Listed Investment company Monash Absolute Investment Co (MA1) plans to turn itself into a unit trust, after trying everything to close its wide price-to-NTA gap.
The restructure is designed to address “a large discount to the net tangible asset value at which MA1 shares have been historically traded.” At the end of November, the company was trading at a 15 per cent discount to NTA.
MA1 chair Paul Clitheroe says the company tried a number of measures to close the gap, including an on-market buyback, an off-market buyback, a share purchase plan, the issue of options, payment of dividends and improved communication and disclosure.
Nothing made any difference. This is an increasingly common story in the LIC market.
In September, LIC Clime Capital completed the takeover of another LIC, CBG Capital. CBG’s executive chair Ronni Chalmers, who is involved with the investment management teams of both LICs, says: “These things need size. The merged LICs have a market cap of around $140 million.
“If you do not have sufficient scale you will have the problem of your shares or units trading at a discount. And if you don’t do anything to fix that, shareholders will get involved.”
MA1 announced its restructure plans in August but put any action on hold while it waited for the outcome of ASIC’s review of actively managed listed funds. Last week, it said it was proceeding with the restructure and would work with ASIC to ensure its new structure is compliant with ASIC’s latest guidance.
Under the restructure, Monash Absolute Investment Co shareholders will receive units in an ASX-listed exchange traded managed fund that will hold the existing portfolio of listed investments.
A small number of unlisted investments, worth about 3.5 per cent of the total portfolio value, will be retained by Monash and realised on an orderly basis. The proceeds will be distributed to investors.
Monash says the new units will trade in a tight band around NTA, due to the involvement of a market maker.
Clitheroe says: “Shareholders have made it clear that, while supportive of the fund’s strategy and its strong investment performance, the discount of the share price of NTA should be addressed by the board.”
Clitheroe says another advantage of the restructure is an improvement in the liquidity of the fund. As a listed company MA1 has not been a highly liquid stock. As a unit trust liquidity will be provided by the issuing and redeeming of units.
The restructures of MA1 and CBG Capital add to a growing list of LICs having decisive action to address their share price discounts.
In November, K2 Asset Management announced that it would close its LIC, K2 Global Equities Fund, offering investors a transfer to the unlisted version of the fund or a final distribution.
Trading in the listed trust, which listed in July 2015 and has $4 million of funds under management, has been suspended to facilitate an orderly wind-up.
K2 says the unlisted version of the fund, K2 Global High Alpha Fund, which is open for investment, has been the more popular vehicle for investors.
In April, LIC Chapmans Ltd received the support of shareholders for a proposal to remove the company from the Australian Securities Exchange.
The board put the proposal to delist to shareholders after coming to the view that listing fees and other compliance costs were too high, given the company’s market capitalisation.Another factor was that compliance with listing rules caused delays in implementing its strategy.
And the board felt the value of the company’s shares did not reflect the value of its investments.
In February, Century Australia shareholders voted in favour of a proposal to merge their company with another listed investment company, WAM Leaders.
Also in February, Watermark Funds Management embarked on a complete overhaul of its business, moving to convert one of its listed investment companies to an unlisted unit trust and proceeding with plans to withdraw from global equities altogether.
LIC Watermark Market Neutral Fund delisted from the ASX. Watermark acknowledged that the LIC had persistently traded at a discount to its net asset value, with the discount ranging from 10 to 20 per cent. A buyback introduced in 2017 did not do much to change things.
The fund was launched in 2013 with an $80 million capital raising. Since then Watermark has not been able to raise additional funds and, as a result, the fund has been illiquid.
Watermark also conceded that the fund was too small to be run efficiently, given a number of fixed costs involved in operating a listed company.