis set out in Part 2 of the Circular and, for Shareholders who hold their Ordinary Shares in certificated form, to the Tender Form or the Savings Schemes Tender Form, whichever is applicable, which together constitute the terms and conditions of the Tender Offer.

Details of how to tender Ordinary Shares can be found in paragraph 3 of Part 4 of the Circular. Shareholders should note that, once tendered, Ordinary Shares may not be sold, transferred, charged or otherwise disposed of other than in accordance with the Tender Offer.

4.4 City Takeover Code

Under Rule 9 of the City Code, any person who acquires an interest (as defined in the City Code) in shares which, taken together with shares in which he is already interested and in which persons acting in concert with him are interested, carry 30 per cent. or more of the voting rights of a company which is subject to the City Code, is normally required to make a general offer to all the remaining shareholders to acquire their shares.

Similarly, when any person, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights of such a company but does not hold shares carrying more than 50 per cent. of such voting rights, a general offer will normally be required if any further interests in shares is acquired by any such person or any person acting in concert with him.

Under Rule 37.1 of the City Code, when a company redeems or purchases its own voting shares, any resulting increase in the percentage of shares carrying voting rights in which a person or a group of persons acting in concert is interested will be treated as an acquisition for the purposes of Rule 9 of the City Code.

However, note 21 to Rule 37.1 of the City Code states that a person who comes to exceed the percentage limits set out in Rule 9 of the City Code in consequence of a company's redemption or purchase of own shares will not normally incur an obligation to make a mandatory offer unless that person is a director, or is presumed to be acting in concert with any of the directors.

The Takeover Panel must be consulted in advance of any case where Rule 9 of the City Code might be relevant. Under note 4 to Rule 37.1 of the City Code, the Company has consulted with the Panel in relation to the proposed Tender Offer. The Panel has confirmed on an ex parte basis to the Company that, provided City of London Investment Management Company Limited is not acting in concert with the Company or any of its directors such that they be treated as an "innocent bystander" in relation to any increase in its holding in the Company as a result of the proposed Tender Offer, the Panel will not require City of London Investment Management Company Limited nor any person deemed to be acting in concert with it to make a mandatory offer under Rule 9 of the City Code on the grounds that its interest in the share capital of the Company has increased as a consequence of the proposed Tender Offer.

Shareholders are not obliged to tender their Ordinary Shares and, if they do not wish to participate in the Tender Offer, Shareholders should not complete or return their Tender Form or send a TTE Instruction.

The Circular does not constitute or contain a recommendation to Shareholders to tender their Ordinary Shares. Whether Shareholders choose to tender any Ordinary Shares will depend upon, amongst other things, their view of the Company's future prospects and their own individual circumstances, including their tax position. Shareholders who are in any doubt as to the contents of the Circular or as to the action to be taken should immediately consult their stockbroker, bank manager, solicitor, accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000 or other appropriately qualified adviser.

Shareholders' attention is also drawn to the Risk Factors set out on page 4 of the Circular.

5 ONGOING CHARGES RATIO

Following implementation of the Tender Offer the size of the Company, in terms of its net assets, will decrease. The Board is mindful of the costs incurred in managing an investment company and the fact that a fall in net assets will lead to a higher overall ongoing charges ratio ("OCR"). To that end, the Board is pleased to report that it has secured agreement from the Manager to seek to limit the Company's OCR to no more than 2 per cent. when calculated annually as at 30 June.

Until further notice, to the extent that the OCR exceeds 2 per cent. in any annual period, the Manager will rebate an equal amount of its management fee to the Company with the objective of bringing the OCR down to 2 per cent. This rebate will, however, be capped such that the Manager will not rebate more than an amount equal to one third of the Manager's management fee for the relevant year in question. There can therefore be no guarantee that the overall OCR of the Company will, even given any rebate by the Manager, be limited to 2 per cent. of net assets. However, the Board will continue to monitor all costs on a regular basis.

For the avoidance of doubt the OCR calculation will continue to be based on the guidance published by the Association of Investment Companies.

6 EXTRAORDINARY GENERAL MEETING

The Tender Offer is subject to Shareholders passing the Tender Resolution to be proposed at the EGM. The proposed new discount control mechanism outlined in this announcement is subject to Shareholders passing an ordinary resolution to be proposed at the EGM approving the new discount control policy. The Notice convening the EGM, to be held at 2.30 p.m. on 17 October 2018 at the registered office of the Company, is set out at the end of the Circular.

In order to become effective, the Tender Resolution and the ordinary resolution approving the new discount control policy must each be approved by a majority of not less than 50 per cent. of the votes cast by Shareholders present in person or by proxy at the EGM.

