ACIC Abrdn China Investment Company Limited

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR ANY JURISDICTION FOR WHICH THE SAME COULD BE UNLAWFUL.

16 February 2024

ABRDN CHINA INVESTMENT COMPANY LIMITED

LEI: 213800RIA1NX8DP4P938

Publication of a circular in relation to the recommended proposals for the members' voluntary winding up of abrdn China Investment Company Limited and combination with Fidelity China Special Situations plc

The Board of abrdn China Investment Company Limited (the "Company") announces that it has today published a shareholder circular (the "Circular") setting out proposals for the reconstruction and voluntary winding-up of the Company.

Introduction

On 28 November 2023, the Board announced that it had agreed heads of terms with Fidelity China Special Situations plc ("FCSS") in respect of a proposed combination of the Company with FCSS to be effected by way of a Guernsey scheme of reconstruction and winding up of the Company (the "Scheme") and the issue of New FCSS Shares to Shareholders who are deemed to have elected to roll over their investment in the Company into FCSS (the "Proposals"). The background and rationale to the Proposals is set out below.

The Proposals, which are conditional upon, amongst other things, the approval of Shareholders at the General Meetings, comprise a members' voluntary liquidation and a scheme of reconstruction of the Company under which Shareholders will be entitled to elect to receive in respect of some or all of their Shares:

(a)   New FCSS Shares (the "Rollover Option"); and/or

(b)   cash (subject to an overall limit of 33 per cent. of the Shares in issue, excluding Shares held in treasury), less a discount of 2 per cent. (the "Cash Option").

The default option under the Scheme is for eligible Shareholders to receive New FCSS Shares meaning that Shareholders who, in respect of all or part of their holding of Shares, do not make a valid Election or who do not make an Election at all under the Scheme will be deemed to have elected for New FCSS Shares in respect of such holding.

In order to effect the Scheme, Shareholder approval is required at the General Meetings. Shareholders will vote for the Scheme, for the reclassification of the Shares, for the voluntary winding-up of the Company, for the appointment of the Liquidators and to grant them authority to implement the Scheme. Further details of the Scheme Resolutions to be proposed at the General Meetings and the expected timetable associated with the Proposals are provided below.

The Board considers the Proposals to be in the best interests of Shareholders as a whole and recommends that Shareholders vote in favour of the Resolutions required to implement the Proposals at the General Meeting as they will be doing with their own beneficial holdings.

The Proposals

Background to and rationale for the Proposals

As set out in the 28 November 2023 announcement, the Board has been considering alternative avenues to address the concentration of the Company's share register, the consequent lack of liquidity and the persistent discount at which the Shares have traded. Despite the shift in investment mandate to direct investment into China as well as the merger with Aberdeen New Thai Investment Trust PLC in November 2021, the Company's share register continued to be excessively concentrated, with three Shareholders accounting for over 70 per cent. of the Company's issued share capital, and despite an active share buyback campaign, the discount at which the Company's shares trade remained disappointing.

The Board has consulted with the Company's major Shareholders and it has become clear that the consensus is for a combination with FCSS with the option of a partial cash exit at a small discount (2 per cent.) to the Residual NAV per Share.

Benefits of the Proposals

The Board notes a number of the attractions of a combination with FCSS:

Scale and enhanced profile: the enlarged FCSS is expected to have net assets of approximately £1.1 billion (based on valuations as at 14 February 2024 and assuming that the Cash Option is fully subscribed). As the flagship UK closed ended vehicle for investment in China and a constituent of the FTSE 250 Index, it is expected that the enlarged FCSS would benefit from an enhanced profile and marketability.

Shareholder register: the implementation of the Proposals would allow a number of Shareholders to consolidate their holdings across the Company and FCSS and create a more diversified shareholder base through a combination of the two share registers.

Lower ongoing charges: the enlarged FCSS is expected to benefit from a lower ongoing expense ratio with FCSS's fixed costs being spread over a larger asset base.

Contribution to costs: FIL Hong Kong and FCSS's alternative investment fund manager, FIL Investment Services (UK) Limited ("FISL" and, together with FIL Hong Kong, "Fidelity"), have agreed to make a cost contribution in respect of the Proposals as further detailed below.

Enhanced liquidity: the scale of the enlarged FCSS, as the largest and most liquid company in the AIC's China/Greater China sector, is expected to improve secondary market liquidity for Shareholders rolling over (including in relation to FCSS's share buyback policy).

Ability to remain invested in a tax efficient manner: Eligible Shareholders who, pursuant to the Scheme, are deemed to elect for the Rollover Option may do so without triggering a UK capital gains tax event.

