WEISS KOREA OPPORTUNITY FUND LTD.
LEI 213800GXKGJVWN3BF511
(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
ANNUAL REPORT AND AUDITED FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Weiss Korea Opportunity Fund Ltd. (the “Company”) has today,
released its Annual Financial Report for the year ended
31 December 2022. The Report will
shortly be available for inspection via the
Company's website www.weisskoreaopportunityfund.com.
For further information, please contact:
Singer Capital
Markets Limited
James Maxwell/ Justin McKeegan – Nominated Adviser
James Waterlow – Sales |
+44 20 7496 3000 |
Northern Trust International Fund Administration
Services (Guernsey) Limited
Samuel Walden |
+44 1481 745385 |
Financial Highlights
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31
December 2022 |
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31
December 2021 |
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£ |
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£ |
Total Net
Assets1 |
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127,080,493 |
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166,541,145 |
Net Asset
Value ("NAV") Per Share2 |
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1.83 |
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2.40 |
Mid-Market Share
Price |
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1.81 |
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2.47 |
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Since inception |
31
December 2022 |
NAV
Return3,4 |
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-21.34% |
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123.91%5 |
Benchmark
Return6,7 |
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-18.22% |
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50.93% |
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31
December 2022 |
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31
December 2021 |
Portfolio
Discount* |
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51.68% |
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52.16% |
Share Price
Premium/Discount8 |
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-1.56% |
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2.79% |
Fund Dividend
Yield9 |
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3.53% |
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2.12% |
Average
Trailing 12-Month P/E Ratio of Preference Shares
Held10 |
4.0x |
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6.1x |
P/B Ratio
of Preference Shares Held11 |
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0.31 |
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0.46 |
Annualised Total
Expense Ratio12 |
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2.04% |
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1.80% |
*Portfolio Discount
The portfolio discount represents the discount of WKOF’s actual
NAV to the value of what the NAV would be if WKOF held the
respective common shares of issuers rather than preference shares
on a one-to-one basis.
As at close of business on 27 April
2023, the latest published NAV per Share was £1.87 and the
Share Price was £1.84.
Company Summary
The Company
Weiss Korea Opportunity Fund Ltd. (“WKOF” or the “Company”) was
incorporated with limited liability in Guernsey as a closed-ended
investment company on 12 April 2013.
The Company’s shares were admitted to trading on the Alternative
Investment Market (“AIM”) of the London Stock Exchange (the “LSE”)
on 14 May 2013.
The Company is managed by Weiss Asset Management LP (the
“Investment Manager” or “WAM”), a Boston-based investment management company
registered with the Securities and Exchange Commission in
the United States of America.
Investment Objective and Dividend
Policy
The Company’s investment objective is to provide Shareholders
with an attractive return on their investment, predominantly
through long-term capital appreciation. The Company is
geographically focused on South Korean (“Korean”) companies.
Specifically, the Company invests primarily in listed preference
shares issued by companies incorporated in South Korea (“Korea”), which in many cases
trade at a discount to the corresponding common shares of the same
companies. Since the Company’s admission to the AIM, the Investment
Manager has assembled a portfolio of Korean preference shares that
it believes are undervalued and could appreciate based on the
criteria that it selects. The Company may, in accordance with its
investment policy, also invest some portion of its assets in other
securities, including exchange-traded funds, futures contracts,
options, swaps and derivatives related to Korean equities, and cash
and cash equivalents. The Company does not have any concentration
limits.
The Company intends to return to Shareholders all dividends
received, net of withholding tax, on an annual basis.
Investment Policy
The Company is geographically focused on South Korean companies.
Some of the considerations that affect the Investment Manager’s
choice of securities to buy and sell may include the discount at
which a preference share is trading relative to its respective
common share, dividend yield and its liquidity, among other
factors. Not all of these factors will necessarily be satisfied for
particular investments.
Preference shares are selected by the Investment Manager at its
sole discretion, subject to the overall control of the Board of
Directors of the Company (the “Board”).
From time to time, the Company purchases certain credit default
swaps on the sovereign debt of South
Korea and put options on iShares MSCI South Korea ETF
(“EWY”) as general market and portfolio hedges, but generally did
not hedge its exposure to interest rates or foreign currencies
during the year ended 31 December
2022 (2021: Nil). Please see additional information about
the nature of these hedges in the Investment Manager’s Report.
Investment Process
The Investment Manager monitors the discounts and yields on the
universe of Korean preference shares as well as events or catalysts
that could affect preference share discounts leading to material
price changes.
Multiple criteria are used to rank and calculate the returns for
each preference share, including but not limited to:
· The discount that the preference share
is trading at relative to its common share
· Expected dividend yield
· Future catalysts or events
· Management quality
· Fundamentals of the company
· Market impact from entering and
exiting our position
We expect to remain close to fully invested as long as the
opportunity set remains attractive.
Why South
Korea?
The future of the South Korean economy looks promising. The
global success of companies like Samsung Electronics, LG
Electronics and SK Hynix stimulates other areas of the South Korean
economy both through the demand for intermediary goods and the
demand for services by the workers at these companies. In addition,
South Korea has emerged as one of
the world’s most innovative countries as it:
• Ranked 1st in the Bloomberg
Innovation Index for eight of the last nine years 13
• Filed the highest number of
patent applications relative to GDP in 202114
• Has an exceptionally high credit
rating on its sovereign debt. South
Korea was rated higher than Japan and the U.K. by Moody’s, S&P, and
Fitch15.
• Ranked 7th largest exporter in
the world in 202116.
• Ranked 13th largest economy by
GDP in the world in 202217.
• Ranked 5th in the
World Bank’s Ease of Doing Business Report in
202018.
• Ranked in the top 10% in each of
reading, mathematics and science Programme for International
Student Assessment (PISA) test
scores in 201819.
South Korean companies are thus a key part of the value chain in
some of the world’s most exciting industries, such as electric
vehicles, 5G technology and smartphones. The country also boasts a
high GDP per capita, one of the lowest government debt/GDP ratios
of any country, large foreign exchange reserves, and low levels of
unemployment.
Although its population is ageing, the general education level
of South Korea’s work force is increasing. South Korean students
are consistently among the top performing students in the Programme
for International Student Assessment tests, including the subtest
on critical thinking. This provides a pool of talent that can be
tapped for future growth.
Index Name20 |
P/E
Ratio |
P/B
Ratio |
Nifty Index (India) |
22.4 |
3.0 |
S&P 500 (US) |
19.1 |
3.9 |
Nikkei 225 (Japan) |
13.9 |
1.6 |
FTSE 100 (UK) |
11.6 |
1.6 |
Shanghai Composite (China) |
10.9 |
1.3 |
Hang Seng Index (HK) |
10.4 |
1.1 |
TAIEX (Taiwan) |
9.6 |
1.8 |
KOSPI 200 (S. Korea) |
7.2 |
0.8 |
The South Korean stock market appears fundamentally cheap
relative to other equity markets. As of 31
December 2022, the KOSPI 200 trades at a 48% lower price to
earnings ratio and a 60% lower price to book ratio compared to the
average of the major indices shown in the table above. This cheap
valuation can be largely explained by the historically poor
corporate governance displayed by the major South Korean
conglomerates. However, events over the last several years indicate
a trend of awareness and improvements in corporate governance.
There were a record-high 47 publicly traded South Korean companies
subject to activist demands in 2022, which represented a 74%
increase year-over-year compared to 202121. The
Investment Manager report sets forth some examples of improvements
in corporate governance that have taken place during the most
recent 12 months. The underlying thesis of our strategy is that
improved corporate governance will attract more investors to
South Korea and the companies in
which we invest which will, over time, increase the value of the
common shares and narrow the discount of the preference shares held
in WKOF’s portfolio, thus increasing the value of WKOF’s
holdings.
Korean Preference Shares
Many of the largest companies in the Korean market issue
preference shares in addition to their common shares. These
preference shares are equity shares that receive the same dividend
per share as the voting common shares plus an additional percentage
of the preference shares’ par value per share. In return for this
higher dividend, preference shares are non-voting in normal
circumstances, although they do have voting rights in certain
situations. Many of these preference shares trade at less than half
the price of the corresponding common shares despite receiving a
slightly higher dividend amount as the common shares and,
therefore, provide preference shareholders with relatively higher
yields than the corresponding common shares.
The majority of Korean preference shares were issued in the
mid-1990s, when the Korean government pressured chaebols
(family-owned Korean conglomerates) to raise equity and reduce debt
within their capital structures. By issuing non-voting shares, the
founders of the Korean companies were able to raise equity capital
without diluting their voting control. The additional payment as a
percentage of par value which preference shares paid out to
investors, albeit nominal today, was sufficiently large relative to
the dividends in the 1990s to attract investors. Today, there are
121 Korean preference shares outstanding with an aggregate market
capitalisation of approximately £38 billion22.
Although preference shares typically do not have voting rights,
an economic or financial model that values equity on the discounted
value of future cash flows would imply that the preference shares
of these companies should be trading at roughly the same price as
the corresponding common shares. Further, preference shares are not
associated with over-priced speculative companies; rather, many of
the leading companies in the Korean economy have preference shares
outstanding today.
Continued corporate governance improvements, increased dividend
payouts and investor activism such as that experienced over the
past several years could continue to serve as catalysts for
preference share discounts narrowing. The Company invests in a
portfolio of discounted Korean preference shares, including Korean
market heavyweights such as LG Chem Ltd., Hyundai Motor Company,
AmorePacific Corp., and LG Electronics Inc.
Top 10 Holdings
1. LG CHEM LTD., PFD.
15.0% OF WKOF NAVDISCOUNT TO COMMON
SHARE: -54%
Korea’s largest chemical company by market capitalisation, LG
Chem manufactures and sells petrochemical products and advanced
materials, including plastics and EV batteries23. Its EV
battery business and subsidiary, LG Energy Solution is the
second-largest EV battery maker in the world24. In 2022,
LG Chem generated over $34bn in
revenue globally25.
2. HYUNDAI MOTOR COMPANY,
2ND PFD.
12.2% OF WKOF NAV DISCOUNT TO COMMON
SHARE: -51%
Hyundai Motor Company is one of Korea’s leading car
manufacturers by market share, producing and selling more than 3.9
million units globally in 2022. Hyundai plans on increasing its
presence in the electric vehicle market, while targeting to sell
over 4.3 million units in 202326,27.
3. AMOREPACIFIC CORP.,
PFD
7.5% OF WKOF NAV DISCOUNT TO COMMON
SHARE: -65%
Amorepacific Corp develops beauty and cosmetic products while
operating over 30 brands, including Etude and Laneige.
Amorepacific’s portfolio of products ranges from perfume to dental
care, including a premium tea brand28.
4. CJ CHEILJEDANG CORP,
PFD.
7.1% OF WKOF NAVDISCOUNT TO COMMON
SHARE: -56%
CJ CheilJedang is a leading food company in Korea, focused on
processing food ingredients into groceries such as refined sugar,
flour, and processed meats. The company also operates a number of
food brands that specialise in home meal replacements and snacks,
including names like Bibigo and Petitzel. CJ CheilJedang also
operates in the bio industry, and produces plant-based protein and
amino acids29.
5. HANWHA CORPORATION 3RD
PFD.
7.0% OF WKOF NAVDISCOUNT TO COMMON
SHARE: -46%
Hanwha Corporation specialises in producing and trading
chemicals, aerospace & defence products, and energy products.
It also deals in the construction and financial services industry.
A Fortune Global 500 company, Hanwha Corporation’s subsidiaries
include Korea’s oldest life insurance company and Hanwha Solutions,
a leading domestic manufacturer of solar cell
panels30.
6. LG ELECTRONICS INC.,
PFD.
6.7% OF WKOF NAVDISCOUNT TO COMMON
SHARE: -51%
LG Electronics is a household brand in home appliances, with
various product lines including washing machines, televisions,
refrigerators, and smart phones. According to market research firm
Omdia, the company ranked second globally in terms of TV market
share in 2022, capturing 16.7% of global TV sales31.
7. MIRAE ASSET DAEWOO CO.,
LTD., 2ND PFD.
5.7% OF WKOF NAVDISCOUNT TO COMMON
SHARE: -41%
Mirae Asset Daewoo is a South Korean financial services firm
offering securities trading, equity underwriting, investment
banking services, and wealth/asset management. Mirae Asset conducts
business globally, including the United
States, Canada,
United Kingdom, and China32.
8. LG HOUSEHOLD AND
HEALTHCARE LTD., PFD.
4.6% OF WKOF NAVDISCOUNT TO COMMON
SHARE: -56%
LG Household & Health Care operates within a number of
industries, spanning from cleaning products to beauty care.
Beginning with an acquisition of Coca-Cola’s Korea bottling
operation in 2007, LG Household & Health Care also established
a beverage business segment, which now includes the distribution of
tea, coffee, and juices33.
9. SK CHEMICALS CO., LTD.,
NEW PREF
3.8% OF WKOF NAVDISCOUNT TO COMMON
SHARE: -49%
SK Chemicals focuses on the production of environmentally
friendly materials and life science products. Green chemicals
include bio-based material used in the production of polyurethane,
as well as amorphous resin for containers and home
appliances34. Its life science segment spans treatments
for the common cold to asthma treatments.
10. DOOSAN FUEL CELL CO., LTD.,
1st PFD
3.7% OF WKOF
NAV
DISCOUNT TO COMMON SHARE: -68%
One of the largest fuel cell manufacturers by market
capitalisation, Doosan Fuel Cell produces and sell stationary fuel
cell products globally. The company is focused on sustainable
electricity and heat generation. Its products are targeted towards
residential, commercial, and industrial use35.
Chair’s Review
For the year ended 31 December 2022
We are pleased to provide the 2022 Annual Report on the Company.
During the period from 1 January 2022
to 31 December 2022 (the “Period”),
the Company’s net asset value fell by 21.34% including reinvested
dividends36. The Company underperformed the reference
MSCI Korea 25/50 Net Total Return Index (the “Korea Index”), which
fell by 18.22% in Pounds Sterling (“GBP”). Since the admission of
the Company to AIM in May 2013, the
net asset value has increased by 123.91% including reinvested
dividends36 compared to the Korea Index returns of
50.93%37, an annualised outperformance of the index
of 7.57%.
The global economy was heavily impacted by the Russian invasion
of Ukraine and the Korean stock
market was not immune, even though none of the companies in the
portfolio has direct links to Russia. The “see through” discount of the
portfolio of preference shares remains very wide and has shown
little volatility since the previous Annual Report. This has not
helped returns over the year. The Company’s underperformance
against the Korea Index in 2022 was due to the widening of the
discounts of the preference shares owned by the Company and the
poor performance of the common shares that the Company owns the
preference shares of, relative to those in the Index. The Korean
equity market performed poorly in 2022 due to challenging
macro-economic conditions such as a weakening currency, elevated
inflation, and rising interest rates. The performance of the
Company will be explored in greater depth in the Investment
Manager’s Report.
The Directors declared an interim dividend of 6.3732 pence per Share, to distribute the income
received by the Company in respect of the year ended 31 December 2021. This dividend was paid to all
Shareholders on 10 June 2022. The
growth in dividends per Share since the launch of the Company is in
line with the thesis that WAM has been promoting over the past
several years; that Korean companies pay out low dividends but this
is improving which should attract more global investors to the
Korean stock market.
