TIDMSCIN
RNS Number : 1440V
Scottish Investment Trust PLC
05 August 2022
To: RNS
From: The Scottish Investment Trust PLC
LEI: 549300ZL6XSHQ48U8H53
Date: 5 August 2022
FOR DISTRIBUTION ONLY OUTSIDE THE UNITED STATES TO PERSONS
OTHER THAN U.S. PERSONS (AS DEFINED IN REGULATION S UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMED).
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FOR WHICH THE SAME COULD BE UNLAWFUL. THE INFORMATION
CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER OF SECURITIES
FOR SALE IN ANY JURISDICTION, INCLUDING IN THE UNITED
STATES, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH
AFRICA.
The Scottish Investment Trust PLC
Publication of Circular
Further to the announcement of 29 March 2022 by the Board
of The Scottish Investment Trust PLC ("SIT" or the "Company")
with regard to the proposed combination of the assets
of the Company with JPMorgan Global Growth & Income plc
("JGGI") by means of a scheme of reconstruction (the "Scheme")
and voluntary winding up of the Company pursuant to section
110 of the Insolvency Act 1986 (the "Proposals"), the
Board is pleased to announced that the Company has today
published a circular to the Company's shareholders ("Shareholders")
in connection with the Proposals (the "Circular").
If the Scheme becomes effective, Shareholders will, subject
to the terms and conditions set out in the Circular, roll
over their holdings of SIT Shares into New JGGI Shares.
Defined terms used in this announcement have the meanings
ascribed to them in the Circular unless the context otherwise
requires.
Background to the Proposals
On 20 October 2021 the Company announced that it had agreed
heads of terms with JGGI and JGGI's manager, JPMorgan
Funds Limited ("JPMF") in respect of the Proposals.
Given the additional complexities inherent in a self-managed
investment vehicle such as the Company, the Board, JGGI
and JPMF agreed that the process should be effected in
two stages, with the Company initially appointing JPMF
to manage its portfolio and adopting a new investment
strategy substantially identical to that of JGGI. Once
the Company had taken all steps necessary to allow it
to be placed into liquidation in an orderly fashion, the
Transaction would then take place.
Implementation of the first stage of the process was approved
by Shareholders at a general meeting held on 9 December
2021. Accordingly, on 21 January 2022 the Board announced
the appointment of JPMF, with effect from that date, as
the Company's alternative investment fund manager, company
secretary and administrator and confirmed the change in
investment strategy. Since then, the Company's investment
portfolio has been managed in accordance with the new
investment strategy.
The Board believes that it is appropriate to move forward
with the second stage of the process now, as all key workstreams
have been fully and satisfactorily addressed. The Company
announced on 29 March 2022 that it had completed the buy-in
of the benefits under its pension scheme with a third-party
insurer. It also announced in its Half-Year Report published
on 18 June 2022 that its property at 6 Albyn Place, Edinburgh
had been sold. Furthermore, on 29 July 2022, the holders
of the Company's 5.75 per cent. Secured Bonds due 2030
(the "SIT Bonds") passed an extraordinary resolution approving,
inter alia, the proposed substitution of JGGI in place
of the Company in its capacity as issuer and sole debtor
of the SIT Bonds (the "Substitution") as part of the Scheme.
In order to complete the second stage of the process,
Shareholder approval for the Scheme is required at the
First General Meeting; and if such approval is forthcoming,
Shareholder approval is then required at the Second General
Meeting in order to take the formal steps of winding up
the Company voluntarily, appointing the Liquidators to
implement the Scheme and applying for the cancellation
of the listing of the Shares on the Of cial List pursuant
to the Listing Rules. In accordance with the Scheme, Shareholders
will be allotted New JGGI Shares at the same point at
which the Company enters liquidation.
Benefits of the Proposals
In the circular sent to Shareholders seeking approval
for the first phase of the process, the Board outlined
the benefits of the Proposals. These remain unchanged
in nature but have been updated in the Circular to highlight
that although much has changed since that earlier document
was posted to Shareholders, the rationale for the Proposals
remains the same. The Board notes a number of attractions
to a combination with JGGI:
* Strong historic investment performance : Over the
five years ended 20 January 2022 (the date on which
the Company's previous investment strategy came to an
end), the NAV total return of JGGI was 12.12 per
cent. per annum, representing outperformance of 1.38
per cent. per annum against the MSCI All Countries
World Index (in Sterling terms) (total returns with
net dividends reinvested) (the "Benchmark"). Over
this same time period the NAV total return of SIT was
4.13 per cent. per annum, representing
underperformance of 6.62 per cent. per annum against
the Benchmark. Since 21 January 2022, JGGI has
continued to demonstrate steady performance, despite
market volatility and currency fluctuations. Market
appreciation of this steady performance can be seen
in JGGI's persistent trading at a premium to net
asset value and its ongoing tap issuance throughout
this year.