Dividends

Neither the Company nor FCSS currently intends to declare a dividend prior to the Scheme becoming effective, provided that the Company will do so to preserve its status as an investment trust should the need arise. Any dividends declared prior to the Calculation Date but not paid to the respective company's shareholders nor included in the NAVs as at the Calculation Date will be reflected in the respective FAVs.

Management of the Company's portfolio prior to implementation of the Scheme

The Company's portfolio will be realigned in advance of the Effective Date to the extent necessary to ensure that the portfolio is, as far as reasonably practicable, suitable for transfer to FCSS and also to ensure that the Company has sufficient cash to meet the amounts expected to be due in respect of Elections for the Cash Option as well as meeting any remaining indebtedness and or liabilities. In order to allow the Manager to achieve this, and in light of the specific requirements of the Scheme, immediately ahead of the transfer the Company is likely to hold a smaller number of assets and hold a higher cash balance than it would customarily expect.

Illiquid investment

The Company currently holds one investment that the Board expects to be illiquid (the "Illiquid Investment") with an aggregate fair value (as at 14 February 2024) of approximately £915,000. In the event that the Illiquid Investment is not sold prior to the Calculation Date, it will continue to be held for sale by the Company after the Effective Date as part of the Liquidation Pool. Any cash proceeds from such disposal will be returned in due course by the Liquidators to Shareholders on the register at the Record Date pro rata to the number of Shares held by them on such date. There is no certainty that the Liquidators will be able to sell the Illiquid Investment or as to the value that might be realised from such investment.

Continuation Vote

Subject to implementation of the Scheme, FCSS will also commit to holding a continuation vote in 2029 and every five years thereafter.

Costs of implementing the Scheme

Costs of the Company

Subject to the Fidelity Contribution as described below, the Company and FCSS have agreed to each bear their own costs in relation to the Proposals. The net costs of the Scheme payable by the Company are expected to be approximately £0.7 million (exclusive of VAT, where applicable). This figure takes into account the estimated value of the ACIC Fidelity Contribution, based on the Company's and FCSS's net asset values as at 14 February 2024, and assuming that the Cash Option is taken up in full. This estimate of costs excludes the Liquidators' retention to cover unknown or unascertained liabilities (estimated at £100,000), excludes the stamp taxes payable on the transfer of the Rollover Pool to FCSS, and does not take account of any dealing costs (including stamp taxes) which will be incurred by the Company in realising assets in order to meet Elections made and in realigning its portfolio prior to the Calculation Date so as to result in the portfolio containing assets that are suitable for transfer to FCSS.

In the event that FCSS or the Shareholders resolve not to proceed to implement the Scheme or the Directors decide not to implement the Scheme on the terms described in the Circular, then each party will bear its own abort costs.

For the avoidance of doubt, if the Scheme is not implemented the stamp taxes that would have been payable by the Company on the transfer of the Rollover Pool to FCSS will not be payable, but dealing costs (including stamp taxes) (if any) may still have been incurred by the Company in disposing of assets in order to meet Elections made and in realigning the Company's portfolio in respect of the Rollover Pool to be established pursuant to the Scheme.

The Liquidators' retention is estimated at £100,000 and will be retained by the Liquidators to meet any unknown or unascertained liabilities of the Company. This retention is in addition to any provisions made in the calculation of the Liquidation Pool in respect of known and ascertained liabilities, including the Illiquid Investment which will be allocated to the Liquidation Pool. To the extent that any funds, including as a result of the realisation of the Illiquid Investment, remain at the conclusion of the liquidation, these will be returned to Shareholders on the register at the Record Date. If, however, any such amount payable to any Shareholder is less than £5.00, it shall not be paid to the Shareholders but instead shall be paid by the Liquidators to the Nominated Charity.

The Fidelity Contribution

Subject to the Scheme being implemented, FISL has undertaken to make a material contribution towards the costs of the Scheme and the Issue (the "Fidelity Contribution") pursuant to the cost contribution agreement dated 16 February 2024 and made between FISL, FCSS and the Company (the "Cost Contribution Agreement"). Under the terms of the Cost Contribution Agreement, the Fidelity Contribution will constitute a contribution of £500,000 plus an amount equal to eight months of management fees that would otherwise be payable by the enlarged FCSS to Fidelity under the FCSS Investment Management Agreement and the FCSS AIFM Agreement in respect of the assets comprising the Rollover FAV to be transferred from ACIC to FCSS pursuant to the Scheme (calculated as 0.85 per cent. multiplied by 8/12 multiplied by the Rollover FAV).

