Global Fixed Income Realisation Ltd Investment Manager Update (5682S)

TIDMGFIR

RNS Number : 5682S

Global Fixed Income Realisation Ltd

26 June 2018

GLOBAL FIXED INCOME REALISATION LIMITED ("GFIR")

Investment Manager Update

26 June 2018

Contents

   I.       Progress in the Period December 2012 - March 2018 
   1.      Balance Sheet Summary 
   2.      Distributions 
   3.      Share Price and Net Asset Value 
   a.      Portfolio Holdings 
   II.      Current Portfolio 
   1.      Portfolio Summary 
   2.      Major Positions 
   a.      Vision Funds 
   b.      Autonomy Rochavera (fka Autonomy Global Macro Fund) 
   c.       Autonomy Fund II D - Cajamar Class 
   d.      South Asian Real Estate Ltd 
   3.      Current Liquidity Projection 
   4.      Future of GFIR 

This document has been prepared by LumX Asset Management (U.K.) Limited ("LumX"), in its capacity as Investment Manager of GFIR.

   I.      Progress in the Period December 2012 - March 2018 

1. Balance Sheet Summary

 
                        December         March 
                         31, 2012       31, 2018 
-------------------  --------------  ------------- 
 Portfolio Holdings   GBP65,556,678   GBP3,026,917 
-------------------  --------------  ------------- 
 Cash in bank          GBP4,929,983   GBP1,618,918 
-------------------  --------------  ------------- 
 Receivables           GBP1,437,762   GBP3,880,311 
-------------------  --------------  ------------- 
 Payables              (GBP297,865)    (GBP71,480) 
-------------------  --------------  ------------- 
 Net Assets           GBP71,626,559   GBP8,454,665 
-------------------  --------------  ------------- 
 

There has been significant progress towards the liquidation of the GFIR portfolio, with only a small number of illiquid, and in a number of cases, troubled portfolio holdings remaining.

As GFIR shareholders will be aware, the Investment Manager's view of the valuations of several of the remaining holdings is substantially different to that of the underlying fund manager. GFIR therefore retains a sizeable cash balance in order to work towards realising the differential between these two amounts by the most effective means possible.

Following the recent tender, the pro forma NAV of the company is estimated at approximately GBP4.5m, including cash of GBP1.5m. The next NAV will be dated June 30, 2018 and is expected to be published by end of the July 2018.

2. Distributions

Since January 1, 2013, GBP38.26m has been returned to investors, gross of expenses. This includes the recent GBP4m tender.

As at December 31, 2012, the market capitalisation of the company was GBP41,718,226 (based on 77,113,172 shares at a price of 54.1p) and the NAV was GBP71,626,559. Hence 91.7% of the starting market value of the company's equity and 53.4% of the starting NAV has been returned to shareholders over the period.

3. Share Price and Net Asset Value

GFIR publishes both a pre- and post-reserve NAV[1]:

Source: Praxis Fund Services, Bloomberg (to May 31, 2018)

a. Portfolio Holdings

Since the appointment of LumX[2] in December 2012, holdings in 24 fund entities have been fully redeemed, sold or otherwise resolved. As of the March 31, 2018 NAV, only 8 line items remain, of which 3 line items account for less than 2% of the portfolio.

I.

   II.     Current Portfolio 

1. Portfolio Summary

Portfolio Summary as of March 2018 NAV:

Most of GFIR's portfolio holdings are denominated in US Dollars. When the value of these assets is translated into sterling, the holding will show a decline in value if the dollar falls in value against sterling during the period, all else remaining equal. Autonomy Fund II D - Cajamar Class is denominated in Brazilian Reais. When the value of this position is translated into sterling, the holding will show a decline in value if the Reais falls in value against sterling during the period, all else remaining equal. Similar FX impact can also be expected at the underlying portfolio holding level.

2. Major Positions

   a.   Vision Funds[3] 

The Vision funds have exposure to two sets of assets, primarily FCVS credits held by Vision FCVS RJ and PB Funds and certain farm assets, held by Vision Tercado, Piaui and Chapadao Funds.