The quorum for the EGM shall be two or more Shareholders present in person or by proxy. If the EGM needs to be adjourned because it is not quorate, it will be adjourned to the same time and place on the fifteenth calendar day following the adjourned EGM (or, if that day is not a business day, to the next business day), whereupon those Shareholders then present, in person or by proxy, shall form the quorum. In the event of any such adjournment the Company will announce the adjournment via an RIS but no notification will be sent directly to Shareholders.

7 REPURCHASE AGREEMENT WITH NUMIS

On the date of the Circular, the Company and Numis will enter into a Repurchase Agreement, which imposes a binding obligation on Numis to sell the Tendered Shares to the Company and on the Company to buy-back such Tendered Shares at the Tender Price.

All Ordinary Shares purchased by the Company shall be effected on the London Stock Exchange in on-market transactions. Numis, on the Company's behalf, may settle acquisitions of Tendered Shares in such manner and in such order as it considers appropriate in its absolute discretion. Numis warrants to the Company that it is a member of the London Stock Exchange and the Company shall be entitled to terminate the Repurchase Agreement if such membership expires, is suspended, revoked or withdrawn at any time prior to the completion of the Tender Offer.

8 COSTS AND EXPENSES ASSOCIATED WITH THE TER OFFER

The fixed costs and expenses payable by the Company are estimated to amount to approximately GBP132,000 excluding estimated realisation costs. These costs, together with portfolio realisation costs, will be deducted from the NAV in terms of calculating the Tender Price on the Calculation Date.

9 TAXATION

Shareholders who sell Ordinary Shares in the Tender Offer may, depending on their individual circumstances and subject to the availability of any exemption or relief, incur a liability to taxation.

UK resident Shareholders should be aware that HMRC may seek to treat part of the disposal proceeds of their Tendered Shares as income. The attention of Shareholders is drawn to Part 5 of the Circular, which sets out a general guide and is not exhaustive. Shareholders should seek advice in relation to their own specific circumstances.

Shareholders who are in any doubt as to their tax position should seek advice from an appropriately qualified professional.

10 RESTRICTED SHAREHOLDERS AND OVERSEAS SHAREHOLDERS

The Tender Offer is not being made to Restricted Shareholders. Shareholders who are resident in, or citizens of, a Restricted Territory are excluded from the Tender Offer to avoid breaching local laws relating to the implementation of the Tender Offer. Accordingly, copies of the Circular, the Tender Form, the Savings Schemes Tender Form and any related documents are not being and must not be mailed or otherwise distributed in or into any of the Restricted Territories.

Shareholders who are not Restricted Shareholders but who have a registered or mailing addresses outside the United Kingdom or who are citizens or nationals of, or resident in, a jurisdiction other than the United Kingdom should read paragraph 6 of Part 4 of the Circular and the relevant provisions of the Tender Form.

11 ACTION TO BE TAKEN BY SHAREHOLDERS

11.1 Forms of Proxy

Whether or not they wish to tender Ordinary Shares and regardless of whether they intend to be present at the EGM, Shareholders (other than Savings Schemes Participants) are requested to complete and return the Form of Proxy in accordance with the instructions printed thereon, so as to be received by Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, BR3 4TU as soon as possible and in any event not later than 2.30 p.m. on 15 October 2018.

The completion of Forms of Proxy will not prevent a Shareholder from attending the EGM and voting in person should they wish to do so.

11.2 Forms of Direction

Whether or not they wish to tender Ordinary Shares and regardless of whether they intend to be present at the EGM, Savings Schemes Participants are requested to complete and return the accompanying Forms of Direction in accordance with the instructions printed thereon, so as to be received by Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, BR3 4TU as soon as possible and in any event not later than 2.30 p.m. on 8 October 2018.

The completion of Forms of Direction will not prevent a Shareholder from attending the EGM and voting in person should they wish to do so.

11.3 Tender Offer

Shareholders and Savings Schemes Participants who wish to continue with their existing investment in the Company should not tender their Ordinary Shares through CREST or return a Tender Form or Savings Schemes Tender Form.

Ordinary Shares held in uncertificated form (i.e. in CREST)

Shareholders who hold their Ordinary Shares in uncertificated form (that is in CREST) and who wish to participate in the Tender Offer do not need to complete a Tender Form. Such Shareholders should take the appropriate action in CREST to tender their Ordinary Shares and should arrange for the relevant Ordinary Shares to be transferred to escrow by no later than 1.00 p.m. on 15 October 2018, as described in Part 4 of the Circular.