The Fidelity Contribution will first be applied to meet any and all costs incurred by FCSS in respect of the Scheme and the Issue up to a maximum of £1 million (the "FCSS Fidelity Contribution"), and any balance of the Fidelity Contribution will be allocated to meet any and all costs incurred by the Company in respect of the Scheme (the "ACIC Fidelity Contribution"). The value of the Fidelity Contribution will be agreed between the Company, FCSS and Fidelity as at the Calculation Date, with the benefit of the FCSS Fidelity Contribution to be reflected in the calculation of the FCSS FAV and the benefit of any ACIC Fidelity Contribution to be reflected in the calculation of the Rollover FAV.

The FCSS Fidelity Contribution will be settled (subject to the maximum amount of £1 million) by: (i) FISL paying invoices in respect of FCSS's costs in connection with the Scheme and the Issue as they become payable on or after the Effective Date; and (ii) to the extent that any such costs have already been paid by FCSS, by way of a cash payment from FISL to FCSS, such amount to be settled in full on the Effective Date.

The ACIC Fidelity Contribution will be settled by way of a cash payment by FISL to the enlarged FCSS of an amount equal to the value of the ACIC Fidelity Contribution, such amount to be settled in full on the Effective Date.

Fidelity has further agreed, subject to implementation of the Scheme, to reduce the annual base management fee payable by FCSS pursuant to the FCSS Investment Management Agreement and the FCSS AIFM Agreement in respect of any of FCSS's net assets in excess of £1.5 billion from 0.70 per cent. to 0.65 per cent. Although it is not anticipated that this threshold will be reached immediately as a result of the Scheme, the FCSS Board expects that this reduction in the management fee will lower the ongoing costs of FCSS as it grows over the longer term.

Further details of the scheme

Entitlements under the Scheme

Under the Scheme, Eligible Shareholders on the Register on the Record Date will be deemed to have elected to receive such number of New FCSS Shares as have a value (at the FCSS FAV per Share) equal to the proportion of the Rollover Pool attributable to the number of Shares held by Eligible Shareholders that are deemed to have been so elected (being the Rollover Option), save to the extent that such Eligible Shareholder elects, subject to an overall cap on such Elections of 33 per cent. of the Shares in issue (in aggregate and excluding Shares held in treasury), to receive an amount of cash equal to the Cash Pool FAV per Share multiplied by the number of Shares so elected (being the Cash Option). Eligible Shareholders may make different Elections in respect of different parts of their holdings.

Unless otherwise expressly agreed with the Company, any Shareholder who votes on the Proposals and any Shareholder who makes an Election will be deemed to make the representations, warranties, undertakings, agreements and acknowledgements set out in the Forms of Proxy and Form of Election, including that they are either: (i) located outside the United States and not a US Person; or (ii) a QIB and a Qualified Purchaser. In addition, until 40 days after the implementation of the Scheme, an offer, sale or transfer of New FCSS Shares within the United States by a dealer (whether or not participating in the Scheme) may violate the registration requirements of the US Securities Act.

The default option under the Scheme is to receive New FCSS Shares, meaning that Eligible Shareholders who, in respect of all or part of their holding of Shares, do not make a valid Election, will be deemed to have elected for New FCSS Shares in respect of such holding. If you wish to receive New FCSS Shares in respect of all of your Shares, there is no need to complete and return a Form of Election (which you will receive if you hold your Shares in certificated form) or to submit a TTE Instruction (if you hold your Shares in uncertificated form in CREST).

If you wish to receive cash in respect of all or part of your holding of Shares (subject to the potential scaling back of Elections for the Cash Option), you must either complete and return a Form of Election (for certificated Shareholders only) or submit a TTE Instruction (for CREST Shareholders only) (depending on how your Shares are held) in respect of the number of Shares for which you wish to make an Election for the Cash Option. You will be deemed to have elected to receive New FCSS Shares in respect of the remainder of your holding, as well as in respect of any scaled back Elections for the Cash Option.

Excluded Shareholders (including Overseas Shareholders) will be deemed to have elected for their Basic Entitlement in respect of the Cash Option and to receive New FCSS Shares for the remainder of their Shares. Such New FCSS Shares will be issued to the Liquidators as nominees for the relevant Excluded Shareholder and sold by the Liquidators as nominees in the market for the relevant Excluded Shareholder (which shall be done by the Liquidators without regard to the personal circumstances of the relevant Excluded Shareholder and the value of the Shares held by the relevant Excluded Shareholder) and the net proceeds of such sale (after deduction of any costs incurred in effecting such sale) will be paid: (i) to the relevant Overseas Shareholder entitled to them as soon as reasonably practicable, save that entitlements of less than £5.00 per Overseas Shareholder will be paid by the Liquidators to the Nominated Charity; or (ii) in respect of Sanctions Restricted Persons, at the sole and absolute discretion of the Liquidators and will be subject to applicable laws and regulations.