Based on the fact that the assets currently held by the Company
consist mainly of securities that are readily realisable, whilst
the Directors acknowledge that the liquidity of these assets needs
to be managed, the Directors believe that the Company has adequate
financial resources to meet its liabilities as they fall due for at
least twelve months from the date of this report, and that it is
appropriate for the Financial Statements to be prepared on a going
concern basis.
The Board is authorised to repurchase up to 40% of the Company's
outstanding Ordinary Shares in issue as at 31 December 2022.38 Since admission
ten years ago, and as at the date of this document, the Company has
repurchased, at a discount to NAV, 13,190,250 Ordinary Shares of
the original 105,000,000 Ordinary Shares issued at admission
(12.6%). The Board also has in place standing instructions with the
Company’s broker, Singer Capital Markets Limited (the “Broker” or
“Singer”), for the repurchase of the Company’s Shares during closed
periods when the Board is not permitted to give individual
instructions; such closed periods typically occur around the
preparation of the Annual and Half Yearly Financial Reports. The
Board intends to continue to repurchase Shares if the Company’s
Shares are trading at a significant discount to net asset value. We
will also keep Shareholders informed of any share repurchases
through public announcements.
WKOF offers Shareholders the regular opportunity to elect to
realise all, or a part, of their shareholding in WKOF (the
“Realisation Opportunity”) once every two years, on the anniversary
of WKOF’s admission date. A circular with full details of the
upcoming Realisation Opportunity was published on 13 March 2023. If any Shareholders elect for
realisation, then on the Realisation Date, WKOF’s current portfolio
will be divided into two pools: a Continuation Pool and a
Realisation Pool. The Realisation Pool will be managed in
accordance with an orderly realisation with the aim of making
progressive returns of cash to holders of Realisation Shares. Given
the performance of WKOF, not just recently but over its entire
life, the discount protection measures WKOF has had in place since
IPO, the potential to outperform going forward as well as many
other measures mentioned below, the Board expects demand for this
feature to be limited.
This is my last Annual Report as I have served on the Board
since launch, and it is time for a fresh perspective from new
Directors. I would like to thank Rob
King for his efforts since IPO and welcome Krishna Shanmuganathan and Wendy Dorey to the Board, as well as thank
Gill Morris for her work over the
past 12 months. All of your new directors are well qualified to
oversee the next 10 successful years of the Company.
In last year’s Chair’s Review, I mentioned other initiatives
that the Board hoped to pursue in order to increase the
attractiveness of WKOF’s shares and expand the shareholder register
to the benefit of all Shareholders. At this time, none of these
proposals has come to fruition but will hopefully be kept under
review by the new Board and implemented in the future.
In November 2022, Krishna and I
visited the Investment Manager in Boston, where we met both the immediate team
responsible for managing the Company and the wider team as well. We
were struck by how the Investment Manager is still bullish about
the opportunity. Now that travel is fully open after the Covid
pause, the team are regularly travelling to Korea and seeking ways
to actively engage with companies in the portfolio on governance
issues, to help narrow the discount of the preference shares versus
the common shares. That will be the focus of activity over the
coming year rather than the other initiatives which have, for now
at least, been put to one side.
The Board is very mindful of the expenses ratio and will
continue to monitor and review all costs.
The new Chair will be selected by the other Directors and with
only a few months left on the Board, I wish my colleague the best
of luck in a role I have immensely enjoyed over the past 10 years.
I am confident that WAM will continue to manage the portfolio to
the best of their ability for the next ten years, as they have done
in the past.
The Board and the Investment Manager believe that the
opportunity offered by Korean preference shares is as attractive as
it has been since launch. We would hope that the next ten years
provide the same opportunities for the Company to outperform the
index.
If any of the Shareholders wish to speak with the Board, then
please contact Singers and we will be happy to answer any questions
you may have.
Norman
Crighton
Chair
28 April 2023
Investment Manager’s Report
For the year ended 31 December 2022
In 2022, WKOF’s Net Asset Value (“NAV”) in pounds Sterling (“GBP”) declined by 21.34%, including
reinvested dividends,39 compared to the reference MSCI
South Korea 25/50 Net Total Return Index (“the Korea
Index”),40 which declined by 18.22% in GBP. The NAV
performance from inception through 31
December 2022, including reinvested dividends, was 123.91%,
continuing to outperform relative to the Korea Index, which
returned 50.93% over the same period.
WKOF Performance Attribution
At year-end, WKOF held a portfolio of 35 South Korean (“Korean”)
preference shares. As a reminder, the economic rights of Korean
preference shares are generally the same or slightly better than
the corresponding common shares, yet the preference shares often
trade at substantial discounts to the common shares. WKOF’s returns
are driven by five primary factors:
the performance of the Korean equity market
generally;
the performance of the common shares (which correspond
to the preference shares held by WKOF) relative to the performance
of the Korean equity market;
the discounts of the preference shares it holds
narrowing or widening relative to their corresponding common
shares;
excess dividend yields of the preference shares held by
WKOF;
and fees, expenses and other factors.
In order to compare WKOF’s relative return to the Korea Index,
we report the attribution of these aforementioned factors to WKOF’s
performance. The following table provides this performance
attribution for the last 12 months and for the period since the
inception of WKOF in May 2013 through
31 December 2022.
Return
Component41 |
Last 12 Months |
|
Since
Inception |
The Korea Index |
(18.2)% |
|
50.9% |
WKOF Common Shares vs. MSCI
Index |
(1.7)% |
|
21.8% |
Discount Narrowing (Widening) of
Preferred Shares Owned |
(1.0)% |
|
43.6% |
Excess Dividend Yield of Preferred
Shares Owned |
2.4% |
|
16.7% |
Fees, Expenses and Others |
(2.8)% |
|
(9.1)% |
NAV Performance |
(21.3)% |
|
123.9% |
The investment thesis when WKOF was formed was based on the
likelihood that the Company would outperform the Korea Index
largely due to (i) decreases in the large discounts of the
preference shares held by WKOF relative to their corresponding
common shares and (ii) the related excess dividend yields caused by
these large discounts. This has, indeed, been generally the case as
these two factors have collectively been the main contributors to
WKOF’s outperformance relative to the Korea Index since inception.
At present, we remain confident in both of these theses. In
September 2013, shortly after
inception, the preference shares held by WKOF traded at a 55.5%
discount to their corresponding common shares and the dividend
yield was 1.7%. As of December 2022,
the discount and dividend yield were 51.7% and 3.53%, respectively.
Furthermore, over the life of the fund, the corresponding common
shares to WKOF’s preference shares have also outperformed the Korea
Index which we believe demonstrates that WKOF has not had a
negative selection bias with regards to the companies in which it
invests. Finally, we are focused on returns since inception because
we believe that due to high levels of idiosyncratic volatility, any
data that is gathered over one-year periods is unlikely to be more
generally applicable.
Review of the South Korean Macro
Environment
The challenging South Korean macroeconomic environment discussed
in the Company’s interim report issued on 12
September 2022 generally defined the macroeconomic
conditions of the year and was reflected in the performance and
trading volume of South Korean equity markets. The benchmark Korea
Index returned -18.2% in 2022, while the KOSPI 200 Index returned
-26.2%.42 Concurrently, the KOSPI Index witnessed an
over 40% decrease in trading volume in 2022 compared to the prior
year.43
Throughout the year, similar to other global economies, South
Korea’s core inflation remained elevated. According to Statistics
Korea, South Korea’s consumer price index increased over 5% on
average throughout 2022 as compared to 2021.44 This is
the highest rate since 1998 and well above the Bank of Korea’s
(“BoK”) inflation target of 2%.45 Faced with mounting
inflationary pressure in the consumer economy, the BoK raised its
policy interest rate seven times over the year, taking the nation’s
policy interest rate from 1.0% as of November 2021 to 3.25% as of November 2022 (as of the time of writing, the BoK
has decided to raise this rate to 3.5%).46 This move by
BoK’s Monetary Policy Committee represents one of the most
aggressive monetary tightening cycles in South Korean history in
terms of both pace and magnitude.
As an export-driven economy, factors and trends in the global
economy also had an effect on South
Korea and its equity markets. The South Korean won (“KRW”)
had sizeable moves relative to major global currencies in 2022.
During the third quarter, the KRW depreciated 10% vs. the United
States Dollar (“USD”). Adjusting for changes in relative consumer
prices, the real effective exchange rate of the KRW in September 2022 fell by over 4% compared to
June 2022, making the KRW one of the most underperforming currencies in
Asia during the
period.47 While South
Korea also experienced record high annual export figures of
over $680 billion USD, which were
mainly driven by sales of electric vehicles and components for
rechargeable batteries, the net effect on trade balances of these
factors was offset by higher raw material and energy
costs.48
Valuations of Major
Indices49
Index Name |
P/E Ratio |
P/B Ratio |
Dividend Yield |
Nifty Index (India) |
22.4 |
3.0 |
1.3% |
S&P 500 (US) |
19.1 |
3.9 |
1.8% |
Nikkei 225 (Japan) |
13.9 |
1.6 |
2.3% |
FTSE 100 (UK) |
11.6 |
1.6 |
3.7% |
Shanghai Composite
(China) |
10.9 |
1.3 |
2.8% |
Hang Seng Index (HK) |
10.4 |
1.1 |
3.4% |
TAIEX (Taiwan) |
9.6 |
1.8 |
5.2% |
KOSPI 200 (S. Korea) |
7.2 |
0.8 |
2.1% |
WKOF Portfolio
Holdings50 |
4.0 |
0.4 |
3.7% |
South Korean equities and the portfolio holdings of WKOF
continue to offer significant valuation discounts relative to other
countries’ equity markets as represented by the price-to-earnings
ratios (“P/E ratios”) and price-to-book ratios (“P/B ratios”)
listed above.
As previously discussed, WKOF’s portfolio discount of the
preference shares it owns relative to the corresponding common
shares at the end of 2022 was 51.7%. In addition, the KOSPI 200 has
depressed valuation multiples as shown above relative to other
major indices. As a result, WKOF’s portfolio holdings traded 71%
lower than the average P/E and 85% lower than the average P/B, as
compared to the average ratios of the selected indices above.
At year end, the two largest holdings, by issuer, of WKOF are
Hyundai Motor Company (“HMC”) and LG Chem Ltd (“LGC”). These were
also double-digit percentage holdings throughout the fiscal year of
2022.
An investor owning discounted Korean preference shares receives
higher annual cash dividends compared to their corresponding common
shares and also hopes to benefit from potential capital
appreciation that could arise if the discount narrows. We began
increasing WKOF’s holdings of HMC starting in 2021, when different
series of HMC’s preference shares traded at discounts of 55-60%
relative to the price of HMC’s common shares. At the beginning of
2022, HMC was WKOF’s second largest holding by issuer. While it
remains unclear when or if the discount will narrow, the first
preference shares of HMC were trading at a larger discount than its
three-year historical average discount prior to 202051.
Our view was and remains that, even in the absence of the discount
tightening, the historical dividend payouts of HMC’s preference
shares, if continued, are likely to generate a material yield and
return for the position based on the low trading price of the
preference shares. While HMC’s preference share price declined
during 2022, WKOF continues to maintain a sizable position in HMC’s
preference shares as we believe the current discount level still
indicates potential for high returns.
In addition to higher dividend yields generated through owning
discounted preference shares, we believe an additional discount
exists by owning preference shares of certain holding companies. An
example of such a holding company is LG Chem, which we discussed in
this year’s interim report issued on 12
September 2022. Our belief is that LG Chem’s shareholders,
regardless of share class, are exposed to an additional discount
that exists between the price of the common shares and the value of
its assets. This is because LG Energy Solutions ("LGES"), a
publicly traded stock, represent 79% of LG Chem's assets. We
estimate that LG Chem’s common shares trade at an approximately 58%
discount to the value of its assets.52 Since the assets
of LG Chem are mainly publicly traded securities, one could view LG
Chem as a type of closed-end fund - albeit one with concentrated
holdings. Typically, a close-end fund trading at a 20% discount
with a low expense ratio would be considered cheap. LG Chem has low
expenses, and generally has a controlling interest in its
subsidiaries.53
Accounting for both the discount of LG Chem’s preference share
to its common share and the discount of LG Chem’s common share to
the value of its assets, we estimate the final look-through
discount of LG Chem’s preference shares to be approximately 81%.
While there is no guarantee of the discounts ever disappearing or
even narrowing, we are optimistic that the sheer magnitude of this
double look-through discount may eventually be discovered by
diligent investors seeking opportunities with highly asymmetric
risk and reward.
Korean Corporate Governance
Corporate governance in Korea has historically been a major
subject of criticism among investors. However, current market
trends favour improvements in corporate governance in Korea and we
have observed changes in several areas during recent years;
notably, the number of share buybacks has increased even as payout
ratios have risen. For example, LG Corp announced a share buyback
this year that would be sufficient to repurchase about 4% of the
stock or 6% of float once completed, on top of its
dividend.54 There have also been similar share buybacks
in recent years at companies like SK Inc. and Samsung
Electronics.55 We view buybacks and higher dividend
payouts as instances of good corporate governance as these
mechanisms allow companies to provide additional returns of cash to
shareholders.
Additionally, the sharp growth in activist demands made against
Korean companies at the end of 2021 continued in 2022. This
category grew by 20 cases in 2022 (the largest increase since
2016), representing a 74% increase on 2021’s total of
27.56 Importantly, the growth in such demands also
corresponded with a concomitant increase in companies acquiescing
to such demands. One noteworthy instance was a local activist
campaign against a major local talent agency producing K-pop music
bands, in which the local activist fund successfully appointed its
choice of an independent auditor to the company’s
board.57 While shareholder activism is still far less
prevalent in Korea and other Asian countries than in Europe or the United
States, we view the growth in activist demands in
South Korea as indicating that
under the right circumstances, Korean shareholders are growing more
willing to exercise influence in favour of corporate governance
improvements.
Another growing source of criticism of the current corporate
governance environment in South
Korea has been from the country’s top financial regulators.
From 15 September 2022 to
3 November 2022, several high-profile
public officials held at least three public policy seminars with
academics, institutional investors, and other industry participants
to find solutions to reduce the discount that Korean stocks trade
at relative to global comparable companies. The key individuals
leading these seminars included the vice chairperson of the
Financial Services Commission, the governor of the Financial
Supervisory Services and chairperson of the Korea Exchange. The
main themes discussed during the series of seminars include
dividend policy reform, increasing foreign investor access to
Korean equity markets and protection of minority shareholders
during mergers and acquisitions or insider trading.58
Our view remains that improvements in corporate governance should
benefit shareholders of preference shares in many ways, including
increased dividend yields and share buybacks.
