1 March 2021
City Merchants
High Yield Trust Limited
Proposed merger
with Invesco Enhanced Income Limited
Introduction
The Board of City Merchants High Yield Trust Limited
(“CMHY”) is pleased to announce that it has signed Heads of
Terms with the Board of Invesco Enhanced Income Limited
(“IPE”) in respect of a proposed merger with IPE to be
effected by way of a shareholder approved contractual scheme of
reconstruction by IPE and a transfer of assets to CMHY (the
“Scheme”). The Scheme will be implemented on a Formula Asset
Value (“FAV”) for FAV basis.
It is proposed that the enlarged entity will be renamed Invesco
Bond Income Plus Limited (“BIPS”) which, based on the
existing net assets of CMHY and IPE, would have net assets in
excess of £300 million. The current fund manager of both CMHY and
IPE, Rhys Davies, will continue as
the fund manager of BIPS.
(The above proposals are referred to herein as the
“Proposals”.)
The Board believes that the Proposals will enable CMHY
shareholders to benefit from the greater economies of scale that
are expected to result from the enlarged asset base of BIPS.
Benefits of the Proposals to CMHY
Shareholders
The Board believes that the Proposals have a number of benefits
for CMHY shareholders:
- Greater scale through the combination of similar investment
portfolios: CMHY and IPE are managed by the same fund
management company and investment manager and with a similar
investment style. Rhys Davies
currently manages both companies 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 current annual management fee payable by CMHY of
0.75 per cent of total assets less current liabilities.
- Lower ongoing charges: In addition to lower management
fees, the other costs of BIPS will be spread across a larger asset
base resulting in further economies of scale and a reduction on
ongoing charges.
- 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 CMHY and IPE 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 CMHY and IPE currently, subject to any legal or
regulatory constraints.
Management
Arrangements
It is proposed that Rhys Davies,
the current fund manager of both CMHY and IPE, 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. This is a reduction from the
current annual management fee payable by CMHY of 0.75 per cent of
total assets less current liabilities.
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.
All other terms of the management agreement with CMHY shall be
unchanged following the implementation of the Scheme.
Dividend
Policy
In recent years, CMHY has paid an annual dividend of
10.0 pence per share by way of four
quarterly payments of 2.5 pence per
share. 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. 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 Boards
of CMHY and IPE 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.
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 CMHY and IPE 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 expected to be convened in May
2021.
The Chairman of CMHY, Tim
Scholefield, commented:
“The Proposals will create a combined entity that will have
greater scale and lower ongoing charges. The Board expects that the
enlarged company will have broader appeal among investors and
increased liquidity in the shares which should assist in
maintaining a strong share price rating over the long-term. Given
the similarities of the investment strategies of the two companies,
there is a clear rationale for the merger with shareholders
benefiting from greater economies of scale while retaining the
expertise of the same management team and investment approach.”
For further information please contact:
JTC Fund Solutions
(Jersey) Limited
Hilary Jones |
+44 (0) 15 3470 0000 |
Invesco Asset
Management Limited
Will Ellis
Guy Short |
+44 (0) 20 3753 1000 |
Winterflood
Securities (Financial Adviser to
CMHY)
Neil Langford
Hande Derinkok |
+44 (0) 20 3100 0000 |
J.P. Morgan
Cazenove (Financial Adviser to
IPE)
William Simmonds
Alexis Owuadey |
+44 (0) 20 7742 4000 |
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 CMHY is Hilary Jones of JTC Fund Solutions (Jersey)
Limited.