After allocating cash, the Illiquid Investment and other assets to the Liquidation Pool to meet all known and unknown or unascertained liabilities of the Company and other contingencies, there shall be appropriated to the Cash Pool and the Rollover Pool the remaining assets of the Company. Such appropriation includes the application of a discount of 2 per cent. to the Residual NAV per Share in relation to those Shares in respect of which Shareholders have elected to receive cash (the "Cash Option Discount"). The value arising from the application of the Cash Option Discount shall be allocated to the Rollover Pool for the benefit of Shareholders deemed to have elected for the Rollover Option.

The issue of New FCSS Shares under the Rollover Option will be effected on a FAV for FAV basis based on valuations as at the Calculation Date. The Calculation Date for determining the value of the Rollover Pool is expected to be 5.00 p.m. on 6 March 2024. The Record Date for the basis of determining Shareholders' entitlements under the Scheme is 6.00 p.m. on 6 March 2024.

Illustrative entitlements

For illustrative purposes only, had the Calculation Date been 5.00 p.m. on 14 February 2024 (being the latest practicable date prior to the publication of the Circular) and assuming the maximum amount is elected, or deemed to be elected, for the Cash Option, the Cash Pool FAV per Share would have been 423.73 pence and the Rollover FAV per Share would have been 438.02 pence.

The FCSS FAV per Share would have been 206.39 pence which, for the Rollover Option, would have produced a conversion ratio of 2.122289 and, in aggregate, 60,648,754 New FCSS Shares would have been issued to Shareholders under the Scheme, representing approximately 11.43 per cent. of the issued ordinary share capital of the enlarged FCSS immediately following the completion of the Scheme.

Scaling back of Elections for the Cash Option

The maximum aggregate number of Shares that can be elected for the Cash Option is 33 per cent. of the total number of Shares in issue (excluding Shares held in treasury). Eligible Shareholders are entitled to elect for the Cash Option in respect of 33 per cent. of their individual holdings of Shares (the "Basic Entitlement") but may also elect for the Cash Option in respect of a greater proportion of their individual holdings of Shares (such excess amount being an "Excess Application"). However, if aggregate Elections have been made for the Cash Option which exceed 33 per cent. of the issued Shares (excluding Shares held in treasury), Eligible Shareholders who have made an Election for the Cash Option in excess of their Basic Entitlement shall have their Excess Applications scaled back in a manner which is, as near as practicable, pari passu and pro rata among all Eligible Shareholders who have made such Excess Applications.

By no later than 27 March 2024, it is expected that Link Group on behalf of the Liquidators shall distribute to Shareholders who have elected for the Cash Option for all or part of their holding their Cash Entitlements being rounded down to the nearest penny.

Conditions of the proposals

Implementation of the Proposals is subject to a number of conditions, including:

·      the passing of the Resolutions to approve the Scheme and the winding up of the Company at the General Meetings, or any adjournment thereof, any conditions of such Resolutions being fulfilled and the Scheme becoming unconditional in all respects (including the Transfer Agreement becoming unconditional in all respects);

·      the FCSS Resolution to approve the issue of the New FCSS Shares being passed and becoming unconditional in all respects;

·      the approval of the FCA and the London Stock Exchange to the Admission of the New FCSS Shares to the Official List and to trading on the Main Market of the London Stock Exchange, respectively, subject only to allotment; and

·      the Directors and the FCSS Directors resolving to proceed with the Scheme.

If any condition above has not been satisfied or, to the extent permitted, waived by both the Company and FCSS on or before 31 March 2024 (or such later date as may be agreed between the Company and FCSS), the Proposals will not become effective, the Company will not proceed with the winding up and instead will continue in existence and continue to be managed under the current investment policy. In these circumstances, the Directors will reassess the options available to the Company at that time.

General Meetings

As noted above, the Proposals are conditional, amongst other things, 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 offices of Herbert Smith Freehills LLP, Exchange House, Primrose Street, London EC2A 2EG.

First General Meeting

The First General Meeting will be held on 11 March 2024 at 9.00 a.m.