Hedging
WKOF pursues its investment strategy with a portfolio that is
generally long only. However, as further described in WKOF's Annual
Report and Audited Financial Statements for the year ended
31 December 2017 and in subsequent
Annual Reports, the Board approved a hedging strategy intended to
reduce exposure to extreme events that would be catastrophic to its
Shareholders’ investments in WKOF because of political tensions in
Northeast Asia. WKOF has limited
its use of hedging instruments to purchases of credit default swaps
(“CDS”) and put options on the MSCI Korea 25/50 Index - securities
that we believe would generate high returns if Korea experienced
geopolitical disaster without introducing material new risks into
the portfolio. WKOF is actively managing these geopolitical risks
and may adjust the portfolio’s hedges as deemed appropriate. These
catastrophe hedges are not expected to make money in most states of
the world. We expect that, as with any insurance policy, WKOF’s
hedges will lose money most of the time. The tables below provide
details about the hedges as of 31 December
2022. Note that outside of the general market and portfolio
hedges described herein, WKOF has generally not hedged interest
rates or currencies.
Credit
Default Swaps on South Korean Sovereign Debt |
Notional Value (GBP)59 |
Total Cost to Expiration (GBP) |
Annual
Cost (GBP) |
Price Paid as % of Notional Value
(per annum) |
Expiration Date |
Duration
(Years) |
3-year
CDS |
83m |
593,608 |
183,616 |
0.23% |
2025 |
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concluding Remarks
The pricing of Korean holding companies and preference shares is
a direct refutation of all the standard analyses of market
efficiency. The mispricing is large, and it is easily discovered.
Historically, in countries such as Brazil and Italy, discounts of preference shares have
eventually tightened significantly.60 Even if Korean
preference share discounts never disappear or narrow, under
existing market conditions, preference shares trading at a discount
are likely to remain more economically attractive than their
corresponding common shares due to lower purchase prices and
increased yields. The dividend spread would not be sufficiently
attractive on its own to justify an investment in such shares if
there was a low probability that discounts would ever narrow;
however, when coupled with our optimism that discounts will narrow
eventually, enhanced yields appear to be attractive compensation
for potential delays in such outcome.
Thank you for your trust, and we look forward to providing you
with updates in the future.
Weiss Asset Management LP
28 April 2023
Independent Auditor’s Report
To the Members of Weiss Korea
Opportunity Fund Ltd.
Our opinion is unmodified
We have audited the financial statements of Weiss
Korea Opportunity Fund Ltd. (the “Company”), which comprise
the statement of financial position as at 31 December
2022, the statements of comprehensive income, changes in
equity and cash flows for the year then ended, and notes,
comprising significant accounting policies and other explanatory
information.
In our opinion, the accompanying
financial statements:
· give a true and fair view of the financial
position of the Company as at 31 December
2022, and of the Company’s financial performance and cash
flows for the year then ended;
· are prepared in accordance
with International Financial Reporting Standards as adopted by
the EU (“IFRS”); and
· comply with the Companies (Guernsey) Law,
2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Material uncertainty relating to
going concern
|
The risk |
Our response |
|
|
|
Going
Concern
Refer to the Report of the Directors.
We draw attention to Note 2c to the financial statements, which
indicates that in accordance with the Company’s Articles of
Association and its Admission Document to the Alternative
Investment Market (“AIM”) of the London Stock Exchange, the Company
shall offer all shareholders the right to elect to realise some or
all of the value of their Ordinary Shares, less applicable costs
and expenses, on or prior to the fourth anniversary of the
Company’s AIM admission and every two years thereafter, the most
recent being 14 May 2021 and a forthcoming opportunity being on 13
May 2023 (“the Realisation Opportunity”). Subject to the aggregate
net asset value of the continuing Ordinary Shares falling below the
viable threshold disclosed in note 2c to the financial statements,
the directors may propose an ordinary resolution for the winding up
of the Company.
This condition constitutes a material uncertainty that may cast
significant doubt about the Company’s ability to continue as a
going concern.
Our opinion is not modified in respect of this matter.
|
Disclosure
quality
The financial statements explain how the directors have formed a
judgement that it is appropriate to adopt the going concern basis
of preparation of the Company.
That judgement is based on an evaluation of the inherent risks to
the Company’s business model and how those risks might affect the
Company’s financial resources or ability to continue operations
over a period of at least a year from the date of approval of the
financial statements, in particular in relation to the Realisation
Opportunity.
The risk for our audit is whether such judgements amounted to a
material uncertainty that may cast significant doubt on the ability
of the Company to continue as a going concern. If so, that fact is
required to be disclosed (as has been done) and along with a
description of the circumstances, is a key financial statement
disclosure. |
Our audit procedures
included but were not limited to:
Realisation Opportunity:
We considered the risk that the outcome of the Realisation
Opportunity could affect the Company for at least a year from the
date of approval of the financial statements (the “going concern
period”) by considering outcomes of previous realisation
opportunities held by the Company, inspecting summaries of meetings
held by the directors, inquiring with the investment manager as to
their assessment of the likelihood of uptake of the Realisation
Opportunity, and considering key financial metrics including the
performance of the Company’s share price against relevant market
indices.
Assessing disclosures:
We considered whether the going concern disclosure in note 2(c) to
the financial statements gives full and accurate description of the
directors’ assessment of going concern, including the identified
risks and dependencies. |
Other key audit matters: our
assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of
the financial statements and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) identified by us, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources
in the audit; and directing the efforts of the engagement team.
Going concern is a significant key audit matter and is described in
the 'Material uncertainty relating to going concern' section of our
report. These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters. In arriving at our audit opinion above, the other
key audit matter was as follows (unchanged from 2021):
|
The risk |
Our response |
|
|
|
Valuation of
financial assets at fair value through profit or loss
(“Investments”)
£120,764,446; (2021: £159,614,094)
Refer to the Audit Committee Report, note 2f accounting policy
and notes 12 and 21 disclosures
|
Basis:
As at 31 December 2022 the Company had invested 95% of its net
assets in listed preferred shares and other financial instruments
issued by companies incorporated and listed in South Korea, which
in certain cases may trade at a discount to the corresponding
common shares of the same companies.
The Company’s listed investments are valued based on bid-market
prices at the close of business of the relevant stock exchange on
the reporting date obtained from third party pricing providers.
Risk:
The valuation of the Company’s investments, given they represent
the majority of the Company’s net assets as at 31 December 2022, is
a significant area of our audit. |
Our audit procedures
included but were not limited to:
Control Evaluation:
We assessed the design, implementation and operating effectiveness
of the relevant controls over the valuation of investments.
Valuation procedures including use of a KPMG
Specialist:
We have used our own valuation specialist to independently price
all investments to a third party data source and assessed the
trading volumes behind such prices.
Assessing disclosures:
We also considered the Company’s investment valuation policies and
their application as described in note 2f to the Financial
Statements for compliance with IFRS in addition to the adequacy of
disclosures in notes 12 and 21. |
Our application of materiality and an
overview of the scope of our audit
Materiality for the financial statements as a whole was set
at £2,360,000, determined with reference to a benchmark of net
assets of £127,080,493 of which it represents approximately
1.9% (2021: 2%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an
acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance
materiality for the Company was set at 75% (2021: 75%) of
materiality for the financial statements as a whole, which equates
to 1,770,000 (2021: £2,497,000). We applied this percentage in our
determination of performance materiality because we did not
identify any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £118,000, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Our audit of the Company was undertaken to the materiality
level specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Company
or to cease its operations, and as they have concluded that the
Company's financial position means that this is realistic. They
have concluded that there are material uncertainties that could
cast significant doubt over its ability to continue as a going
concern for at least a year from the date of approval of the
financial statements (the “going concern period").
An explanation of how we evaluated management's assessment of
going concern is set out in the ‘Material uncertainty relating to
going concern’ section of our report.
Our conclusions based on this work:
· we consider that the directors' use of the
going concern basis of accounting in the preparation of the
financial statements is appropriate;
· we have nothing material to add or draw
attention to in relation to the directors’ statement in Note 2c to
the financial statements on the use of the going concern basis of
accounting, and their identification therein of a material
uncertainty over the Company’s ability to continue to use that
basis for the going concern period, and we found the going concern
disclosure in note 2c to be acceptable
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they
were made, the above conclusions are not a guarantee that the
Company will continue in operation.
Fraud and breaches of laws and
regulations – ability to detect
Identifying and responding to risks
of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud
risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to
commit fraud. Our risk assessment procedures included:
· enquiring of management as to the Company’s
policies and procedures to prevent and detect fraud as well as
enquiring whether management have knowledge of any actual,
suspected or alleged fraud;
· reading minutes of meetings of those charged
with governance; and
· using analytical procedures to identify any
unusual or unexpected relationships.
As required by auditing standards, we perform procedures to
address the risk of management override of controls, in particular
the risk that management may be in a position to make inappropriate
accounting entries. On this audit we do not believe there is a
fraud risk related to revenue recognition because the Company’s
revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources
or agreements with little or no requirement for estimation from
management. We did not identify any additional fraud risks.
We performed procedures including
· Identifying journal entries and other
adjustments to test based on risk criteria and comparing any
identified entries to supporting documentation; and
· incorporating an element of unpredictability
in our audit procedures.
Identifying and responding to risks
of material misstatement due to non-compliance with laws and
regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the financial
statements from our sector experience and through discussion with
management (as required by auditing standards), and from inspection
of the Company’s regulatory and legal correspondence, if any, and
discussed with management the policies and procedures regarding
compliance with laws and regulations. As the Company is regulated,
our assessment of risks involved gaining an understanding of the
control environment including the entity’s procedures for complying
with regulatory requirements.
The Company is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation and taxation legislation and we assessed the extent of
compliance with these laws and regulations as part of our
procedures on the related financial statement items.
The Company is subject to other laws and regulations where the
consequences of non-compliance could have a material effect on
amounts or disclosures in the financial statements, for instance
through the imposition of fines or litigation or impacts on the
Company’s ability to operate. We identified financial services
regulation as being the area most likely to have such an effect,
recognising the regulated nature of the Company’s activities and
its legal form. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and
regulations to enquiry of management and inspection of regulatory
and legal correspondence, if any. Therefore if a breach of
operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit
to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-compliance
with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the
inherently limited procedures required by auditing standards would
identify it.
In addition, as with any audit, there remains a higher risk of
non-detection of fraud, as this may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information.
The other information comprises the information included in the
annual report but does not include the financial
statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and we do
not express an audit opinion or any form of assurance conclusion
thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Disclosures of emerging and principal
risks and longer term viability
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability
statement, and the financial statements and our audit
knowledge. we have nothing material to add or draw attention to in
relation to:
· the directors’ confirmation within the
Viability Statement that they have carried out a robust
assessment of the emerging and principal risks facing the Company,
including those that would threaten its business model, future
performance, solvency or liquidity;
· the emerging and principal risks disclosures
describing these risks and explaining how they are being managed or
mitigated;
· the directors’ explanation in
the Viability Statement as to how they have assessed the
prospects of the Company, over what period they have done so and
why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit
knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements
and our audit knowledge:
· the directors’ statement that they consider
that the annual report and financial statements taken as a whole is
fair, balanced and understandable, and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy;
· the section of the annual report describing
the work of the Audit Committee, including the significant issues
that the audit committee considered in relation to the financial
statements, and how these issues were addressed; and
· the section of the annual report that
describes the review of the effectiveness of the Company’s risk
management and internal control systems.
We have nothing to report on other
matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
· the Company has not kept proper accounting
records; or
· the financial statements are not in
agreement with the accounting records; or
· we have not received all the information and
explanations, which to the best of our knowledge and belief are
necessary for the purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement, the directors
are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error;
assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and
restrictions on its use by persons other than the Company's members
as a body
This report is made solely to the Company’s members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report,
or for the opinions we have formed.
KPMG Channel Islands Limited
Chartered Accountants
Guernsey
28 April 2023
Statement of Financial Position
As at 31
December 2022
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
31
December |
|
31
December |
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
Notes |
£ |
|
£ |
Assets |
|
|
|
|
|
|
|
|
Financial
assets at fair value through profit or loss |
|
12,21 |
120,764,446 |
|
159,614,094 |
Derivative
financial assets |
|
|
13,21 |
- |
|
221,639 |
Other
receivables |
|
|
|
14 |
4,598,722 |
|
4,976,005 |
Due from
broker |
|
|
|
|
- |
|
696 |
Margin
account |
|
|
|
15 |
1,327,313 |
|
1,381,413 |
Cash and
cash equivalents |
|
|
16 |
2,890,620 |
|
3,091,245 |
Total
assets |
|
|
|
|
129,581,101 |
|
169,285,092 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Derivative
financial liabilities |
|
|
13,21 |
1,145,453 |
|
984,227 |
Due to
broker |
|
|
|
|
- |
|
263,091 |
Other
payables |
|
|
|
17 |
1,355,155 |
|
1,496,629 |
Total
liabilities |
|
|
|
|
2,500,608 |
|
2,743,947 |
Net assets |
|
|
|
|
|
127,080,493 |
|
166,541,145 |
Represented by: |
|
|
|
|
|
|
|
Shareholders' equity and reserves |
|
|
|
|
|
|
Share
capital |
|
|
|
18 |
33,986,846 |
|
33,986,846 |
Other
reserves |
|
|
|
|
93,093,647 |
|
132,554,299 |
Total
shareholders' equity |
|
|
|
127,080,493 |
|
166,541,145 |
Net
Assets Value per Ordinary Share |
|
6 |
1.8336 |
|
2.4029 |
The Notes form an integral part of these Financial
Statements.
The Financial Statements were approved and authorised for issue
by the Board of Directors on 28 April
2023.
Norman
Crighton
Gill Morris
Chair
Director
Statement of Comprehensive Income
For the year ended 31 December 2022
|
|
|
|
|
|
For
the year ended |
For
the year ended |
|
|
|
|
|
|
31
December 2022 |
31
December 2021 |
|
|
|
|
|
Notes |
£ |
£ |
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net changes
in fair value of financial assets
at fair value through profit or loss |
7 |
(37,206,667) |
2,349,820 |
Net changes
in fair value of derivative financial
instruments through profit or loss |
8 |
1,253,397 |
403,489 |
Net
foreign currency gains/(losses) |
2n |
632,948 |
(424,970) |
Dividend
income |
|
|
9 |
5,088,748 |
5,586,806 |
Bank
interest income |
|
|
9 |
4,488 |
- |
Total
(loss)/income |
|
|
|
(30,227,086) |
7,915,145 |
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
Operating
expenses |
|
|
10 |
(3,696,545) |
(4,891,244) |
Total
operating expenses |
|
|
(3,696,545) |
(4,891,244) |
|
|
|
|
|
|
|
|
(Loss)/profit for the year before dividend withholding tax |
(33,923,631) |
3,023,901 |
Dividend
withholding tax |
|
2u |
(1,119,942) |
(1,232,396) |
(Loss)/profit for the year after dividend withholding
tax |
(35,043,573) |
1,791,505 |
(Loss)/profit and total comprehensive
(loss)/income for the year |
|
(35,043,573) |
1,791,505 |
Basic
and diluted (loss)/earnings per Share |
5 |
(0.5056) |
0.0244 |
All items derive from continuing activities.
Following review of the AIC SORP and its impact on the Statement
of Comprehensive Income the Board has decided not to follow the
recommended income and capital split. This is due to the fact that
the Company’s dividend policy is not influenced by its expense
policy. See Investment Objective and Dividend Policy for details of
the Company’s dividend policy.
The Notes form an integral part of these Financial
Statements.