* Style-agnostic : The JGGI investment strategy is
agnostic as between value and growth, focusing purely
on the best total return opportunities. This affords
the investment manager the flexibility to tilt the
portfolio further towards, or further away from,
value stocks or growth stocks as it sees fit, in a
manner which was less likely under the Company's
previous investment strategy.
* Deeply resourced capability : JPMorgan Chase & Co
(Asset and Wealth Management) is one of the leading
global asset managers with assets under management of
USD 2.7 trillion as at 30 June 2022, and the JGGI
investment management team is supported by over 80
in-house research analysts located globally. The
Board believes this highlights the increasing
difficulties faced by a self-managed company with
limited resources to have the required depth of
research to pursue a global equity mandate, and
therefore the benefits of the combination with JGGI.
* Attractive dividend: JGGI has a distribution policy
which targets aggregate dividends in each financial
year representing at least 4 per cent. of JGGI's net
asset value at the end of the preceding financial
year. The declared dividends totalling 16.96 pence
per JGGI Share in respect of the financial year
commencing 1 July 2021 represented an annual dividend
equivalent to 4.22 per cent. of JGGI's unaudited net
asset value (cum income with debt at fair value) as
at 30 June 2022. By way of comparison, the dividends
totalling 24.4 pence per Share declared by SIT in
respect of its last financial year (ended 31 October
2021) represented an annual dividend equivalent to
2.87 per cent. of SIT's net asset value (cum income
with debt at fair value) as at 31 October 2021.
JGGI has announced that in relation to the year commencing
1 July 2022, it intends to pay dividends totalling 17.0
pence per JGGI Share (being 4.25 pence per share per quarter),
which represents an annual dividend equivalent to 4.23
per cent. of the unaudited net asset value (cum income
with debt at fair value) as at 30 June 2022.
* Substantial uplift for shareholdings in the Company :
The Company's Shareholders have already benefitted
from a re-rating of their investment in the Company
since announcement of the Proposals on 20 October
2021. This is expected to be enhanced further on
completion of the Proposals.
The Company's Shares traded at an average discount to
NAV (cum income, debt at fair value) of 10.4 per cent.
in the three months preceding the announcement of the
Company's strategic review on 2 June 2021. In contrast,
JGGI traded at an average premium to NAV (cum income,
debt at fair value) of 2.5 per cent. over the same time
period. Since announcement of the Company's proposal to
appoint JPMF as the Company's AIFM and undertake the Proposals,
the Company's discount has narrowed from 15.4 per cent.
(as at 19 October 2021) to 5.5 per cent (as at 2 August
2022). For information, the Company's policy of buying
back shares for the purposes of discount management was
temporarily suspended in the weeks preceding the announcement
of 20 October 2021 and the Company has not repurchased
any SIT Shares since August 2021. As at close of business
on 2 August 2022, being the latest practicable date prior
to publication of the Circular, JGGI's shares were trading
at a 5.2 per cent. premium to NAV (cum income, debt at
fair value), having traded at an average premium to NAV
of 1.9 per cent. since the announcement of the Proposals
on 20 October 2021.
* Scale : The combined company will have net assets in
excess of GBP1.3 billion (based on valuations as at 2
August 2022), creating a leading investment vehicle
for global equity investing that delivers an
attractive dividend yield. The scale of the combined
company should improve secondary market liquidity for
the Company's Shareholders and will achieve cost
efficiencies.
JGGI is a constituent of the FTSE 250 index, which brings
with it potential additional benefits as to profile and
liquidity.
* Low ongoing charges : With effect from 1 January
2022, a new scaled annual management charge ("AMC")
has applied to JGGI. By way of illustration, based on
valuations as at 3 August 2022, this new AMC would
result in an initial weighted average AMC of 0.48 per
cent. of net assets and forecast ongoing charges
(which includes the AMC) of 0.55 per cent. in the 12
months following implementation of the Proposals. For
the avoidance of doubt, during the period of JPMF's
appointment as the Company's AIFM up until
implementation of the Proposals, JPMF is entitled to
receive a management fee payable by the Company
monthly at a rate equivalent to 0.55 per cent. per
annum on net assets.
