IPE Invesco Enhanced Income Limited

 
TIDMIPE 
 
1 March 2021 
 
                        Invesco Enhanced Income Limited 
 
         Proposed merger with City Merchants High Yield Trust Limited 
 
Introduction 
 
The Board of Invesco Enhanced Income Limited (the "Company" or "IPE") is 
pleased to announce that it has signed Heads of Terms with the Board of City 
Merchants High Yield Trust Limited ("CMHY") in respect of a proposed merger 
with CMHY to be effected by way of a shareholder approved contractual scheme of 
reconstruction (the "Scheme"). The Scheme will be implemented on a Formula 
Asset Value ("FAV") for FAV basis. 
 
It is proposed that IPE will be merged into CMHY and the current fund manager 
of both IPE and CMHY, Rhys Davies, will continue as the fund manager of the 
enlarged entity which will be renamed Invesco Bond Income Plus Limited ("BIPS") 
which, based on the existing net assets of IPE and CMHY, would have net assets 
in excess of £300 million. 
 
(The above proposals are referred to herein as the "Proposals".) 
 
The Board believes that the Proposals will enable IPE shareholders to benefit 
from greater economies of scale that are expected to result from the enlarged 
asset base of BIPS whilst retaining the same investment approach and manager. 
 
Benefits of the Proposals to IPE Shareholders 
 
The Board believes that the Proposals have a number of benefits for IPE 
shareholders: 
 
  * Greater scale through the combination of similar investment portfolios: 
    Shareholders will be able to continue with the same fund management company 
    and investment manager with a similar investment style. Rhys Davies 
    currently manages both funds with a good track record and does so with a 
    similar investment objective of high income and a focus on high-yield 
    fixed-interest securities. There is a high degree of overlap between the 
    two investment portfolios. 
  * Lower management fee arrangements: In connection with the Proposals, it has 
    been agreed with Invesco Fund Managers Limited ("IFML") that the management 
    fee will be reduced to an annual amount equal to 0.65 per cent of the total 
    assets less current liabilities to reflect the larger size of BIPS. This is 
    a reduction from the IPE tiered annual management fee with a current 
    blended rate of 0.76 per cent of IPE's net assets; other costs will be 
    spread across a larger asset base resulting in further economies of scale. 
  * Sustainable income level: It is anticipated that the income yield payable 
    to IPE shareholders will be placed onto a more sustainable basis as a 
    consequence of the transaction. In addition, IPE shareholders will be paid 
    a special pre-liquidation dividend of 0.75 pence per IPE ordinary share 
    ahead of the transaction. 
  * Increase in scale and improved liquidity: The Board expects that the 
    enlarged entity will benefit from greater liquidity in its shares. 
  * Potential for strong share price rating: The Board believes that the above 
    benefits should assist the shares in maintaining a strong rating as the 
    greater scale of BIPS is expected to result in broader market appeal. 
 
The Proposals will be subject to the approval by the shareholders of both IPE 
and CMHY in addition to regulatory and tax approvals. A timetable and further 
details of the Proposals will be announced in due course. 
 
Invesco Bond Income Plus Limited 
 
Investment Policy 
 
The current CMHY investment objective and investment policy will not be amended 
in connection with the Proposals. Following completion of the Scheme, it is 
intended that the BIPS portfolio will continue to be managed on substantially 
the same basis as is the case for IPE and CMHY currently, subject to any legal 
or regulatory constraints. 
 
Management Arrangements 
 
It is proposed that Rhys Davies, the current fund manager of both IPE and CMHY, 
will continue as fund manager of BIPS following shareholder approval of the 
Proposals. 
 
In connection with the Proposals, it has been agreed with IFML that the 
management fee will be reduced to an annual amount equal to 0.65 per cent of 
the total assets less current liabilities to reflect the larger size of BIPS. 
 
In addition, the administration fee of £22,500 (plus RPI) currently payable by 
CMHY to IFML shall no longer by payable by BIPS. 
 
BIPS will enter into a separate marketing agreement with IFML pursuant to which 
BIPS will pay an annual marketing fee of £45,000. This fee shall be reviewed by 
the parties on an annual basis. 
 