Statement of Changes in Equity
For the year ended 31 December 2022
|
|
|
|
Share |
Other |
|
|
|
|
|
capital |
reserves |
Total |
|
|
|
Notes |
£ |
£ |
£ |
Balance as at 1
January 2022 |
|
|
|
33,986,846 |
132,554,299 |
166,541,145 |
Total
comprehensive loss for the year |
|
|
- |
(35,043,573) |
(35,043,573) |
Transactions with Shareholders, recorded directly in
equity |
|
|
|
|
|
Distributions
paid |
|
|
3 |
- |
(4,417,079) |
(4,417,079) |
Balance as at 31
December 2022 |
|
|
|
33,986,846 |
93,093,647 |
127,080,493 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Other |
|
|
|
|
|
capital |
reserves |
Total |
For the year ended
31 December 2021 |
|
|
Notes |
£ |
£ |
£ |
|
|
|
|
|
|
|
Balance as at 1
January 2021 |
|
|
|
68,124,035 |
135,000,918 |
203,124,953 |
Total
comprehensive income for the year |
|
|
- |
1,791,505 |
1,791,505 |
Transactions with Shareholders, recorded directly in
equity |
|
|
|
|
|
Purchase of own Shares
for cancellation |
|
|
18 |
(1,719,433) |
- |
(1,719,433) |
Purchase of
Realisation Shares |
|
|
18 |
(32,417,756) |
- |
(32,417,756) |
Distributions
paid |
|
|
3 |
- |
(4,238,124) |
(4,238,124) |
Balance as at 31
December 2021 |
|
|
|
33,986,846 |
132,554,299 |
166,541,145 |
The Notes form an integral part of these Financial
Statements.
Statement of Cash Flows
For the year ended 31 December 2022
|
|
For
the year ended 31 December 2022 |
|
For
the year ended 31 December 2021 |
|
Notes |
£ |
|
£ |
Cash flows from
operating activities |
|
|
|
|
(Loss)/profit for the
year |
|
(35,043,573) |
|
1,791,505 |
Adjustments for: |
|
|
|
|
Net change in fair
value of financial assets held at fair value through profit or
loss |
7 |
37,206,667 |
|
(2,349,820) |
Exchange
(gains)/losses on cash and cash equivalents |
|
(523,108) |
|
424,970 |
Net change in fair
value of derivative financial instruments held at fair value
through profit or loss |
8 |
(1,253,397) |
|
(403,489) |
Increase in
receivables excluding dividends |
|
(3,314) |
|
(620) |
Decrease in other
payables excluding withholding tax |
17 |
(57,744) |
|
(210,895) |
Dividend income |
|
(3,968,807) |
|
(4,354,411) |
Dividend received |
|
4,265,673 |
|
4,330,946 |
Purchase
of financial assets at fair value through profit or loss |
(10,431,005) |
|
(104,226,201) |
Proceeds from the sale
of financial assets at fair value through profit or loss |
|
11,811,591 |
|
140,561,400 |
Net cash generated
from operating activities |
|
2,002,983 |
|
35,563,385 |
|
|
|
|
|
Cash flows from
investing activities |
|
|
|
|
Opening of derivative
financial instruments |
|
1,799,480 |
|
724,897 |
Closure of derivative
financial instruments |
|
(163,217) |
|
(1,084,182) |
Decrease in margin
account |
|
54,100 |
|
714,561 |
Net cash generated
from investing activities |
|
1,690,363 |
|
355,276 |
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
Purchase of own shares
for cancellation |
18 |
- |
|
(1,719,433) |
Repurchase of
realisation Shares |
|
- |
|
(32,417,756) |
Distributions
paid |
3 |
(4,417,079) |
|
(4,238,124) |
Net cash used in
financing activities |
|
(4,417,079) |
|
(38,375,313) |
|
|
|
|
|
Net decrease in
cash and cash equivalents |
|
(723,733) |
|
(2,456,652) |
Exchange
gains/(losses) on cash and cash equivalents |
|
523,108 |
|
(424,970) |
Cash and cash
equivalents at the beginning of the year |
|
3,091,245 |
|
5,972,867 |
Cash and cash
equivalents at the end of the year |
|
2,890,620 |
|
3,091,245 |
The Notes form an
integral part of these Financial Statements.
Notes to the Financial Statements
For the year ended 31 December 2022
1. General information
Weiss Korea Opportunity Fund Ltd. (“WKOF” or the “Company”) was
incorporated with limited liability in Guernsey, as a closed-ended
investment company on 12 April 2013.
The Company’s Shares were admitted to trading on AIM of the LSE on
14 May 2013.
The Investment Manager of the Company is Weiss Asset Management
LP.
At the AGM held on 27 July 2016,
the Board approved the adoption of the new Articles of
Incorporation in accordance with Section 42(1) of the Companies
(Guernsey) Law, 2008 (the “Law”).
2. Significant accounting
policies
a) Statement of compliance
The Financial Statements of the Company for the year ended
31 December 2022 have been prepared
in accordance with IFRS adopted by the European Union and the AIM
Rules of the London Stock Exchange. They give a true and fair view
and are in compliance with the Law. Unless disclosed elsewhere
within these financial statements, the Board has adopted the AIC
Statement of Recommended Practice (“SORP”) where this is consistent
with the requirements of IFRS, in compliance with the Companies
(Guernsey) Law, 2008 and appropriate for the Company’s
policies.
b) Basis of preparation
The Financial Statements are prepared in Pounds Sterling (£),
which is the Company’s functional and presentational currency. They
are prepared on a historical cost basis modified to include
financial assets and liabilities at fair value through profit or
loss.
c) Going concern
In accordance with the Company’s Articles of Incorporation
and its Admission Document, the Company shall offer all
Shareholders the right to elect to realise some or all of the value
of their Ordinary Shares (the “Realisation Opportunity”), less
applicable costs and expenses, on or prior to the fourth
anniversary of the Company’s admission to AIM and, unless it has
already been determined that the Company be wound-up, every two
years thereafter, the next such opportunity being 12 May 2023 (the “Realisation Date”).
On 13 March 2023, the Company
announced that pursuant to the Realisation Opportunity,
Shareholders who are on the register as at the record date may
elect, during the Election Period, to redesignate all or part
(provided that such part be rounded up to the nearest whole
Ordinary Share) of their Ordinary Shares as Realisation Shares. The
Election Period commenced on 12 April
2023 and closes at 1pm,
5 May 2023.
Subject to the aggregate NAV of the continuing Ordinary Shares
at the close of business on the last business day before the
Realisation Date being not less than £50 million, the Ordinary
Shares held by the Shareholders who have elected for realisation
will be redesignated as Realisation Shares and the Portfolio will
be split into two separate and distinct Pools, namely the
Continuation Pool (comprising the assets attributable to the
continuing Ordinary Shares) and the Realisation Pool (comprising
the assets attributable to the Realisation Shares). If one or more
Realisation Elections are duly made and the NAV of the continuing
Ordinary Shares at the close of business on the last business day
before the Reorganisation Date is less than £50 million, the
Directors may propose an ordinary resolution for the winding up of
the Company and may pursue a liquidation of the Company instead of
splitting the Portfolio into the Continuation Pool and the
Realisation Pool.
Currently, the Board does not know the number of Shareholders
(or related Shares) who will take up the Realisation Opportunity.
Based on the uncertainty of the uptake of the offer, there is a
material uncertainty over the going concern of the entity. As the
assets of the Company consist mainly of securities that are readily
realisable, whilst the Directors acknowledge that the liquidity of
these assets needs to be managed, the Directors believe that the
Company has adequate financial resources to meet its liabilities as
they fall due in the foreseeable future and for at least twelve
months from the date of this Report, and that it is appropriate for
the Financial Statements to be prepared on a going concern basis,
given that the Board believes the Company will continue in
existence post the Realisation Opportunity.
d) Standards, amendments and
interpretations not yet effective
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning on/after
1 January 2023, and have not been
early adopted in preparing these financial statements. None of
these is expected to have a material effect on the financial
statements of the Company.
· IFRS 17 Insurance Contracts (Effective
1 January 2023)
· Definition of Accounting Estimates
(Amendments to IAS 8) (Effective 1 January
2023)
· Disclosure of Accounting Policies
(Amendments to IAS 1 and IFRS Practice Statement 2)
(Effective 1 January 2023)
· Amendments to IAS 12 Income Taxes –
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (effective from 1 January
2023)
· Amendments to IAS 1 Presentation of
Financial Statements – Classification of liabilities (effective
from 1 January 2024)
e) Standards, amendments and
interpretations effective during the year
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning on
1 January 2022, and have been adopted
in preparing these financial statements where relevant.
· Amendments to IFRS 3 Business
Combinations – Reference to the Conceptual Framework
· Amendments to IAS 37 Provisions,
Contingent Liabilities and Contingent Assets – Onerous Contracts -
Cost of Fulfilling a Contract
· Amendments to IFRS 1 First-time
Adoption of International Financial Reporting Standards –
Subsidiary as a First-Time Adopter
· Amendments to IFRS 9 Financial
Instruments – Fees in the '10 per cent' test for derecognition of
financial liabilities
The adoption of these standards has not had a material impact on
the financial statements of the Company.
f) Financial
instruments
i) Classification
Financial assets are classified into the following categories:
financial assets at fair value through profit or loss and amortised
cost.
The classification depends on the business model in which a
financial asset is managed and its contractual cash flows.
Financial liabilities are classified as either financial
liabilities at fair value through profit or loss or other financial
liabilities at amortised cost.
Financial assets at fair value
through profit or loss (“investments”)
Financial assets and derivatives are recognised in the Company’s
Statement of Financial Position when the Company becomes a party to
the contractual provisions of the instrument.
Purchases and sales of investments are recognised on the trade
date (the date on which the Company commits to purchase or sell the
investment). Investments purchased are initially recorded at fair
value, being the consideration given and excluding transaction or
other dealing costs associated with the investment.
Subsequent to initial recognition, investments are measured at
fair value. Gains and losses arising from changes in the fair value
of investments and gains and losses on investments that are sold
are recognised through profit
or loss in the Statement of Comprehensive Income within net
changes in fair value of financial assets at fair value through
profit or loss.
ii) Recognition and
measurement
Financial assets at fair value
through profit or loss (“derivatives: credit default swaps and
options”)
Subsequent to initial recognition at fair value, credit default
swaps and options are measured at fair value through profit and
loss.
The fair values of the credit default swaps and options are
based on traded prices. The valuation of the credit default swaps
and options fair values means fluctuations will be reflected in the
net changes in fair value of derivative instruments through profit
or loss.
Derivatives are presented in the Statement of Financial Position
as financial assets when their fair value is positive and as
financial liabilities when their fair value is negative.
Other financial instruments
For other financial instruments, including other receivables and
other payables, the carrying amounts as shown in the Statement of
Financial Position approximate the fair values due to the short
term nature of these financial instruments.
iii) Fair Value Measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Investments traded in
active markets are valued at the latest available bid prices ruling
at midnight, Greenwich Mean Time (“GMT”), on the reporting date.
The Directors are of the opinion that the bid-market prices are the
best estimate of fair value. Gains and losses arising from changes
in the fair value of financial assets and financial liabilities at
fair value through profit and loss are shown as net changes in fair
value of financial assets through profit or loss in Note 12 and are
recognised in the Statement of Comprehensive Income in the period
in which they arise. Gains and losses arising from changes in the
fair value of derivative financial instruments are shown as net
changes in fair value of derivative financial instruments through
profit or loss in Note 13 and are recognised in the Statement of
Comprehensive Income in the period in which they arise.
iv) Derecognition of financial
instruments
A financial asset is derecognised when: (a) the rights to
receive cash flows from the asset have expired; (b) the Company
retains the right to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to
a third party under a “pass through arrangement”; or (c) the
Company has transferred substantially all the risks and rewards of
the asset, or has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
On derecognition of a financial asset, the difference between
the carrying amount of the asset using the average cost method and
the consideration received (including any new asset obtained, less
any new liability assumed) is recognised in profit or loss.
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled, or expired.
g) Net changes in
fair value of financial assets at fair value through profit or
loss
Net changes in fair value of financial assets at fair value
through profit or loss includes all realised and unrealised fair
value changes on financial instruments, but excludes dividend
income.
h) Net changes in
fair value of derivative financial instruments through profit or
loss
Net changes in fair value of derivative financial instruments
includes all realised and unrealised fair value changes on
derivative contracts.
i) Other
income
Dividend income from equity investments is recognised through
profit or loss in the Statement of Comprehensive Income when the
relevant investment is quoted ex-dividend. Interest income,
including income arising from cash and cash equivalents is
recognised using the effective interest method.
j) Expenses
All expenses are accounted for on an accrual basis and are
recognised in profit or loss. Expenses are charged to the capital
reserve where a connection with the maintenance or enhancement of
the value of the investments can be demonstrated.
k) Cash and cash
equivalents
Cash comprises cash in hand and demand deposits. Cash
equivalents include bank overdrafts. Cash equivalents are short
term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to insignificant
changes in value. Cash, deposits with banks, and bank overdrafts
are stated at their principal amount.
l) Margin
accounts
Margin accounts represent deposits with the sub-custodian,
transferred as collateral against open derivative contracts. The
Company’s investment into traded derivative instruments requires
the need to post and maintain margin accounts with set limits with
the aim of minimising counterparty risk associated with these
derivative instruments. Margin account balances are stated at their
principal amount.
m) Share capital
Ordinary Shares are classified as equity. Incremental costs
directly attributable to the issue of these Shares are shown in
equity as a deduction, net of tax, from the proceeds and disclosed
in the Statement of Changes in Equity.
n) Foreign currency
translations
Functional and presentation
currency
The Financial Statements of the Company are presented in the
currency of the primary economic environment in which the Company
operates (its “functional currency”). The Directors have considered
the currency in which the original capital was raised,
distributions will be made, and ultimately the currency in which
capital would be returned in a liquidation.
On the reporting date, the Directors believe that pounds
sterling best represents the functional currency of the
Company.
For the purpose of the Financial Statements, the results and
financial position of the Company are expressed in pounds sterling,
which is the presentational currency of the Company. Monetary
assets and liabilities, denominated in foreign currencies, are
translated into pounds sterling at the exchange rate at the
reporting date. Non-monetary assets denominated in foreign
currencies that are measured at fair value are translated in pounds
sterling at the exchange rate at the date on which the fair value
was determined. Realised and unrealised gains or losses on currency
translation are recognised in the Statement of Comprehensive
Income.
o) Treasury
shares
Where the Company purchases its own share capital, the
consideration paid, which includes any directly attributable costs,
is deducted through share capital. The difference between the total
consideration and the total nominal value of all Shares purchased
is recognised through other reserves.
If such Shares are subsequently sold or reissued, any
consideration received, net of any directly attributable
incremental transaction costs and the related income tax effects,
is recognised as an increase in equity and the resulting surplus or
deficit on the transaction is transferred to or from other
reserves.
Where the Company cancels treasury shares, no further adjustment
is required to the share capital account at the time of
cancellation. Shares held in treasury are excluded from
calculations when determining NAV per Share and earnings per
Share.
p) Operating
segments
The Board has considered the requirements of IFRS 8 ‘Operating
Segments’ and is of the view that the Company is engaged in a
single segment of business, being an investment strategy tied to
listed preference shares issued by companies incorporated in
South Korea. The Board, as a
whole, has been determined as constituting the chief operating
decision maker of the Company.