* Leading investment trust platform : JPMorgan is one
of the leading managers of closed-ended vehicles in
the UK, managing 21 investment companies (including
the Company) with gross assets in excess of GBP13.2
billion (as at 31 July 2022). JGGI benefits from
JPMorgan's extensive investment company management
and marketing resources.
* Contribution from J.P. Morgan Asset Management :
JPMorgan has agreed to make a costs contribution in
respect of the Proposals equivalent to the management
fees payable by the enlarged JGGI in respect of the
eight-month period immediately following completion
of the Proposals.
* Continuity : Upon the Scheme becoming effective,
James Will, Jane Lewis, Mick Brewis and Neil Rogan,
directors of the Company, will join the board of JGGI
as non-executive directors, which is intended to
provide continuity of oversight for Shareholders
rolling over into JGGI. It is intended that James
Will will join the JGGI Board for only a short time
(retiring at the next AGM of JGGI, expected to be
held in November 2022) in order to provide assistance
in the period immediately following the combination.
In addition, it is intended that the annual general
meetings of JGGI as enlarged will, following
completion of the Transaction, be held in Edinburgh
and London on alternate years.
Summary information on JGGI
JGGI's objective is to achieve superior total returns
from world stock markets. In order to achieve this objective,
JGGI seeks to select companies with the most compelling
long-term strategies. JGGI is driven by a Bottom-up Stock
Selection process, with a best ideas portfolio allocating
a larger weighting to the most preferred stocks when compared
to their weighting in the relevant index. This approach
makes use of the full resources of JPMorgan (including
over 80 expert analysts worldwide) and JGGI's investment
trust structure, offering useful diversification for investors
seeking attractive levels of income.
JGGI's investment manager deploys the company's investment
strategy in a style-neutral way and has built this strategy
on an approach where the investment manager seeks to add
incremental value to the portfolio by capitalising on
mis-valuations in equity markets via a risk-controlled
bias towards attractively ranked securities within regional
sectors while minimising sector, region, and style risk.
Given this approach, JGGI's portfolio broadly remains
similar in sector and style to the Benchmark, while incrementally
over/under weighting at the stock specific level within
regional sectors in order to outperform the Benchmark
at the Bottom-up Stock Selection level. This is evidenced
by JGGI's long-term attribution, where the vast majority
of outperformance being produced is due to stock selection
within sectors and regions.
As at 29 July 2022, this process had delivered a NAV total
return (net of fees) of 2.23 per cent. per annum over
the MSCI All Country World Index since inception on 30
September 2008.
JGGI's alternative investment fund manager for the purposes
of the AIFM Directive is JPMF, which has delegated the
day-to-day management of the portfolio to JPMorgan Asset
Management (UK) Limited ("JPMAM"). In particular, JGGI's
investment management team is led by Helge Skibeli, Rajesh
Tanna and Tim Woodhouse.
Further details on JGGI, including details of its performance
track record, are set out in Part 2 of the Circular and
in the accompanying JGGI prospectus dated 5 August 2022
(the "JGGI Prospectus").
Dividends
As announced today, a pre-liquidation interim dividend
of 9.4 pence per Share will, subject to the resolution
to be proposed at the First General Meeting being passed,
be paid to Shareholders prior to the Effective Date.
Shareholders receiving New JGGI Shares under the Scheme
will rank fully for all dividends declared by JGGI with
a record date falling after the date of the issue of those
New JGGI Shares to them. For the avoidance of doubt, assuming
the Scheme becomes effective on or before 1 September
2022, SIT Shareholders rolling over into JGGI will be
entitled to receive JGGI's first interim dividend for
the year ending 30 June 2023, which will be paid on 7
October 2022 to shareholders on the JGGI register as at
the close of business on 2 September 2022.
As set out in more detail in the Circular, JGGI has the
ability to pay dividends from capital and does currently
pay its dividends, in part, out of its realised capital
profits. Whilst the JGGI policy differs from the approach
adopted by the Company historically (which has focused
on payment of dividends from earnings, as supplemented
by revenue reserves), the Board believes the ability to
pay dividends out of capital can offer tangible benefits
to Shareholders, including allowing the investment manager
to retain full flexibility and control over stock picking
without sacrificing high conviction opportunities in the
pursuit of yield and offering the ability to smooth dividend
payments through low yield environments.