FCVS credits represent claims against a mortgage insurance program backed by the Brazilian government. The process to take credits to novation is bureaucratic and managed by Caixa Econômica Federal (Caixa). The novation process consists of several phases requiring the review of underlying documentation in order to verify the authenticity, legitimacy and scope of each FCVS Credit Contract by a number of different entities including Caixa and the Comptroller General (and its successor entity since 2016). Once these entities are satisfied that all documentation pertaining to the novation process is in order, the credits are then passed to the Treasury, who by law, has up to 18 months to exchange the FCVS Credit Contracts for CVS bonds and cash.

LumX has continued its dialogue with Vision's investment manager, other investors and the independent directors of the Vision funds in an effort to accelerate liquidity. This resulted in a new board structure implemented in 2017 to improve oversight and ease investors' concerns over the stability of the management company.

In late 2017, the investment manager successfully sold a substantial part of the FCVS PB portfolio to a Brazilian bank, resulting in a significant distribution to investors. A small stub remains that represents a retention payment which comes due upon completion of FCVS document review by the buyer and confirmation of transfer by Caxia. While the deadline for the document review by the buyer is in October 2018, we do not have visibility on the timeline for Caixa to confirm the transfer.

For FCVS RJ, several potential exit strategies are being explored, whether by settlement, novation or sale, though significant hurdles and risks still exist with any of these options, reflected in the reserve on the position. Shareholders will recall that a Caixa systems issue in 2008/2009 resulted in a novation-freeze on the RJ credits implemented in 2011 and a subsequent distinction between good faith and bad faith holders of the credits. Vision is the largest holder of the credits and have also been identified by Caixa as a good faith holder of the credits. Caixa has asked Vision on a number occasions to negotiate a global settlement between Caixa and all RJ holders as a way to resolve the freeze. Vision's attempts so far have been unsuccessful and Vision are exploring litigation against Caixa to protect their rights, bring parties to the table and potentially seek to restart the novation process.

GFIR has elected to sell its Vision farm funds exposure as part of a tender offer and recapitalisation proposal received in early 2018 and expect liquidity from these positions in the next 3 months.

   b.   Autonomy Rochavera (fka Autonomy Global Macro Fund) 

Following a 2018 restructuring, the Autonomy Global Macro Fund has been liquidated and the company now holds shares in Autonomy Rochavera. The underlying asset remains the same however, part ownership in a large corporate office development in Sao Paolo, Brazil (Rochavera Towers). This particular asset was also part of the Autonomy II D real estate portfolio. However, Autonomy Global Macro Fund was not subject to the same divestment period and termination date.

In April 2018, the investment manager of Autonomy engaged secondary market group Hedgebay to facilitate a secondary market exit for investors seeking liquidity from this asset in the near term - preliminary indications from third party buyers is in the 60-70 cents range. The founder of Autonomy has also indicated interest in obtaining additional Rochavera asset exposure which is expected to be viewed favourably by secondary market buyers and potentially drive bid levels up. GFIR has indicated its interest to sell at NAV and we continue to evaluate options for generating liquidity from this holding.

   c.    Autonomy Fund II D - Cajamar Class 

Autonony II D originally held investments in several long term multi-phase real estate developments, mainly office properties in Sao Paolo and Rio de Janeiro. In early 2018, GFIR opted to participate in a liquidity proposal for the majority of the portfolio (the office property portfolio only), offering investors an exit ahead of a final termination date in June 2018 at NAV. As noted in a Stock Exchange Announcement on 3 April 2018, a distribution of approximately 90% of our December 2017 carrying value was received on 4 April 2018, allowing the company to implement the recent tender.

Following a restructuring in Q1 2018, GFIR holds shares of the II D Cajamar share class only. The underlying asset of this share class is a logistics property which was excluded from the liquidity proposal. The Cajamar property is being marketed separately and the manager hopes to complete a sale in the coming months.

   d.   South Asian Real Estate Ltd 

GFIR owns equity in S.A.R.E. Public Company Limited ("SARE"), a company incorporated in Cyprus. The shares owned by the fund are common equity and do not have any rights related to redemption.