The key measure of performance used by the Board to assess the
Company’s performance and to allocate resources is the total return
on the Company’s NAV, as calculated under IFRS, and therefore no
reconciliation is required between the measure of profit or loss
used by the Board and that contained in these Audited Financial
Statements.
The Board of Directors is charged with setting the Company’s
investment strategy in accordance with the investment policy. They
have delegated the day to day implementation of this strategy to
the Company’s Investment Manager but retain responsibility to
ensure that adequate resources of the Company are directed in
accordance with their decisions. The investment decisions of the
Investment Manager are reviewed on a regular basis to ensure
compliance with the policies and legal responsibilities of the
Board. The Investment Manager has been given full authority to act
on behalf of the Company, including the authority to purchase and
sell securities and other investments on behalf of the Company and
to carry out other actions as appropriate to give effect
thereto.
Whilst the Investment Manager may make the investment decisions
on a day to day basis regarding the allocation of funds to
different investments, any changes to the investment strategy or
major allocation decisions have to be approved by the Board, even
though they may be proposed by the Investment Manager.
The Board therefore retains full responsibility as to the major
decisions made on an ongoing basis.
q) Other
receivables
Other receivables are amounts due in the ordinary course of
business. Other receivables are recognised initially at fair value
and subsequently measured at amortised cost using the effective
interest method, less provision for impairment.
r) Other
payables
Other payables are obligations to pay for services that have
been acquired in the ordinary course of business. Other payables
are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method.
s) Due from and due
to brokers
Amounts due from and due to brokers represent receivables for
securities sold and payables for securities purchased that have
been contracted for but not yet settled or delivered on the
Statement of Financial Position date, respectively.
t) Dividend
distribution
Dividend distribution to the Company’s Shareholders is
recognised as a liability in the Company’s Financial Statements and
disclosed in the Statement of Changes in Equity in the period in
which the dividends are proposed and approved by the Board. The
Company intends to return to Shareholders all dividends received,
net of withholding tax, on an annual basis.
u) Taxation
The Company has been granted Exempt Status under the terms of
The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 to income
tax in Guernsey. Its liability is an annual fee of £1,200 (2021:
£1,200).
The amounts disclosed as taxation in the Statement of
Comprehensive Income relate solely to withholding tax levied in
South Korea on distributions from
South Korean companies at an offshore rate of 22%.
v) Other
reserves
Total comprehensive income for the year is transferred to other
reserves. Other reserves are made up of net income and operating
gains/losses. As per the distribution policy, dividends received
are the only item distributable from other reserves.
3. Dividends to
Shareholders
Dividends, if any, will be paid annually each year. An annual
dividend of 6.3732 pence per Share
(£4,417,079) was approved on 12 May 2022 and paid on
10 June 2022 in respect of the year ended 31 December 2021. An annual dividend of
5.2311 pence per Share (£4,238,124)
was approved on 4 May 2021 and paid
on 4 June 2021 in respect of the year
ended 31 December 2020.
4. Significant accounting
judgements, estimates and assumptions
The preparation of the Financial Statements in conformity with
IFRS requires management to make judgements, estimates, and
assumptions that affect the application of policies and the
reported amounts of assets and liabilities, income and expense, and
the accompanying disclosures. Uncertainty about these assumptions
and estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities affected
in future periods.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of revision and future periods
if the revision affects both current and future periods.
Judgements
In the process of applying the Company’s accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the Annual
Financial Statements:
Functional currency
As disclosed in Note 2n, the Company’s functional currency is
the pound sterling. Pound sterling is the currency in which the
original capital was raised, distributions will be made, and
ultimately the currency in which capital would be returned in a
liquidation.
5. Basic and diluted
loss/earnings per Share
The total basic and diluted loss per Ordinary Share of £0.5056
(31 December 2021: earnings per Share
of £0.0244) for the Company has been calculated based on the total
loss after tax for the year of £35,043,573 (31 December 2021: £1,791,505 profit) and the
weighted average number of Ordinary Shares in issue during the year
of 69,307,078 (for the year ended 31
December 2021: 73,584,938).
6. Net Asset Value per
Ordinary Share
The NAV of each Share of £1.8336 (as at 31 December 2021: £2.4029) is determined by
dividing the net assets of the Company attributed to the Ordinary
Shares of £127,080,493 (as at 31 December
2021: £166,541,145) by the number of Ordinary Shares in
issue at 31 December 2022 of
69,307,078 (as at 31 December 2021:
69,307,078 Ordinary Shares in issue).
7. Net changes in fair
value on financial assets at fair value through profit or loss
|
|
|
|
|
|
For
the year ended |
|
For
the year ended |
|
|
|
|
|
|
31
December 2022 |
|
31
December 2021 |
|
|
|
|
|
|
£ |
|
£ |
Realised
gain on investments |
|
|
|
6,061,684 |
|
51,837,460 |
Realised
loss on investments |
|
|
|
(7,858,918) |
|
(4,809,298) |
Unrealised
gains on investment |
|
|
1,023,263 |
|
4,780,383 |
Unrealised
losses on investment |
|
|
(36,432,696) |
|
(49,458,725) |
Net
changes in fair value on financial assets at fair value through
profit or loss |
(37,206,667) |
|
2,349,820 |
|
|
|
|
|
|
|
|
|
|
|
8. Net changes in fair
value on derivative financial instruments at fair value through
profit or loss
|
|
|
|
|
For
the year ended |
|
For
the year ended |
|
|
|
|
|
31
December 2022 |
|
31
December 2021 |
|
|
|
|
|
£ |
|
£ |
Realised gain on
options |
|
|
|
|
245,221 |
|
- |
Realised loss on
options |
|
|
|
|
(15,545) |
|
(262,783) |
Realised
gain on credit default swaps |
|
|
|
1,119,517 |
|
923,664 |
Realised
loss on credit default swaps |
|
|
|
(823,670) |
|
- |
Unrealised gain on
options |
|
|
|
|
136,822 |
|
63,008 |
Unrealised
gain on credit default swaps |
|
|
|
591,052 |
|
- |
Unrealised
loss on credit default swaps |
|
|
|
- |
|
(320,400) |
Net changes in fair value on financial derivatives at fair
value through profit or loss |
|
|
|
|
|
|
|
1,253,397 |
|
403,489 |
9. Other income
|
|
|
|
|
For
the year ended |
|
For
the year ended |
|
|
|
|
|
31
December 2022 |
|
31
December 2021 |
|
|
|
|
|
£ |
|
£ |
Dividend income |
|
|
|
|
5,088,748 |
|
5,586,806 |
Bank interest
income |
|
|
|
|
4,488 |
|
- |
|
|
|
|
|
5,093,236 |
|
5,586,806 |
10. Operating expenses
|
|
|
|
For
the year ended |
|
For
the year ended |
|
|
|
|
31
December 2022 |
|
31
December 2021 |
|
|
|
|
£ |
|
£ |
Investment management
fee (Note 19c) |
|
|
|
2,058,546 |
|
2,933,140 |
Professional fees |
|
246,967 |
|
179,021 |
Transaction costs¹ |
|
83,894 |
|
666,440 |
Derivative
expense¹ |
|
802,039 |
|
735,180 |
Custodian
fees |
|
|
63,314 |
|
88,039 |
Audit
fees |
|
|
45,224 |
|
39,000 |
Administration and Secretarial fees |
113,882 |
|
119,623 |
Directors'
fees (Note 19a) |
|
116,774 |
|
86,178 |
Bank
interest |
|
|
- |
|
2,236 |
Sundry expenses |
|
|
|
165,905 |
|
42,387 |
Total
operating expenses |
|
3,696,545 |
|
4,891,244 |
- Excluded from the Total Expense Ratio (TER) calculation.
11. Operating segments
Information on realised gains and losses derived from sales of
investments is disclosed in Note 7 of the Financial Statements. The
Company is domiciled in Guernsey. Substantially, all of the
Company’s income is from its investment in listed preference shares
issued by companies incorporated in South
Korea.
The Company is likely to have a high degree of portfolio
concentration as South Korean preference shares are concentrated
with a small number of issuers.
12. Financial assets at fair value through
profit or loss
|
|
|
|
As
at |
|
As
at |
|
|
|
|
31
December |
|
31
December |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
£ |
|
£ |
Cost of
investments at beginning of the year |
|
|
149,112,223 |
|
137,878,681 |
Purchases
of investments in the year |
|
|
10,167,914 |
|
101,777,858 |
Disposal
of investments in the year |
|
|
(11,810,895) |
|
(137,572,478) |
Net
realised (losses)/gains on investments in the year |
|
|
(1,797,234) |
|
47,028,162 |
Cost of
investments held at end of the year |
|
|
145,672,008 |
|
149,112,223 |
Unrealised
(loss)/gain on investments |
|
|
(24,907,562) |
|
10,501,871 |
Financial
assets at fair value through profit or loss |
|
|
120,764,446 |
|
159,614,094 |
Financial assets are valued at the bid-market prices ruling as
at the close of business at the Statement of Financial Position
date, net of any accrued interest which is included in the
Statement of Financial Position as an income related item. The
Directors are of the opinion that the bid-market prices are the
best estimate of fair value in accordance with the requirements of
IFRS 13 ‘Fair Value Measurement’. Movements in fair value are
included in the Statement of Comprehensive Income.
13. Derivative financial
instruments
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
31
December |
|
31
December |
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
£ |
|
£ |
Cost of
derivatives at beginning of the year |
|
|
|
(724,897) |
|
(1,745,063) |
Opening of derivatives
in the year |
|
|
|
|
(1,799,480) |
|
(724,897) |
Closure of derivatives
in the year |
|
|
|
|
163,217 |
|
1,084,182 |
Realised
gain on closure of derivatives in the year |
|
|
|
525,523 |
|
660,881 |
Net cost
of derivatives held at end of the year |
|
|
|
(1,835,637) |
|
(724,897) |
Unrealised
gain/(loss) on derivative financial instruments at fair value
through profit or loss |
|
|
690,184 |
|
(37,691) |
Net fair
value on derivative financial instruments at fair value through
profit or loss |
|
|
(1,145,453) |
|
(762,588) |
The following are the composition of the Company’s derivative
financial instruments at year end:
|
|
|
|
As
at |
|
|
|
As
at |
|
|
|
|
31
December |
|
|
|
31
December |
|
|
|
|
2022 |
|
|
|
2021 |
|
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
Derivatives held for
trading: |
|
£ |
|
£ |
|
£ |
|
£ |
Options |
|
- |
|
- |
|
221,639 |
|
- |
Credit default
swaps |
|
- |
|
(1,145,453) |
|
- |
|
(984,227) |
Total |
|
- |
|
(1,145,453) |
|
221,639 |
|
(984,227) |
As at 31 December 2022
Credit Default Swaps
on South Korean Sovereign Debt |
Notional Value
(GBP) |
Total Cost to
Expiration (GBP) |
Annual Cost (GBP) |
Price Paid as % of
Notional Value (per annum) |
Expiration Date |
Total Duration
(Years) |
3 year CDS |
£82m |
601,974 |
182,384 |
0.23% |
2025 |
3.0 |
As at 31 December 2021
Credit Default Swaps
on South Korean Sovereign Debt |
Notional Value
(GBP) |
Total Cost to
Expiration (GBP) |
Annual Cost (GBP) |
Price Paid as % of
Notional Value (per annum) |
Expiration Date |
Total Duration
(Years) |
5 year CDS |
$20m |
$457,151 |
$91,430 |
45bps |
2023 |
5.0 |
3 year
CDS
Total Cost |
$80m |
$431,216
$888,367 |
$143,739
$235,169 |
18bps |
2023 |
3.0 |
Number of Put Option
Contracts Held on EWY |
Strike Price
(USD) |
Total
Cost to Expiration
(USD) |
Purchase Date |
Expiration Date |
2,000 |
$78 |
$504,069 |
18 June 2021 |
21 January 2022 |
The Company purchased certain credit default swaps on the
sovereign debt of South Korea as
general market and portfolio hedges, but generally did not hedge
its exposure to interest rates or foreign currencies during the
year ended 31 December 2022 (2021:
Nil).
As the Company’s investments are heavily concentrated in South
Korean securities, the Company has entered into certain portfolio
hedge positions which are intended to provide some level of
protection against potential adverse geopolitical and macroeconomic
conditions in South Korea. The
Company’s purchases of credit default swaps and put options as
described in this Note 13 reflect its belief that such securities
will provide the foregoing protection without introducing material
new risks into the Company’s portfolio.
14. Other receivables
|
|
|
|
As
at |
|
As
at |
|
|
|
|
31
December |
|
31
December |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
£ |
|
£ |
Dividends
receivable |
|
|
|
4,592,997 |
|
4,973,594 |
Prepaid expenses |
|
|
|
5,725 |
|
2,411 |
Total other
receivables |
|
|
|
4,598,722 |
|
4,976,005 |
The Directors consider that the carrying amount of receivables
approximate their fair value.
15. Margin account
|
|
|
|
As
at |
|
As
at |
|
|
|
|
31
December |
|
31
December |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
£ |
|
£ |
Margin account |
|
|
|
1,327,313 |
|
1,381,413 |
The margin account for 2022 represents a margin deposit of
collateral held by Goldman Sachs & Co. LLC in relation to the
credit default swaps. The margin account for 2021 represents a
margin deposit of collateral held by Credit Suisse International
and Goldman Sachs & Co. LLC. The carrying value of the margin
account approximates the fair values due to the short term
nature.
16. Cash and cash equivalents
|
|
|
|
As
at |
|
As
at |
|
|
|
|
31
December |
|
31
December |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
£ |
|
£ |
Cash at bank |
|
|
|
2,890,620 |
|
3,091,245 |
Cash at bank earns interest at floating rates based on daily
bank deposit rates. The carrying value of cash at bank approximates
the fair values due to the short term nature.