Costs of implementing the Scheme
The Company and JGGI have agreed, under the terms of the
Scheme, an equitable apportionment of the costs incurred
in implementing the Proposals having regard for, inter
alia, the estimated respective expenses of the two companies
and the relative benefits which the Proposals will provide
to each set of shareholders.
In summary:
(a) The direct costs incurred by the two companies will
(subject to the limits set out in (ii) below) be aggregated
with the SIT Pension Costs and the Portfolio Realignment
Costs. The JPMAM Contribution (as defined below) will
then be deducted from the aggregate amount to determine
the net costs of the Scheme (the "Net Scheme Costs for
Apportionment"). The Net Scheme Costs for Apportionment
will be borne by each of the Company and JGGI pro rata
by reference to their respective FAVs (subject to the
JGGI Cost Limit of GBP2.1 million, with any Net Scheme
Costs for Apportionment in excess thereof otherwise payable
by JGGI instead borne by the Company).
(b) To the extent that:
(i) the Company's direct costs exceed GBP2.7 million,
such excess costs will be borne solely by the Company
and will be reflected accordingly in the calculation of
its FAV; and
(ii) JGGI's direct costs exceed GBP1.2 million, such excess
costs will be borne solely by JGGI and will be reflected
accordingly in the calculation of its FAV.
JPMAM has agreed to make a contribution (the "JPMAM Contribution")
to the costs of the Proposals by means of a waiver of
its management fee following completion of the Scheme.
This will be for an amount equivalent to eight months
of JGGI's prevailing management fee calculated on the
value of the net assets of the enlarged JGGI (as determined
by reference to the FAVs of each company). The nancial
value of this amount is estimated at approximately GBP4.24
million based on the companies' estimated FAVs as at 29
July 2022. The JPMAM Contribution will be deducted from
the aggregate costs prior to the pro rata apportionment
as described above.
In the event that the Proposals are not implemented, each
party will bear its own costs.
SIT debt instruments
The Company currently has both secured bonds and debenture
stock in issue.
SIT Bonds
The SIT Bonds are secured by a floating charge over the
assets of the Company and have a redemption value in 2030
of GBP82,827,000. As set out above, the holders of the
SIT Bonds approved the Substitution on 29 July 2022. The
Substitution will therefore take effect, subject, inter
alia, to the approval of the Proposals by Shareholders,
on the Effective Date. For the avoidance of doubt, other
than the instruction fee paid as part of the bondholder
consent solicitation process, there will be no repayment
or premium payable to bondholders as a result of the Substitution.
SIT Debenture Stock
The 5 per cent., 4.25 per cent. and 4 per cent. debenture
stock have an aggregate nominal value of approximately
GBP2,059,000 (as at 3 August 2022) and these will be redeemed
in full at their nominal value following implementation
of the Proposals (if approved).
General Meetings
The Proposals are conditional, inter alia, upon Shareholders'
approval of the resolutions to be proposed at the First
General Meeting and the Second General Meeting. Both General
Meetings will be held at The Royal College of Physicians
of Edinburgh, 11 Queen Street, Edinburgh EH2 1JQ.
First General Meeting
The First General Meeting will be held on 22 August 2022
at 11.00 a.m.
The resolution to be considered at the First General Meeting
(which will be proposed as a special resolution) will,
if passed, approve the terms of the Scheme, amend the
Articles to give effect to the Scheme and authorise the
Liquidators to implement the Scheme should the resolution
to be proposed at the Second General Meeting be passed.
To be passed, the resolution put forward at the First
General Meeting will require at least 75 per cent. of
the votes cast in respect of it, whether in person or
by proxy, to be voted in favour at the First General Meeting.
The Scheme will not become effective unless and until,
inter alia, the resolution to be proposed at the Second
General Meeting has also been passed.
Second General Meeting
The Second General Meeting will be held on 31 August 2022
at 9.30 a.m.
