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