17. Other payables
|
|
|
|
As at |
|
As at |
|
|
|
|
31 December |
|
31 December |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
£ |
|
£ |
Investment
management fees payable (Note 19c) |
|
|
155,320 |
|
214,941 |
|
Administration fee
payable |
|
|
|
27,243 |
|
36,518 |
Custody fee
payable |
|
|
|
15,178 |
|
11,038 |
Co-sec and
Listing fee payable |
|
|
8,228 |
|
6,162 |
|
Audit fees
payable |
|
|
|
43,500 |
|
38,641 |
Withholding tax
payable |
|
|
|
1,010,459 |
|
1,094,190 |
Other payables |
|
|
|
95,227 |
|
95,138 |
Total other
payables |
|
|
|
1,355,155 |
|
1,496,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Directors consider that the carrying amount of payables
approximate their fair value
18. Share capital
The share capital of the Company consists of an unlimited number
of Ordinary Shares of no par value.
|
|
|
|
As
at |
|
As
at |
|
|
|
|
31
December |
|
31
December |
|
|
|
|
2022 |
|
2021 |
Authorised |
|
|
|
|
|
|
Unlimited
Ordinary Shares at no par value |
|
|
- |
|
- |
|
|
|
|
|
|
|
Issued at no par
value |
|
|
|
|
|
|
69,307,078
(2021: 69,307,078) Ordinary Shares at no par value |
- |
|
- |
|
|
|
|
|
|
|
Reconciliation of number of Shares |
|
|
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
31
December |
|
31
December |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
No.
of shares |
|
No. of
shares |
Ordinary
Shares at the beginning of the year |
|
|
69,307,078 |
|
81,617,828 |
Purchase
of own Shares for cancellation |
|
|
- |
|
(600,000) |
Purchase
of Realisation Shares |
|
|
- |
|
(11,710,750) |
Total
Ordinary Shares in issue at the end of the year |
|
|
69,307,078 |
|
69,307,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
shares |
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
Shares |
|
Shares |
Treasury
Shares at the beginning of the year |
|
|
11,437,662 |
|
- |
Redesignation of Realisation Shares |
|
|
273,085 |
|
11,437,662 |
Total
Shares at the end of the year |
|
|
11,710,747 |
|
11,437,662 |
|
|
|
|
|
|
|
Share capital
account |
|
|
|
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
31
December |
|
31
December |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
£ |
|
£ |
Share
capital at the beginning of the year |
|
|
33,986,846 |
|
68,124,035 |
Purchase
of own Shares for cancellation |
|
|
- |
|
(1,719,433) |
Purchase
of Realisation Shares |
|
|
- |
|
(32,417,756) |
Total
Share capital at the end of the year |
|
|
33,986,846 |
|
33,986,846 |
Ordinary Shares
The Company has a single class of Ordinary Shares, which were
issued by means of an initial public offering on 14 May 2013, at 100
pence per Share.
The rights attached to the Ordinary Shares are as follows:
a) The holders of Ordinary Shares shall confer the right
to all dividends in accordance with the Articles of Incorporation
of the Company.
b) The capital and surplus assets of the Company remaining
after payment of all creditors shall, on winding-up or on a return
(other than by way of purchase or redemption of own Ordinary
Shares) be divided amongst the Shareholders on the basis of the
capital attributable to the Ordinary Shares at the date of winding
up or other return of capital.
c) Shareholders present in person or by proxy or (being a
corporation) present by a duly authorised representative at a
general meeting have on a show of hands, one vote and, on a poll,
one vote for every Share.
d) On 13 March 2023, being
61 days before the Subsequent Realisation Date, the Company
published a circular pursuant to the Realisation Opportunity,
entitling the Shareholders to serve a written notice during the
election year (a “Realisation Election”) requesting that all or a
part of their Ordinary Shares be re-designated to Realisation
Shares, subject to the aggregate NAV of the continuing Ordinary
Shares on the last business day before the Reorganisation Date
being not less than £50 million. As Shareholders elect to
participate in the Realisation Opportunity, the Company’s portfolio
will be divided into two pools: the Continuation Pool; and the
Realisation Pool.
Share buyback and cancellation
During the year ended 31 December
2022, the Company purchased Nil shares (31 December 2021: 600,000) of its own Shares at a
consideration of £Nil (31 December
2021: £1,719,433) under its general buyback authority.
The Company has 69,307,078 Ordinary Shares in issue as at
31 December 2022 (as at 31 December 2021: 69,307,078). The Company has
11,710,747 Treasury Shares in issue as at 31
December 2022 (as at 31 December
2021: 11,437,662).
At the AGM held on 21 July 2022,
Shareholders approved the authority of the Company to buy back up
to 40% of the issued Ordinary Shares to facilitate the Company’s
discount management. Any Ordinary Shares bought back may be
cancelled or held in treasury.
19. Related-party transactions and material
agreements
Related-party transactions
a) Directors’
remuneration and expenses
The Directors of the Company are remunerated for their services
at such a rate as the Directors determine provided that the
aggregate amount of such fees does not exceed £150,000 per annum.
The annual Directors’ fees comprise £35,000 payable to Norman Crighton as the Chair, £32,500 to
Gill Morris as Chair of the Audit
Committee, £30,000 to Krishna
Shanmuganathan and £30,000 to Wendy
Dorey. The Board increased their fees by £1,500 per
Director, per annum effective 1 January
2023. For additional information refer to the Directors’
Remuneration Report.
During the year ended 31 December
2022, Directors’ fees of £116,774 (year ended 31 December 2021: £86,178) were charged to the
Company and £Nil remained payable at the end of the year (as at
31 December 2021: £Nil).
b) Shares held by
related parties
The Directors who held office at 31
December 2022 and up to the date of this Report held the
following number of
Ordinary Shares beneficially:
|
|
As at 31 December 2022 |
|
As at 31 December 2021 |
|
|
Ordinary |
|
% of
issued |
|
Ordinary |
|
% of
issued |
|
|
Shares |
|
share
capital |
|
Shares |
|
share
capital |
Norman Crighton |
|
20,000 |
|
0.03% |
|
20,000 |
|
0.03% |
Robert King |
|
N/A |
|
N/A |
|
15,000 |
|
0.02% |
Gillian Morris |
|
3,934 |
|
0.01% |
|
3,934 |
|
0.01% |
Krishna
Shanmuganathan |
|
- |
|
- |
|
N/A |
|
N/A |
Wendy Dorey |
|
2,552 |
|
0.00% |
|
N/A |
|
N/A |
Krishna Shanmuganathan was
appointed to the Board on 1 June
2022. Wendy Dorey was
appointed to the Board on 9 September
2022. Robert King resigned
from the Board on 30 September 2022.
There have been no other changes in the interests of the above
Directors during the year.
The Investment Manager is principally owned by Dr Andrew Weiss and certain members of the
Investment Manager’s senior management team. As at 31 December 2022, Dr Andrew Weiss, his immediate family members and
the Donor-Advised Fund held an interest in 7,010,888 Ordinary
Shares (as at 31 December 2021:7,010,888) representing 10.12% (as
at 31 December 2021: 10.12%) of the Ordinary issued share
capital of the Company.
As at 31 December 2022, employees
and partners of the Investment Manager other than Dr Andrew Weiss, their respective immediate family
members or entities controlled by them or their immediate family
members held an interest in 3,594,333 Ordinary Shares (as at
31 December 2021: 2,844,333)
representing 5.19% (as at 31 December
2021: 4.10 %) of the Ordinary issued share capital of the
Company.
Material agreements
c) Investment
management fee
The Company’s Investment Manager is Weiss Asset Management LP.
In consideration for its services provided by the Investment
Manager under the Investment Management Agreement (IMA) dated
8 May 2013, the Investment Manager is
entitled to an annual management fee of 1.5 % of the Company’s NAV
accrued daily and payable within 14 days after each month end. The
Investment Manager is also entitled to reimbursement of certain
expenses incurred by it in connection with its duties.
The IMA will continue in force until terminated by the
Investment Manager or the Company, giving to the other party
thereto not less than 12 months’ notice in writing. For the year
ended 31 December 2022, investment
management fees and charges of £2,058,546 (for the year ended
31 December 2021: £2,933,140) were
charged to the Company and £155,320 (as at 31 December 2021: £214,941) remained payable at
the year end.
20. Financial risk management
The Company’s objective in managing risk is the creation and
protection of Shareholder value. Risk is inherent in the Company’s
activities, but it is managed through an ongoing process of
identification, measurement, and monitoring.
The main risks arising from the Company’s financial instruments
are operational risk, market risk, foreign currency risk, interest
rate risk, credit risk, and liquidity risk. The techniques and
instruments utilised for the purposes of efficient portfolio
management are those which are reasonably believed by the Board to
be economically appropriate to the efficient management of the
Company.
Operational risks
The Company is exposed to the risk arising from any failures of
systems and controls in the operations of the Investment Manager,
Administrator, and the Custodian. The Board and its Committees
regularly review reports from the Investment Manager and the
Administrator on their internal controls. The Administrator will
report to the Investment Manager any valuation issues which will be
brought to the Board for final approval as required.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices. The Company’s activities expose it primarily to the
market risks of changes in market prices, interest rates, and
foreign currency exchange rates. The Company’s investments are
heavily concentrated in South Korean securities. As the Company’s
investments are heavily concentrated in South Korean securities,
the Company has entered into certain portfolio hedge positions
which are intended to provide some level of protection against
potential adverse geopolitical and macroeconomic conditions in
South Korea.
Market price risk
The Company’s NAV is sensitive to movements in market prices. As
at 31 December 2022, if market prices
had been 10% higher or 10% lower with all other variables held
constant, then the increase/decrease in NAV would have been
£12,076,445 (as at 31 December 2021:
5% £7,980,705). Actual trading results may differ from the above
sensitivity analysis and those differences may be material.
Were there to be a major change in the political or economic
environment in South Korea, the
movement in market prices may be significantly and materially
higher than the above. Refer to Investment Manager’s Report
for a discussion of potential political and economic
changes.
Foreign currency risk
Foreign currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange
rates.
The Company does not hedge its exposure to foreign currency
(predominantly Korean won (KRW)) and NAV per Share will fluctuate
with movements in foreign exchange rates.
As at 31 December 2022, the
Company held the following assets and liabilities in foreign
currencies:
|
|
|
As
at |
|
As
at |
|
|
|
31
December |
|
31
December |
|
|
|
2022 |
|
2021 |
Amounts in
Sterling |
EUR |
KRW |
USD |
KRW |
USD |
Assets |
|
|
|
|
|
Monetary assets |
438 |
126,495,129 |
2,903,730 |
166,333,561 |
2,563,319 |
Total |
438 |
126,495,129 |
2,903,730 |
166,333,561 |
2,563,319 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Monetary
liabilities |
- |
(1,010,459) |
(1,145,453) |
(1,357,281) |
(984,227) |
Total |
- |
(1,010,459) |
(1,145,453) |
(1,357,281) |
(984,227) |
Amounts in the above table are based on the carrying value of
monetary assets and liabilities.
The table below summarises the sensitivity of the Company’s
monetary and non-monetary assets and liabilities to changes in
foreign exchange movements at 31 December
2022.
|
Reasonable |
As
at |
Reasonable |
As
at |
|
possible |
31
December |
possible |
31
December |
|
shift
in rate |
2022 |
shift
in rate |
2021 |
|
2022 |
£ |
2021 |
£ |
Currency |
|
|
|
|
KRW |
|
|
|
|
Monetary assets |
+/-
10% |
12,649,513 |
+/-
5% |
8,316,678 |
Monetary
liabilities |
+/-
10% |
(101,046) |
+/-
5% |
(67,864) |
|
|
|
|
|
US Dollars |
|
|
|
|
Monetary assets |
+/-
10% |
(114,545) |
+/-
5% |
(49,211) |
'Monetary
liabilities |
+/-
10% |
290,373 |
+/-
5% |
128,166 |
Interest rate risk
The Company holds limited cash and margin balances in
interest-bearing accounts of £4,217,933 as at 31 December 2022 (as at 31
December 2021: £4,472,658) and does not invest in
interest-bearing securities and instruments. Accordingly, interest
rate risk is considered very low.
The tables below summarise the Company’s exposure to interest
rate risk as of 31 December 2022:
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
Floating |
Fixed |
Non-Interest |
31
December |
|
|
rate |
rate |
bearing |
2022 |
|
|
£ |
£ |
£ |
£ |
Financial
Assets |
|
|
|
|
|
Investments designated
at fair value |
|
|
|
|
|
through profit or
loss |
|
- |
- |
120,764,446 |
120,764,446 |
Other receivables |
|
- |
- |
4,598,722 |
4,598,722 |
Margin account |
|
1,327,313 |
- |
- |
1,327,313 |
Cash and cash
equivalents |
|
2,890,620 |
- |
- |
2,890,620 |
Total |
|
4,217,933 |
- |
125,363,168 |
129,581,101 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
Floating |
Fixed |
Non-Interest |
31
December |
|
|
rate |
rate |
bearing |
2022 |
|
|
£ |
£ |
£ |
£ |
Financial
Liabilities |
|
|
|
|
|
Derivative financial
liabilities |
|
- |
- |
(1,145,453) |
(1,145,453) |
Other payables |
|
- |
- |
(1,355,155) |
(1,355,155) |
Total |
|
- |
- |
(2,500,608) |
(2,500,608) |
The table below summarises the Company’s exposure to interest
rate risk as of 31 December 2021:
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
Floating |
Fixed |
Non-Interest |
31
December |
|
|
rate |
rate |
bearing |
2021 |
|
|
£ |
£ |
£ |
£ |
Financial
Assets |
|
|
|
|
|
Investments designated
at fair value |
|
|
|
|
|
through profit or
loss |
|
- |
- |
159,614,094 |
159,614,094 |
Derivative financial
assets |
|
- |
- |
221,639 |
221,639 |
Other receivables |
|
- |
- |
4,976,005 |
4,976,005 |
Due from broker |
|
- |
- |
696 |
696 |
Margin account |
|
1,381,413 |
- |
- |
1,381,413 |
Cash and cash
equivalents |
|
3,091,245 |
- |
- |
3,091,245 |
Total |
|
4,472,658 |
- |
164,812,434 |
169,285,092 |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
Floating |
Fixed |
Non-Interest |
31
December |
|
|
rate |
rate |
bearing |
2021 |
|
|
£ |
£ |
£ |
£ |
Financial
Liabilities |
|
|
|
|
|
Derivative financial
liabilities |
|
- |
- |
(263,091) |
(263,091) |
Due to broker |
|
- |
- |
(984,227) |
(984,227) |
Other payables |
|
- |
- |
(1,496,629) |
(1,496,629) |
Total |
|
- |
- |
(2,743,947) |
(2,743,947) |
|
|
|
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company. Credit risk is limited to the carrying value of
financial assets at 31 December 2022 as follows:
|
|
|
|
As
at |
As
at |
|
|
|
|
31
December |
31
December |
|
|
|
|
2022 |
2021 |
|
|
|
|
£ |
£ |
Financial
assets at fair value through profit or loss |
|
120,764,446 |
159,614,094 |
Derivative financial
assets |
|
|
|
- |
221,639 |
Other receivables |
|
|
|
4,598,722 |
4,976,005 |
Cash and cash
equivalents |
|
|
|
2,890,620 |
3,091,245 |
Margin account |
|
|
|
1,327,313 |
1,381,413 |
Due from broker |
|
|
|
- |
696 |
Total |
|
|
|
129,581,101 |
169,285,092 |
|
|
As
at |
|
As
at |
|
|
31
December |
|
31
December |
|
Credit
Rating Agency |
2022 |
|
2021 |
|
£ |
|
£ |
Goldman
Sachs & Co.LLC is a wholly-owned
subsidiary of The Goldman Sachs Group, Inc. |
Standard &
Poor’s |
A+ |
|
A+ |
Moody’s |
Unavailable |
|
Unavailable |
Northern
Trust (Guernsey) Limited which is a wholly owned subsidiary of The
Northern Trust Corporation (“TNTC”) |
Standard &
Poor’s |
A+ |
|
A+ |
Moody’s |
A2 |
|
A2 |
The main concentration of credit risk to which the Company is
exposed arises from the Company’s investments in listed preference
shares issued by companies incorporated in South Korea, which in most cases trade at a
discount to the corresponding common shares of the same companies.