SARE is a company with a goal to develop 25,000 residential units in various cities in India. The original assumed exit was an IPO of the business. However, given disappointing unit sales and significant liquidity issues, this is currently not a viable exit opportunity. We have had significant pricing reserves in place on the position for a number of years. Following a review of company developments over 2017, the pricing reserve was increased from 60% to 90% for December 2017 NAV - a weak real estate market, significant operating costs, additional leverage, limited liquidity, delay to both the annual audit and estimated quarterly NAVs, and lack of communication, are among our concerns.

LumX continues to identify and work with other shareholders to increase transparency and put pressure on the management team and the board of SARE to work towards liquidity for current investors. Following a call with the new member of the SARE board in late April, a formal letter outlining a multitude of concerns was sent by the company and three other SARE shareholders in mid-May. Included in the letter was a list of questions on SARE, the underlying properties and various decisions made by the board of SARE and requesting that the letter and questions be shared with other SARE shareholders. As of the date of this report, no response from the SARE board or the management team has been received. GFIR have engaged local counsel in Cyprus to evaluate other options.

An AGM for SARE is expected in the next few months, once the March 2017 audited financials have been completed.

These four significant positions accounted for an aggregate 32.09% of GFIR NAV, and 89.62% of the portfolio as at March 31, 2018 NAV. The remaining four positions account for 3.71% of NAV, with the balance representing cash and equivalents net of accrued liabilities.

3. Current Liquidity Projection

GFIR's portfolio consists of illiquid equity investments in a company and various funds. Natural liquidity from these holdings remains highly unpredictable, as the majority of the remaining portfolio is concentrated in emerging market legal claims and real estate and is largely outside of the control of the underlying managers. GFIR also has limited control that over the actions of its underlying portfolio holdings. Potential secondary market sales could accelerate liquidity but would be likely to come at a significant discount to NAV.

The first half of 2018 has already seen significant liquidity generated in the portfolio, with the receipt of 90% of the market value of Autonomy II D in April, partial distributions from Autonomy Global Macro Fund and later Autonomy Rochavera, Sergengeti and Clearwater. We are hopeful of further liquidity from the other Autonomy Funds and the Vision Farm funds over 2018.

The expectation is that in the second half of 2018 GFIR will be left with three or four key positions, Autonomy Rochavera, SARE, Vision FCVS RJ and the stub position in Vision FCVS PB. Liquidity generation from these assets is very unpredictable. We will continue to seek the optimal outcomes for shareholders of GFIR.

Disclaimer:

Projections are based on highly subjective analyses of complex and dynamic investments held by underlying equity and fund investments. The analyses are dependent on information sourced from the investment managers of the underlying funds, and hence the accuracy of the projections produced by LumX is reliant on the accuracy of that information. In many cases the range of possible outcomes from the underlying asset investments is extremely wide in both value and timing. This range of outcomes will also become significantly more unpredictable the further into the future projections are made.

The projection is provided for the purpose of informing shareholders as to the possible timing of the return of capital from the company, but it should be understood that the actual amount and timing of the return of capital will not be as projected. There are many reasons why this will occur. These include, but are not limited to:

-- Inaccurate or optimistically-skewed information provided by the underlying investment managers;

-- Unpredictable events such as the appearance of a third-party buyer for a given underlying asset;

   --     Changes in the values of underlying assets as prices change in global asset markets; 

-- Changes in the foreign exchange markets, causing translation effects as foreign assets are marked back into sterling.

It also does not include any estimate of the fees and expenses that the company will incur during the period of projection.

It is emphasised that:

-- There is no guarantee that the portfolio can be realised in accordance with the above indicative timeline, or at all;

-- The values of any underlying investments as at the time of realisation may differ significantly from the values relied on in this document;

-- The estimated portfolio liquidity profile above is indicative only and should not under any circumstances be considered a prediction, forecast or guarantee of the company's actual portfolio liquidity profile or an indication as to the timing of distributions to Shareholders pursuant to the company's winding down; and

-- There is no guarantee that the assets in the portfolio will be realised at their net asset value, and it is possible that the company may not be able to realise some of its remaining assets at any material value.