Dividend Policy 
 
In connection with the Proposals, it is proposed that BIPS adopt a dividend 
policy to target an annual dividend of 11.0 pence per share over a three year 
period following the implementation of the Scheme by way of 4 quarterly 
dividends of 2.75 pence per share. This is approximately equivalent to an 
annual dividend of 4.25p per share for IPE shareholders[1]. It is anticipated 
that dividends will be substantially covered by net income from the portfolio, 
although BIPS will support the target dividend over this period through the use 
of revenue and capital reserves if necessary. Thereafter, the Board of BIPS 
shall give consideration to its ongoing dividend policy, taking into account 
the annualised net income from its portfolio and the market environment at that 
time. 
 
This proposed dividend policy has been agreed between the Board of IPE and CMHY 
in recognition of the differential in income distribution ratios adopted by 
each of the two companies and is intended to provide a path towards a 
longer-term sustainable income distribution to shareholders of BIPS. 
 
Whilst the target dividend of 11.0 pence per share would result in a reduction 
in the annual dividend income for IPE's shareholders compared with IPE's 
historical dividend pay-out, IPE shareholders will be paid a special 
pre-liquidation dividend of 0.75 pence per IPE ordinary share ahead of the 
transaction, which is expected to be approximately equal to the reduction for 
the first year following the merger. 
 
IPE's dividend has been supported by the use of revenue reserves for several 
years. As noted in IPE's 2020 Annual Financial Report, the medium term effects 
of Covid-19 will likely bring a prolonged period of very low interest rates, in 
light of which the Board would be reviewing whether the dividend policy is 
sustainable, balancing the need for current income against the requirement to 
preserve investors' capital to earn that income in coming years. The Board of 
IPE has taken this into account when considering the dividend proposals set out 
above and believes they will continue to provide an attractive level of income 
for IPE shareholders over the long-term. 
 
Gearing 
 
While the maximum gearing level for BIPS will remain at the same level as 
CMHY's existing investment policy of 30 per cent of total assets, it is 
intended that, immediately following the implementation of the Scheme, the net 
gearing of the combined portfolio will be approximately 10 per cent of net 
assets. 
 
Proposed Board 
 
Following completion of the Proposals, BIPS will have Board representation from 
both IPE and CMHY and will be chaired by Tim Scholefield, current Chairman of 
CMHY. 
 
Expected timetable 
 
It is currently envisaged that a shareholder circular and notice of the general 
meeting setting out the details of the Scheme and seeking shareholder approval 
will be sent to shareholders in April 2021. The relevant general meetings are 
also expected to be convened in May 2021. 
 
The Chairman of IPE, Kate Bolsover, commented: 
 
"We believe the combination of the two trusts to form Invesco Bond Income Plus 
("BIPS") to be beneficial and appropriate for IPE shareholders given the 
greater scale and lower ongoing charges. The Board believes the Proposals will 
provide an attractive and sustainable level of income for IPE shareholders over 
the long-term whilst also promoting greater liquidity in its shares and a 
strong long-term share price rating. The continuation of investment approach 
which will be led by the same fund manager and fund management house underpins 
the clear rationale for the merger, allowing shareholders to benefit from the 
manager's strong track record." 
 
For further information please contact: 
 
JTC Fund Solutions (Jersey) Limited 
+44 (0) 15 3470 0000 
 
Hilary Jones 
 
Invesco Asset Management Limited 
+44 (0) 20 3753 1000 
 
Will Ellis 
 
Guy Short 
 
J.P. Morgan Cazenove (Financial Advisor to IPE)+44 (0) 20 7742 4000 
 
William Simmonds 
 
Alexis Owuadey 
 
Winterflood Securities (Financial Advisor CMHY)+44 (0) 20 3100 0000 
 
Neil Langford 
 
Hande Derinkok 
 
Important Information 
 
This announcement contains information that is inside information for the 
purposes of the Market Abuse Regulation (EU) No. 596/2014. The person 
responsible for arranging for the release of this announcement on behalf of IPE 
is Hilary Jones of JTC Fund Solutions (Jersey) Limited. 
 
[1] The exact equivalent annual dividend will depend on the relative Net Asset 
Values on the calculation date 
 
 
 
END 
 
 

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March 01, 2021 02:00 ET (07:00 GMT)

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