There is also counterparty risk on these instruments as they are
held with Northern Trust (Guernsey) Limited as custodian to the
Fund. Credit risk also arises from the other receivables which
represent dividends receivable on some of these equity
investments.
The Company is also exposed to counterparty credit risk on
credit default swaps, options, cash and cash equivalents, amounts
due from brokers and other receivable balances. The credit risk
from cash and cash equivalents is managed as cash is placed within
a margin account held with Goldman Sachs & Co. LLC a
wholly-owned subsidiary of The Goldman Sachs Group, Inc.
Other cash and cash equivalents are held with Northern Trust
(Guernsey) Limited which is a wholly owned subsidiary of The
Northern Trust Corporation (“TNTC”). TNTC is publicly traded and a
constituent of the S&P 500. Due from broker amounts relate to
trades awaiting settlement.
All transactions in listed securities are settled/paid for upon
delivery using approved brokers. Given the relatively short
settlement period, and the high credit quality of the brokers used,
the risk here is considered to be minimal. The Company’s policy is
to minimise its exposure to counterparties with perceived higher
risk of default by dealing with counterparties with a high credit
rating as shown in the table above.
Liquidity risk
Liquidity risk is the risk that the Company may not be able to
generate sufficient cash resources to settle its obligations in
full as they fall due or can only do so on terms that are
materially disadvantageous. The Company’s investments are
relatively liquid and the Company holds sufficient cash balances
(or liquid investments) to meet its obligations as they fall due.
The Board reviews its resources and obligations on a regular basis
to ensure sufficient liquid assets are held. Further details
relating to the Board assessment of liquidity risk relating to the
upcoming Realisation Opportunity is included in Note 2c.
The table below analyses the maturity profile of the Company's
financial assets in order to provide a complete view of the
Company's contractual commitments and liquidity.
|
|
Less than 1 month |
1-3 months |
3-12 months |
Total as at 31 December 2022 |
|
|
|
£ |
£ |
£ |
£ |
|
Financial assets at
fair value through profit or loss |
|
- |
120,764,446 |
- |
120,764,446 |
|
Other receivables |
|
- |
4,598,722 |
- |
4,598,722 |
|
Margin account |
|
- |
1,327,313 |
- |
1,327,313 |
|
Cash and cash
equivalents |
|
2,890,620 |
- |
- |
2,890,620 |
|
Total |
|
2,890,620 |
126,690,481 |
- |
129,581,101 |
|
|
|
Less than 1 month |
1-3 months |
3-12 months |
Total as at 31 December 2021 |
|
|
|
£ |
£ |
£ |
£ |
|
Financial assets at
fair value through profit or loss |
|
- |
159,614,094 |
- |
159,614,094 |
|
Derivative financial
assets |
|
- |
221,639 |
- |
221,639 |
|
Other receivables |
|
- |
4,976,005 |
- |
4,976,005 |
|
Due from broker |
|
- |
696 |
- |
696 |
|
Margin account |
|
- |
1,381,413 |
- |
1,381,413 |
|
Cash and cash
equivalents |
|
3,091,245 |
- |
- |
3,091,245 |
|
Total |
|
3,091,245 |
166,193,847 |
- |
169,285,092 |
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2022, the
Company had no significant financial liabilities other than
payables arising directly
from investing activity:
|
Less
than 1 month |
1-3
months |
3-12months |
Total
as at 31 December
2022 |
|
£ |
£ |
£ |
£ |
Derivative financial
liabilities |
(1,145,453) |
- |
- |
(1,145,453) |
Other payables |
(344,696) |
(1,010,459) |
- |
(1,355,155) |
Total |
(1,490,149) |
(1,010,459) |
- |
(2,500,608) |
|
|
|
|
|
|
Less
than 1 month |
1-3
months |
3-12months |
Total
as at 31 December
2021 |
|
£ |
£ |
£ |
£ |
Derivative financial
liabilities |
(984,227) |
- |
- |
(984,227) |
Due to broker |
(263,091) |
- |
- |
(263,091) |
Other payables |
(402,439) |
(1,094,190) |
- |
(1,496,629) |
Total |
(1,649,757) |
(1,094,190) |
- |
(2,743,947) |
Capital risk management
The Company’s objective when managing capital is to maintain an
optimal capital structure in order to reduce the cost of capital.
The Company may borrow capital, but as at 31
December 2022 there were no borrowings (as at 31 December 2021: £Nil). The Board considers the
below gearing ratio to be adequate, since total borrowings refer
only to amounts due to brokers, derivative liabilities, and other
payables.
The gearing ratio below is calculated as total liabilities
divided by total equity.
|
|
|
|
As
at |
As
at |
|
|
|
|
31
December |
31
December |
|
|
|
|
2022 |
2021 |
|
|
|
|
£ |
£ |
Total assets |
|
|
|
129,581,101 |
169,285,092 |
Less: Total
liabilities |
|
|
|
(2,500,608) |
(2,743,947) |
Net Asset
Value |
|
|
|
127,080,493 |
166,541,145 |
Gearing Ratio |
|
|
|
1.97% |
1.65% |
Share buybacks
The Directors have general Shareholder authority to purchase in
the market up to 40% of the Ordinary Shares in issue. The Directors
intend to seek annual renewal of this authority from Shareholders
at each annual general meeting of the Company.
Pursuant to this authority, and subject to Guernsey law and the
discretion of the Directors, the Company may repurchase Ordinary
Shares in the market on an on-going basis at a discount to NAV with
a view to increasing the NAV per Ordinary Share and assisting in
controlling the discount to NAV per Ordinary Share in relation to
the price at which such Ordinary Shares may be trading.
Purchases by the Company will be made only at prices below the
estimated prevailing NAV per Ordinary Share based on the last
published NAV but taking account of movements in investments, stock
markets, and currencies, in consultation with the Investment
Manager and at prices where the Directors believe such purchases
will result in an increase in the NAV per Ordinary Share of the
remaining Ordinary Shares.
The Directors will consider repurchasing Ordinary Shares when
the price per Ordinary Share plus the proforma cost to the Company
per Share repurchased is less than 95% of the NAV per Ordinary
Share. The proforma cost per Share should include any brokerage
commission payable and costs of realising portfolio securities to
fund the purchase. The Directors may, at their discretion, also
consider repurchasing Ordinary Shares at a smaller discount to NAV
per Ordinary Share, provided that such purchase would increase the
NAV per Ordinary Share for any continuing Shareholders.
Realisation Opportunity
On 13 March 2023, the Company
announced that pursuant to the Realisation Opportunity,
Shareholders who were on the register as at the record could elect,
during the Election Period, to redesignate all or part (provided
that such part be rounded up to the nearest whole Ordinary Share)
of their Ordinary Shares as Realisation Shares, subject to the
aggregate NAV of the continuing Ordinary Shares at the close of
business on the last business day before the Realisation Date being
not less than £50 million.
The Ordinary Shares held by the Shareholders who elect for
Realisation, will be redesignated as Realisation Shares and the
Portfolio will be split into two separate and distinct Pools,
namely the Continuation Pool (comprising the assets attributable to
the continuing Ordinary Shares) and the Realisation Pool
(comprising the assets attributable to the Realisation Shares).
With effect from the Realisation Date, the assets in the
Realisation Pool will be managed in accordance with an orderly
realisation programme with the aim of making progressive returns of
cash, as soon as practicable, to those Shareholders who elect to
receive Realisation Shares. Ordinary Shares held by Shareholders
who do not submit a valid and complete election in accordance with
the Articles during the Election Period will remain as Ordinary
Shares.
Unless it has already been determined that the Company will be
wound-up, every two years after the Realisation Date, the Directors
will propose further realisation opportunities for Shareholders who
have not previously elected to realise their Ordinary Shares using
a similar mechanism to that described above.
If the weighted average discount on the Portfolio is less than
25% over any 90-day period, then the Directors shall propose an
ordinary resolution for the winding up of the Company. If one or
more Realisation Elections are duly made and the NAV of the
continuing Ordinary Shares at the close of business on the last
Business Day before the Reorganisation Date is less than £50
million, the Directors may propose an ordinary resolution for the
winding up of the Company and may pursue a liquidation of the
Company instead of splitting the Portfolio into the Continuation
Pool and the Realisation Pool.
21. Fair value measurement
IFRS 13 ‘Fair Value Measurement’ requires the Company to
establish a fair value hierarchy that prioritises the inputs to
valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3
measurements).
The three levels of the fair value hierarchy under IFRS 13 ‘Fair
Value Measurement’ are set as follows:
· Level 1 Quoted prices (unadjusted) in
active markets for identical assets or liabilities;
· Level 2 Inputs other than quoted
prices included within Level 1 that are observable for the asset or
liability either directly (that is, as prices) or indirectly (that
is, derived from prices); and
· Level 3 Inputs for the asset or
liability that are not based on observable market data (that is,
unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement. For this purpose, the significance of an input
is assessed against the fair value measurement in its entirety.
If a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of
a particular input to the fair value measurement requires
judgement, considering factors specific to the asset or
liability.
The determination of what constitutes ‘observable’ requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The Company recognises transfers between levels of the fair
value hierarchy as of the end of the reporting year during which
the transfers have occurred. During the year ended 31 December
2022, financial assets of £Nil were transferred from Level 1 to
Level 2 (for the year ended 31 December
2021: £Nil).
Investments whose values are based on quoted market prices in
active markets, and are therefore classified within Level 1,
include Korean preference shares and exchange traded options.
The Company holds investments in derivative financial
instruments which are classified as Level 2 within the fair value
hierarchy. These consist of credit default swaps with a fair value
of £1,145,453 (as at 31 December 2021: (£984,227)). The
Company held no investments in derivative financial instruments
classified as Level 1 within the fair value hierarchy (as at
31 December 2021: options with a fair value of £221,639).
The fair value of credit default swaps is determined by
estimating future default probabilities using market standard
models. The principal input into the model is the credit curve.
Credit spreads are observed directly from broker data or third
party vendors. The significant model inputs are observable in the
marketplace or set in the contract.
The following tables presents the Company’s financial assets and
liabilities by level within the valuation hierarchy as of
31 December 2022:
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
|
|
|
31
December |
|
|
Level
1 |
Level
2 |
Level
3 |
2022 |
|
|
£ |
£ |
£ |
£ |
Financial
assets/(liabilities) at fair value through |
|
|
|
profit or loss: |
|
|
|
|
|
Korean preference shares |
|
120,764,446 |
- |
- |
120,764,446 |
Financial derivative liabilities |
|
- |
(1,145,453) |
- |
(1,145,453) |
Total net assets |
|
120,764,446 |
(1,145,453) |
- |
119,618,993 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
|
|
|
31
December |
|
|
Level
1 |
Level
2 |
Level
3 |
2021 |
|
|
£ |
£ |
£ |
£ |
Financial
assets/(liabilities) at fair value through |
|
|
|
profit or loss: |
|
|
|
|
|
Korean preference shares |
|
159,614,094 |
- |
- |
159,614,094 |
Financial derivative assets |
|
221,639 |
- |
- |
221,639 |
Financial derivative liabilities |
|
- |
(984,227) |
- |
(984,227) |
Total net assets |
|
159,835,733 |
(984,227) |
- |
158,851,506 |
Cash and cash equivalents include cash in hand and deposits held
with banks.
Amounts due to brokers and other payables represent the
contractual amounts and obligations due by the Company for
settlement of trades and expenses. Amounts due from brokers and
other receivables represent the contractual amounts and rights due
to the Company for settlement of trades and income.
22. NAV reconciliation
The Company announces its NAV to the LSE daily, on each UK
business day. The following is a reconciliation of the NAV per
Share attributable to participating Shareholders as presented in
these Financial Statements, using IFRS to the NAV per Share
reported to the LSE:
|
|
As at 31 December 2022 |
As at 31 December 2021 |
|
|
|
NAV
per |
|
NAV
per |
|
|
|
Participating |
|
Participating |
|
|
NAV |
Share |
NAV |
Share |
|
|
£ |
£ |
£ |
£ |
Net Asset Value
reported to the LSE |
|
127,405,980 |
1.8383 |
162,661,741 |
2.3470 |
Adjustment to accruals
and cash |
|
(3,136) |
(0.0001) |
- |
- |
Adjustment for
dividend income |
|
(322,351) |
(0.0046) |
3,879,404 |
0.0559 |
Net Assets
Attributable to Shareholders per Financial Statements |
|
127,080,493 |
1.8336 |
166,541,145 |
2.4029 |
The published NAV per Share of £1.8383 (as at 31 December 2021: £2.3470) is different from the
accounting NAV per Share of £1.8336 (as at 31 December 2021: £2.4029) due to the adjustments
noted above.
23. Subsequent events
These Financial Statements were approved for issuance by the
Board on 27 April 2023. Subsequent
events have been evaluated until this date.
In light of the high levels of inflation, it was resolved that
the Directors fees would increase by £1,500 per annum with effect
from 1 January 2023.
On 13 March 2023, being 61 days
before the Subsequent Realisation Date, the Company published a
circular pursuant to the Realisation Opportunity, entitling the
Shareholders to serve a written notice during the election period
(a “Realisation Election”) requesting that all or a part of their
holding of Ordinary Shares be re-designated to Realisation Shares,
subject to the aggregate NAV of the continuing Ordinary Shares on
the last business day before the Reorganisation Date being not less
than £50 million. If Shareholders elect to participate in the
Realisation Opportunity, the Company’s portfolio will be divided
into two pools: the Continuation Pool; and the Realisation Pool.
Further information in respect of the Realisation Opportunity is
set forth in Note 18.
No further subsequent events have occurred.
Report of the Directors
For the year ended 31 December 2022
The Directors of the Company present their Annual Report and
Audited Financial Statements for the year ended 31 December 2022.
Principal Activity
The Company was incorporated with limited liability in Guernsey
on 12 April 2013 as a company limited
by shares and as an authorised closed-ended investment company. The
Company’s Shares were admitted to trading on the AIM of the LSE on
14 May 2013. As an existing
closed-ended fund, the Company is deemed to be granted an
authorised declaration in accordance with Section 8 of the
Protection of Investors (Bailiwick of Guernsey) Law, 2020, as
amended and Rule 6.02 of the Authorised Closed End Investment
Schemes Rules 2008 on the same date as the Company obtained consent
under the Control of Borrowing (Bailiwick of Guernsey) Ordinance
1959 to 1989.
Investment Objective and Investment
Policy
The investment objective and investment policy of the Company is
to provide Shareholders with an attractive return on their
investment, predominantly through long-term capital appreciation,
by investing primarily in listed South Korean preference shares.
The full investment objective and investment policy are detailed in
the Investment Objective and Dividend Policy of the Annual
Report.
Going Concern
In accordance with the Company’s Articles of Incorporation and
its Admission Document, the Company shall offer all Shareholders
the right to elect to realise some or all of the value of their
Ordinary Shares (the “Realisation Opportunity”), less applicable
costs and expenses, on or prior to the fourth anniversary of the
Company’s admission to AIM and, unless it has already been
determined that the Company be wound-up, every two years
thereafter.