GFIR provides regular updates on its expectation of liquidity from the portfolio via its quarterly factsheet, accessible on the company's website, https://www.lumx.com/gfir/gfir

4. Future of GFIR

Given the small size of the remaining portfolio and the significant costs associated with the current company structure, the Board and LumX are evaluating potential options for the company's future. Options being explored include:

   --     Continue workout of remaining holdings as a listed company; 
   --     Delisting, continue workout of remaining portfolio 
   --     Delisting, appointment of liquidator to continue workout of remaining holdings 

-- Sale of underlying assets for non-cash consideration to third party, with holders obtaining exposure to the purchasing vehicle;

-- Sale of underlying assets to third party for cash and subsequent distribution of net proceeds and liquidation of the company.

Disclaimer

This document has been prepared by LumX Asset Management (U.K.) Limited (the "Company" or "LumX"). The Company is authorised and regulated by the Financial Conduct Authority in the United Kingdom as a "full-scope" alternative investment manager (FRN: 195960).

This document has been prepared by the Company for persons reasonably believed by the Company to be of the kind to whom the Company is permitted to communicate financial promotions pursuant to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO"), as amended, to give preliminary information about the investment proposition described herein. Such persons include: (a) professional investors (b) persons having professional experience of participating in unregulated collective investment schemes and (c) high net worth bodies corporate, partnerships, unincorporated associations, trusts, etc. falling within Article 49 of the FPO.

This document does not constitute an offer to sell or solicitation of an offer to buy investments and may not be used to make such an offer. Therefore, no person receiving a copy of the document may treat it as constituting an offer or invitation to buy investments, nor may it be copied for transmission to another person. The purpose of this document is to give initial detail to the recipient and all opinions and views expressed constitute judgment as of the date of writing and may change at any time without notice. The information contained in this document does not purport to be all-inclusive or to contain all of the information that may be required to make a full analysis of the proposal, and is subject to updating, completion, modification and amendment. Such information may be based on certain assumptions and involve elements of subjective judgment and analysis. Actual results may differ. Any investment strategies or case studies set out herein are for illustrative purposes only. Any descriptions herein of reports, statistical analysis or performance are for illustration purposes only.

While all of the information prepared in this document is currently believed to be accurate, the Company makes no claims as to its completeness or accuracy and no representations or warranties, express or implied are given in, or in respect of, this document. Certain information has been provided by and/or is based on third party sources and although believed to be reliable, has not been independently verified and its accuracy, timeliness or completeness cannot be guaranteed. To the fullest extent permitted by law, in no circumstances will the Company, or any of its respective subsidiaries, shareholders, affiliates, representatives, partners, directors, officers, employees, advisers or agents be responsible or liable for any direct, indirect or consequential loss or loss of profit arising from the use of this document, its contents, its omissions, reliance on the information contained within it, or on opinions communicated in relation thereto or otherwise arising in connection therewith. This document is for informational purposes, and is neither an offer to sell nor a solicitation of any offer to purchase any investment product or investment advisory services.

Recipients of this document are not to construe its contents, or any prior or subsequent communications from or with the Company or its representatives as legal or tax advice. Recipients of this document should each make their own evaluation of the proposal and of the relevance and adequacy of the information and should make such other investigations as they deem necessary.

This announcement has been issued through the Companies Announcement Service of Euronext Dublin.

[1] Reserves are adjustments to the holding value of a portfolio asset taken by the company when it is deemed that the NAV being provided by the fund in question is not a fair estimate of the value of the holding.

[2] Formerly known as Gottex Asset Management (UK) Ltd.

[3] The Vision funds are a group of hedge funds focused on Brazilian assets and all run by a single investment manager.

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.

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June 26, 2018 02:41 ET (06:41 GMT)