Ordinary Shares held in certificated form

Shareholders who hold their Ordinary Shares in certificated form (other than Savings Schemes Participants) and who wish to participate in the Tender Offer should complete the Tender Form in accordance with the instructions set out therein and return the completed Tender Form by post or by hand (during normal business hours only) to the Receiving Agent, Link Asset Services, Corporate Actions, 34 Beckenham Road, Beckenham, BR3 4TU, by no later than 1.00 p.m. on 15 October 2018. They should also return the valid share certificate(s) and/or other documents of title in respect of the Ordinary Shares tendered.

Savings Schemes Participants

Savings Schemes Participants who wish to participate in the Tender Offer should complete the Savings Schemes Tender Form in accordance with the instructions set out therein and return it to Link Asset Services, Corporate Actions, 34 Beckenham Road, Beckenham, BR3 4TU, so as to be received as soon as possible and in any event by no later than 1.00 p.m. on 8 October 2018.

12 RECOMMATION

The Board considers that the Tender Offer and the proposed adoption of a new discount control policy are in the best interests of the Company and of Shareholders. Accordingly, the Board recommends that Shareholders vote in favour of the Resolutions to be proposed at the EGM as the Directors intend to do in respect of their own beneficial holdings.

The Directors' beneficial holdings, in aggregate, amount to 18,350 Ordinary Shares, representing 0.02 per cent. of the issued Ordinary Shares as at the latest practicable date prior to the issue of the Circular.

The Board has received indications from Shareholders holding in aggregate Ordinary Shares representing at least 60 per cent. of the issued Ordinary Shares of their current intention to vote in favour of the Resolutions.

The Board makes no recommendation to Shareholders as to whether they should tender their Ordinary Shares in the Tender Offer. The Directors do not intend to tender any of their own Ordinary Shares. Whether Shareholders decide to tender any Ordinary Shares will depend on their view of the Company's future prospects and their own individual circumstances including their own tax position.

A timetable for the implementation of the Tender Offer is set out below.

Terms used and not defined in this announcement shall have the meaning given to them in the Circular.

Enquiries:

Aberdeen Fund Managers Limited

(Manager to Aberdeen Frontier Markets Investment Company Limited)

Gary Jones

Tel: [phone]

Grant Thornton UK LLP

(Nominated Adviser)

Philip Secrett

Tel: [phone]

Numis Securities Limited

(Nominated Broker)

David Benda

Tel: [phone]

EXPECTED TIMETABLE

All references are to London time unless otherwise stated.

 
 Latest time and date for receipt of             1.00 p.m. on 8 October 
  Savings Schemes Tender Forms                    2018 
 Latest time and date for receipt of             2.30 p.m. on 8 October 
  Forms of Direction for the Extraordinary        2018 
  General Meeting 
 Tender Closing Date: Latest time and            1.00 p.m. on 15 October 
  date for receipt of Tender Forms and            2018 
  TTE Instructions in CREST 
 Latest time and date for receipt of             2.30 p.m. on 15 October 
  Forms of Proxy                                  2018 
 Record Date for participation in the            6.00 p.m. on 15 October 
  Tender Offer                                    2018 
 Extraordinary General Meeting                   2.30p.m. on 17 October 
                                                  2018 
 Announcement of result of Extraordinary         17 October 2018 
  General Meeting 
 Calculation Date                                close of business on 
                                                  17 October 2018 
 Announcement of result of Tender Offer          19 October 2018 
  and Tender Price 
 Creation of assured payment obligations         26 October 2018 
  for Tender Offer proceeds for uncertificated 
  Ordinary Shares 
 Dispatch of cheques for Tender Offer            Week commencing 29 October 
  proceeds and balance share certificates         2018 
  for certificated Ordinary Shares 
 
 
 

The dates and times specified are subject to change and will be notified by the Company through a Regulatory Information Service. All references to time are to UK time.

Numis Securities Limited ("Numis"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom is acting exclusively for the Company and no-one else in connection with the Tender Offer and will not be responsible to anyone other than the Company for providing the protections afforded to customers of Numis or for providing advice in relation to the Tender Offer. Nothing in this paragraph shall serve to exclude or limit any responsibilities which Numis may have under FSMA or the regulatory regime established thereunder.

Apart from the responsibilities and liabilities, if any, which may be imposed on Numis by FSMA or the regulatory regime established thereunder, Numis accepts no responsibility whatsoever for the contents of the Circular or this announcement or for any other statement made or purported to be made by it or on its behalf in connection with the Company or the Tender Offer. Numis accordingly disclaims all and any liability whether arising in tort or contract or otherwise (save as referred to above) which it might otherwise have in respect of this document or any such statement.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

END

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September 17, 2018 11:00 ET (15:00 GMT)