The Resolutions to be considered at the First General Meeting (which will be proposed as special resolutions) will, if passed:

·      approve the terms of the Scheme;

·      amend the Articles to give effect to the Scheme and reduce the minimum number of directors of the Company to one director; and

·      authorise the Liquidators to enter into and give effect to the Transfer Agreement with FCSS and to distribute New FCSS Shares to Shareholders in accordance with the Scheme.

Each Resolution 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 to be passed at the First General Meeting. The Scheme will not become effective unless and until, amongst other things, 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 13 March 2024 at 9.00 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;

·      provide the Liquidators with appropriate powers to carry into effect the amendments to the Articles made at the First General Meeting; and

·      instruct the Company Secretary to hold the books to the Liquidators' order.

The Resolution to be proposed at the Second General Meeting is conditional upon the FCSS Resolution being passed and becoming unconditional in all respects, the approval of the FCA and the London Stock Exchange to the Admission of the New FCSS Shares to the Official List and to trading on the Main Market of the London Stock Exchange, respectively, and the Directors and the FCSS Directors resolving to proceed with the Scheme.

The Resolution 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 to be passed at the Second General Meeting.

Action to be taken

Before taking any action, Shareholders are recommended to read the further information set out in the Circular and in the FCSS Prospectus.

Elections

The default option under the Scheme is to receive New FCSS Shares, meaning that Eligible Shareholders who, in respect of all or part of their holding of Shares, do not make a valid Election, will be deemed to have elected to receive New FCSS Shares in respect of such holding. If you wish to receive New FCSS Shares in respect of all of your Shares, there is no need to complete and return a Form of Election (which you will receive if you hold your Shares in certificated form) or to submit a TTE Instruction (for CREST Shareholders only).

If you wish to receive cash in respect of all or part of your holding of Shares, you must either complete and return a Form of Election (for certificated Shareholders only) or submit a TTE Instruction (for CREST Shareholders only) (depending on how your Shares are held) in respect of the number of Shares for which you wish to receive cash. You will be deemed to have elected to receive New FCSS Shares in respect of the remainder of your holding, or to the extent that your election for the Cash Option in excess of your Basic Entitlement is scaled back as further described in the Circular.

You are requested to submit a TTE Instruction (for CREST Shareholders only), or to complete the Form of Election (for certificated Shareholders only) in accordance with the instructions printed thereon and for certificated Shareholders only, return the completed Form of Election to the Receiving Agent at Link Group, Corporate Actions, Central Square, 29 Wellington Street, Leeds LS1 4DL, in each case as soon as possible, but in any event so as to be received no later than 1.00 p.m. on 6 March 2024.

Forms of proxy

Shareholders will find enclosed a PINK Form of Proxy for use in relation to the First General Meeting and a GREEN Form of Proxy for use in relation to the Second General Meeting.

You are requested to complete the Forms of Proxy in accordance with the instructions printed thereon and return them to the Registrar at PXS 1, Central Square, 29 Wellington Street, Leeds, LS1 4DL, as soon as possible, but in any event so as to be received no later than 48 hours (excluding non-working days) before the time of the relevant General Meeting.

If the Resolutions to be proposed at the General Meetings are not passed, the Proposals will not proceed and the Company will not be wound up. In these circumstances, the Board will reassess the options available to the Company at that time.

Recommendation

The Board considers the Proposals and the Resolutions to be proposed at the General Meetings to be in the best interests of Shareholders as a whole.

Accordingly, the Board unanimously recommends Shareholders to vote in favour of the Resolutions to be proposed at the General Meetings, as the Directors intend to do in respect of their own beneficial holdings, which in aggregate amount to 6,388 Shares, representing approximately 0.01 per cent. of the Company's issued share capital as at 15 February 2024.

The Board cannot, and does not, give any advice or recommendation to Shareholders as to whether, or as to what extent, they should elect for any of the options under the Proposals. The choice between the options available under the Proposals will be a matter for each Shareholder to decide and will be influenced by their individual investment objectives and by their personal, financial and tax circumstances. Accordingly, Shareholders should, before deciding what action to take, read carefully all the information in the Circular and in the FCSS Prospectus. Shareholders who are in any doubt as to the contents of the Circular or the FCSS Prospectus or as to the action to be taken should seek their own personal financial advice from their financial adviser authorised under FSMA.

EXPECTED TIMETABLE

Note: All references to time in this document 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 notified to Shareholders by an announcement through a Regulatory Information Service.

A copy of the Circular has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. The Circular will also shortly be available on the Company's website at www.abrdnchina.co.uk (under the section titled 'Literature') where further information on the Company can also be found.

Capitalised terms used but not defined in this announcement will have the same meaning as set out in the Circular dated 16 February 2024.

ENQUIRIES