At the Second General Meeting, a special resolution will
be proposed which, if passed, will place the Company into
liquidation, appoint the Liquidators and agree the basis
of their remuneration, instruct the Company Secretary
to hold the books to the Liquidators' order, and provide
the Liquidators with appropriate powers to carry into
effect the amendments to the Articles made at the First
General Meeting. To be passed, the resolution to be put
forward at the Second General Meeting will require at
least 75 per cent. of the votes cast in respect of it,
whether in person or by proxy, to be voted in favour at
the Second General Meeting.
Excluded Overseas Shareholders
Subject to certain exceptions set out in the Circular,
no action has been taken or will be taken in any jurisdiction
other than the UK where action is required to be taken
to permit the distribution of the Circular and/or the
JGGI Prospectus. Accordingly, such documents may not be
used for the purpose of, and do not constitute, an offer
or solicitation by anyone in any jurisdiction or in any
circumstances in which such offer or solicitation is not
authorised or to any person to whom it is unlawful to
make such offer or solicitation.
Excluded Overseas Shareholders will not receive a copy
of the JGGI Prospectus unless they have satisfied the
Directors and the JGGI Directors that they are entitled
to receive and hold New JGGI Shares without breaching
any relevant securities laws and without the need for
compliance on the part of the Company or JGGI with any
overseas laws, regulations, filing requirements or the
equivalent. Excluded Overseas Shareholders who wish to
participate in the Scheme should contact the Company directly,
by no later than 5.00 p.m. on 25 August 2022, if they
are able to demonstrate, to the satisfaction of the Directors
and the JGGI Directors, that they can be issued New JGGI
Shares without breaching any such relevant securities
laws.
In the absence of the Directors and the JGGI Directors
being so satisfied, to the extent that an Excluded Overseas
Shareholder is due to receive New JGGI Shares under the
Scheme , such New JGGI Shares will instead be sold by
the Liquidators in the market and the net proceeds of
such sale (after deduction of any costs incurred in effecting
such sale) will be paid to the relevant Excluded Overseas
Shareholder.
Expected Timetable
2022
Ex-dividend date for the pre-liquidation 18 August
interim dividend to Shareholders
Latest time and date for receipt of 11.00 a.m. on 18 August
Forms of Proxy in respect of the First
General Meeting
Record date for the pre-liquidation 19 August
interim dividend to Shareholders
First General Meeting 11.00 a.m. on 22 August
Shares disabled in CREST 6.00 p.m. on 22 August
Record Date for entitlements under 6.00 p.m. on 22 August
the Scheme
Calculation Date 5.00 p.m. on 25 August
Payment date for the pre-liquidation 30 August
interim dividend
Latest time and date for receipt of 9.30 a.m. on 26 August
Forms of Proxy in respect of the Second
General Meeting
Suspension of listing of Shares and 7.30 a.m. on 31 August
Company's Register closes
Second General Meeting 9.30 a.m. on 31 August
Effective Date for implementation 31 August
of the Scheme
Announcement of the results of the 31 August
SIT FAV per Share and the JGGI FAV
per Share
CREST accounts credited with, and 8.00 a.m. on 1 September
dealings commence in, New JGGI Shares
Share certi cates in respect of New 9 September (or as
JGGI Shares despatched soon as practicable
thereafter)
Cancellation of listing of Shares as soon as practicable
after the Effective
Date
Note: All references to time in this announcement are
to UK time. Each of the times and dates in the above expected
timetable (other than in relation to the General Meetings)
may be extended or brought forward. If any of the above
times and/or dates change, the revised time(s) and/or
date(s) will be noti ed to Shareholders by an announcement
through a Regulatory Information Service.
General
This announcement does not contain all the information
which is contained in the Circular and Shareholders should
read the Circular in conjunction with the JGGI Prospectus
and the JGGI KID before deciding what action to take in
respect of the Proposals.
Defined terms used in this announcement have the meanings
given in the Circular unless the context otherwise requires.
A copy of the Circular has been submitted to the Financial
Conduct Authority and will be available for inspection
at the National Storage Mechanism which is located at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
and on the Company's website at www.thescottish.co.uk
.
Enquiries
The Scottish Investment Trust PLC
James Will (Chairman) (via Investec T: +44 (0)20 7597 4000
Bank plc)
JPMorgan Funds Limited
Simon Crinage T: +44 (0)20 7742 4000
Fin Bodman
Investec Bank plc (Corporate Broker)
Tom Skinner (Corporate Broking) T: +44 (0)20 7597 4000
David Yovichic (Corporate Finance)
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END
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August 05, 2022 10:25 ET (14:25 GMT)
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