By Mark McSherry
The board of Abrdn’s £664 million Asia Dragon Trust plc has proposed a merger with Invesco Asia Trust, a much smaller £215 million rival.
Invesco Asia Trust said the deal would involve the “transfer of certain of Asia Dragon’s assets to Invesco Asia in exchange for issue of new ordinary shares in Invesco Asia (to be renamed Invesco Asia Dragon Trust plc) …”
It is expected that Invesco Asia Dragon will be eligible for inclusion in the FTSE 250 Index and benefit from improved secondary market liquidity.
Asia Dragon shareholders will have the option of a partial cash exit for up to 25% of Asia Dragon’s issued share capital in aggregate at a 2% discount to Asia Dragon’s FAV per share.
The board of Asia Dragon Trust said it concluded its strategic review and agreed heads of terms with the board of Invesco Asia Trust plc for a proposed combination of Asia Dragon with Invesco Asia.
“The Asia Dragon Board was pleased by the interest it received from a large number of high-quality management groups, which were evaluated by the Board, with the assistance of Stanhope Consulting,” said Asia Dragon Trust.
“The Asia Dragon Board gave consideration to retaining the existing manager; appointing a new external third-party manager; and entering into a combination with another investment trust. The Asia Dragon Board would like to thank all those who participated in the process.
“The Board was impressed by the distinctive and disciplined value-oriented investment approach employed by Invesco Fund Managers Limited (IFML) which has delivered attractive returns for Invesco Asia shareholders over the long term.
“Furthermore, the Board believes Invesco Asia’s active core Asia (ex-Japan) investment strategy, alongside its policy of paying an annual dividend equal to 4 per cent. of its NAV, will appeal to Asia Dragon shareholders.
“The combination, if approved by each company’s shareholders, will be effected by way of a scheme of reconstruction and winding up of Asia Dragon under section 110 of the Insolvency Act 1986 and the associated transfer of part of the assets and undertaking of Asia Dragon to Invesco Asia in exchange for the issue of new ordinary shares in Invesco Asia …
“The Scheme will include a partial cash exit opportunity for up to 25% of Asia Dragon’s issued share capital, and the enlarged Invesco Asia will introduce a triennial unconditional tender offer for up to 100 per cent. of its issued share capital alongside its existing discount management policy targeting an average discount of less than 10 per cent. of NAV (calculated on a cum-income basis) over each financial year.
“Invesco Asia has also agreed a new management fee structure that will result in a lower blended management fee for Asia Dragon shareholders.
“Following implementation of the Scheme, the enlarged Invesco Asia will continue to be managed by IFML under Invesco Asia’s existing investment objective and investment policy.
“The Proposals will be subject to approval by the shareholders of both Asia Dragon and Invesco Asia in addition to regulatory and tax approvals. Asia Dragon and Invesco Asia have each received an irrevocable undertaking from City of London Investment Management Limited representing 30 per cent. of Asia Dragon’s issued share capital and 21 per cent. of Invesco Asia’s issued share capital (in each case excluding treasury shares) and letters of intent or indications of support from shareholders representing a further 25 per cent. of Asia Dragon’s issued share capital and 17 per cent. of Invesco Asia’s issued share capital (in each case excluding treasury shares), to support the Proposals.”
Invesco Asia Trust chairman Neil Rogan said: “This combination is transformational for the Company and both sets of shareholders.
“For Asia Dragon’s shareholders, it gives continuity of mandate with a very strong investment house, proven and experienced managers, a repeatable investment process and a fantastic long-term performance record.
“For our own shareholders, apart from the lower fees and greater liquidity, it brings the scale to add to our existing buy ratings that will spur future growth.
“Our proposed discount management policy is bold, and provides the opportunity for us to break free from the persistent discounts and locked registers from which so many Asian and Emerging Markets trusts have suffered.
“Our aim is to make this the go-to Asian trust, trading on a premium rating, growing organically and also through further combinations.”
Fiona Yang and Ian Hargreaves, Co-Portfolio Managers of Invesco Asia, said: “This comes at an exciting moment to invest in Asia, with valuation disparities across the region offering abundant opportunities for the active investor.
“We are delighted that the strength of our investment proposition has helped to secure this opportunity for the Company, and we are confident in our ability to continue to secure the attractive long-term investment returns that we have delivered for Invesco Asia shareholders so far.”