On 13 March 2023, the Company
announced that pursuant to the Realisation Opportunity,
Shareholders who are on the register as at the record date may
elect, during the Election Period, to redesignate all or part
(provided that such part be rounded up to the nearest whole
Ordinary Share) of their holding of Ordinary Shares as Realisation
Shares. The Election Period commenced on 12
April 2023 and closes at 1pm,
5 May 2023.
Subject to the aggregate NAV of the continuing Ordinary Shares
at the close of business on the last Business day before the
Realisation Date being not less than £50 million, the Ordinary
Shares held by the Shareholders who have elected for Realisation
will be redesignated as Realisation Shares and the Portfolio will
be split into two separate and distinct Pools, namely the
Continuation Pool (comprising the assets attributable to the
continuing Ordinary Shares) and the Realisation Pool (comprising
the assets attributable to the Realisation Shares). If one or more
Realisation Elections are duly made and the NAV of the continuing
Ordinary Shares at the close of business on the last Business Day
before the Reorganisation Date is less than £50 million, the
Directors may propose an ordinary resolution for the winding up of
the Company and may pursue a liquidation of the Company instead of
splitting the Portfolio into the Continuation Pool and the
Realisation Pool.
Currently, the Board does not know the number of Shareholders
(or related Shares) who will take up the Realisation Opportunity.
Based on the uncertainty of the uptake of the offer, there is a
material uncertainty over the going concern of the entity. As the
assets of the Company consist mainly of securities that are readily
realisable, whilst the Directors acknowledge that the liquidity of
these assets needs to be managed, the Directors believe that the
Company has adequate financial resources to meet its liabilities as
they fall due in the foreseeable future and for at least twelve
months from the date of this Report, and that it is appropriate for
the Financial Statements to be prepared on a going concern basis,
given that the Board believes the Company will continue in
existence post the Realisation Opportunity.
Viability Statement
In accordance with the UK Corporate Governance Code
(July 2018) (the “UK Code”),
published by the Financial Reporting Council in 2018, the Board has
assessed the prospects of the Company over the three year period to
31 December 2025 (the “Viability
Period”).
On 13 March 2023, the Company
announced to offer all Shareholders the right to elect, during the
Election Period, to realise some or all of the value of their
Ordinary Shares, less applicable costs and expenses, on or prior to
the Realisation Date.
The Board and the Investment Manager believe that the investment
opportunity provided by the Company remains compelling, but the
viability of the Company is clearly contingent on the investment
opportunity remaining in place, a matter which the Board monitors
on an ongoing basis. As the South Korean preference shares held by
the Company trade at a discount compared with common shares for the
same companies, the Company remains attractive to long term
investors over the Viability Period.
A period of three years has been chosen for the purposes of the
assessment of viability as the Board believes that this reflects a
suitable time horizon for reviewing the Company’s circumstances and
strategy, taking into account the investment policy, liquidity of
investments, potential impact of economic cycles, nature of
operating costs, dividends and availability of funding.
The Directors consider that three years is a sufficient
investment time horizon to be relevant to shareholders and that
choosing a longer time period can present difficulties given the
lack of longer term economic visibility.
The Board has monitored the developments of the Ukraine conflict and current banking turmoil
and considered the impacts they have had to date and continue to
assess the impacts they may have in the future. There remains
continued uncertainty on their development and scale such that
predicting the impact with any certainty remains
challenging. The Board will continue to assess the
position.
The Board’s assessment of the Company over the
Viability Period has been made with reference to the Company’s
current financial position and prospects, the Company’s strategy,
and risk appetite, having considered the Company’s principal risks
and uncertainties detailed below. The Board has also considered the
Company’s likely cash flows and the liquidity of its portfolio.
It is noted that the Company currently has no gearing, though
borrowing is permitted under its constitution. In the event that
the Company did consider taking on debt, the Board would carefully
assess the Company’s ability to meet the debt obligations as they
become due.
It is possible to imagine a number of scenarios, such as war,
pandemic or political events, which could severely impact the
liquidity of the Company’s investments.
The Board has assumed that the regulatory and fiscal regimes
under which the Company operates will continue in broadly the same
form during the Viability Period. The Board speaks with its Broker
and legal advisers on a regular basis to understand issues
impacting the Company’s regulatory and fiscal structure.
The Board has carried out a robust assessment of the principal
risks and uncertainties outlined below and they confirm they have a
reasonable expectation that the Company will be able to continue in
operation to serve Shareholders appropriately and meet its
liabilities as they fall due over the three year period to
December 2025.
The Board, however, remains conscious that, should either:
(a) the aggregate Net Asset Value of the continuing
Ordinary Shares at the close of business on the last Business Day
before the next Realisation Date, (this being 12 May 2023) be less than £50 million; or
(b) the mean Weighted Average Discount on the Portfolio is
less than 25% over any 90 day period,
the Board will need to reassess the Company’s position and may
propose an ordinary resolution for the winding up of the
Company.
Notice period of Investment
Manager
The Board has assumed that the Investment Manager will remain in
place during the Viability Period. However, the Board acknowledges
the risk of the Investment Manager serving a twelve month notice
period under the Investment Management Agreement (“IMA”). To
mitigate this risk, the Board meets and communicates regularly with
the Investment Manager to review its performance and the Board’s
relationship with the Investment Manager.
Failure of the Custodian to carry out
its obligations to the Company
The Company’s assets are held in accounts maintained by the
Company’s Custodian. Failure by the Custodian to carry out its
obligations to the Company in accordance with the terms of the
Custodian Agreement could have an impact on the viability of the
Company. To mitigate this risk, the Board regularly receives
reports from the Custodian, and through the Management and
Engagement Committee, monitors the relationship with the
Custodian.
Loss of license or listing
The Board has assumed that the Company will retain its
regulatory status and listing throughout the Viability Period. The
Company Secretary, Administrator, and Broker report to the Board at
least quarterly on regulatory matters and confirm compliance with
listing and other regulatory requirements.
Failure to implement and poor
execution of the investment strategy
The Company maintains an investment policy as discussed in
Summary Information . The policy states that the Company must
invest primarily in listed South Korean preference shares, and also
states that investments in other types of securities are allowed as
long as the investments track South Korean companies or the South
Korean market as a whole. Failure to implement the investment
strategy or poor execution by the Investment Manager would have an
effect on the viability of the Company. The Board ensures that the
policy is being implemented in the quarterly Board Meetings, where
the Investment Manager presents reports to the Board detailing the
current portfolio and investment performance.
The risks specifically associated with the South Korean economic
and political climate are discussed on Investment Manager’s Report
.
Based on the Company’s processes for monitoring operating costs,
the Share price discount, the Investment Manager’s compliance with
the investment objective, asset allocation, the portfolio risk
profile, liquidity risk, and the robust assessment of the principal
risks and uncertainties facing the Company, the Board has concluded
that there is a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the Viability Period to 31 December
2025.
International Tax Reporting
For purposes of the US Foreign Accounts Tax Compliance Act, the
Company registered with the US Internal Revenue Service (“IRS”) as
a Guernsey reporting Foreign Financial Institution (“FFI”) in
November 2014, received a Global
Intermediary Identification Number (2A7KNV.99999.SL.831), and can
be found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into
effect on 1 January 2016.
The Board takes the necessary actions to ensure that the Company
is compliant with Guernsey regulations and guidance in this
regard.
Results and Dividends
The results for the year ended 31
December 2022 are set out in the Statement of Comprehensive
Income. An annual dividend of 6.3732
pence per Share (£4,417,079) was approved on 12 May 2022 and paid on 10
June 2022 in respect of the year ended 31 December 2021. An annual dividend of
5.2311 pence per Share (£4,238,124)
was approved on 4 May 2021 and paid
on 4 June 2021 in respect of the year
ended 31 December 2020.
The Board expects to declare an annual dividend on
2 May 2023 with a record date on
10 May 2023 for the year ended
31 December 2022 based on dividends
received primarily from investments in South Korean preference
shares net of Korean withholding tax.
Shareholder Information
Further Shareholder information can be found in the Company
Overview.
Investment Management
The Investment Manager of the Company is Weiss Asset Management
LP, a Delaware limited partnership
formed on 10 June 2003 (the
“Investment Manager”). The key terms of the IMA and specifically
the fee charged by the Investment Manager are set out in Note 19 of
the Financial Statements. The Board believes that the investment
management fee is competitive with other investment companies with
similar investment mandates.
The Board reviews, on an on-going basis, the performance of the
Investment Manager and considers whether the investment strategy
utilised is likely to achieve the Company’s investment
objective.
Having considered the portfolio performance and investment
strategy, the Board has unanimously agreed that the interests of
the Shareholders as a whole are best served by the continuing
appointment of the Investment Manager on the terms agreed.
Directors
The details of the Directors of the Company during the year and
at the date of this Report are set out in Further Information.
Directors’ Interests
The Directors who held office at 31
December 2022 and up to the date of this Report held the
following numbers of Ordinary Shares beneficially:
|
As at 31 December 2022 |
|
As at 31 December 2021 |
|
Ordinary |
|
% of
issued |
|
Ordinary |
|
% of
issued |
|
Shares |
|
share
capital |
|
Shares |
|
share
capital |
Norman Crighton |
20,000 |
|
0.03% |
|
20,000 |
|
0.03% |
Robert King |
N/A |
|
N/A |
|
15,000 |
|
0.02% |
Gillian Morris |
3,934 |
|
0.01% |
|
3,934 |
|
0.01% |
Krishna
Shanmuganathan |
- |
|
- |
|
N/A |
|
N/A |
Wendy Dorey |
2,552 |
|
0.00% |
|
N/A |
|
N/A |
Krishna Shanmuganathan was
appointed to the Board on 1 June
2022. Wendy Dorey was
appointed to the Board on 9 September
2022. Robert King resigned
from the Board on 30 September 2022.
There have been no other changes in the interests of the above
Directors during the year.
Substantial Interests
The Disclosure, Guidance and Transparency Rules (“DTRs”) are
contained in the Financial Conduct Authority handbook. Section 5,
the only section of the DTRs which applies to AIM-listed companies,
requires substantial Shareholders to make relevant holding
notifications to the Company. The Company must then disseminate
this information to the wider market. Details of major Shareholders
in the Company are shown below.
|
|
|
|
As at 31 December 2022 |
|
|
|
|
|
|
% of
issued |
Shareholders |
|
|
Country |
Shares |
|
share
capital |
City of London
Investment Mgt Co |
|
|
UK |
14,496,421 |
|
20.92% |
Degroof
Petercam Asset Mgt |
|
Belgium |
10,125,000 |
|
14.61% |
Merrill Lynch, Pierce,
Fenner & Smith |
|
|
USA |
7,000,000 |
|
10.10% |
Dr Andrew M Weiss |
|
|
USA |
5,316,888 |
|
7.67% |
JBF Capital |
|
|
USA |
4,259,300 |
|
6.15% |
Mount Capital |
|
|
UK |
2,534,000 |
|
3.66% |
|
|
|
|
As at 31 December 2021 |
|
|
|
|
|
|
% of
issued |
Shareholders |
|
|
Country |
Shares |
|
share
capital |
City of London
Investment Mgt Co |
|
|
UK |
17,725,681 |
|
21.88% |
Degroof
Petercam Asset Mgt |
|
Belgium |
10,125,000 |
|
12.50% |
Merrill Lynch, Pierce,
Fenner & Smith |
|
|
USA |
7,000,000 |
|
8.64% |
Dr Andrew M Weiss |
|
|
USA |
5,316,888 |
|
6.56% |
JBF Capital |
|
|
USA |
3,177,500 |
|
3.92% |
1607 Capital
Partners |
|
|
UK |
2,928,519 |
|
3.61% |
Mount Capital |
|
|
UK |
2,534,000 |
|
3.13% |
There have been no significant changes to the substantial
shareholdings at 27 April 2023.
Corporate Governance
The Company does not have a Main Market Listing on the LSE, and
as such, the Company is not required to comply with the UK Code as
issued by the Financial Reporting Council. However, the Board is
committed to high standards of corporate governance and has
implemented a framework for corporate governance which it considers
to be appropriate for an investment company in order to comply with
the main principles of the UK Code. By complying with the main
principles of the UK Code, the Company is deemed to comply with the
Code of Corporate Governance (the “GFSC Code”) issued by the
Guernsey Financial Services Commission.
The Board has considered the principles and recommendations of
the UK Code and considers that reporting against the UK Code will
provide better information to Shareholders. To ensure on-going
compliance with these principles, the Board receives a report from
the Company Secretary at each quarterly meeting, identifying how
the Company is in compliance and identifying any changes that might
be necessary.
The Board considers that it has maintained procedures during the
year ended 31 December 2022 and up to
the date of this Report to ensure that it complies with the UK
Code, except as explained elsewhere in this Annual Report and
Audited Financial Statements.
The Company became a member of the Association of Investment
Companies (the “AIC”) in February
2021.
Role of the Board
The Board is the Company’s governing body and has overall
responsibility for maximising the Company’s success by directing
and supervising the affairs of the business and meeting the
appropriate interests of Shareholders and relevant stakeholders,
while enhancing the value of the Company and also ensuring
protection of investors. A summary of the Board’s responsibilities
is as follows:
· statutory obligations and public
disclosure;
· strategic matters and financial
reporting;
· risk assessment and management
including reporting compliance, governance, monitoring, and
control; and
· other matters having a material effect
on the Company.
The Board’s responsibilities for the Annual Report are set out
in the Directors' Responsibility Statement.
Although the Company is domiciled in Guernsey, the Board has
considered the requirements of Section 172 of the Companies Act
2006 in the UK. Section 172 of the Companies Act requires that the
Directors of the Company act in the way they consider, in good
faith, is most likely to promote the success of the Company for the
benefit of all stakeholders, including suppliers, customers and
shareholders. The Board has engaged external companies to undertake
the investment management, administrative, and custodial activities
of the Company. Documented contractual arrangements are in place
with these companies which define the areas where the Board has
delegated responsibility to them.
The Board needs to ensure that the Annual Report and Audited
Financial Statements, taken as a whole, are fair, balanced, and
understandable and provide the information necessary for
Shareholders to assess the Company’s performance, business model,
and strategy.
In seeking to achieve this, the Directors have set out the
Company’s investment objective and investment policy, have
explained how the Board and its delegated committees operate, have
explained how the Directors review the risk environment within
which the Company operates, and have set appropriate risk controls.
Furthermore, throughout the Annual Report and Audited Financial
Statements, the Board has sought to provide further information to
enable Shareholders to better understand the Company’s business and
financial performance.
Composition and Independence of the
Board
The Board currently comprises four non-executive Directors, all
of whom are considered independent of the Investment Manager. The
Directors of the Company are listed on the Corporate Information
section and the Board of Directors section.
The Chair is Norman Crighton.
Biographies for Norman and all other Directors appear on
Board of Directors. In considering the independence of the Chair,
the Board has taken note of the provisions of the UK Code relating
to independence, and has determined that he is an Independent
Director.
The Board believes it has a good balance of skills and
experience to ensure it operates effectively. The Chair is
responsible for leadership of the Board and ensuring its
effectiveness.
As the Chair is an Independent Director, no appointment of a
Senior Independent Director has been made. The Company has no
employees and therefore there is no requirement for a Chief
Executive or a whistleblowing policy.
The Company holds a minimum of four Board Meetings per year to
discuss general management, structure, finance, corporate
governance, marketing, risk management, compliance, asset
allocation and gearing, contracts, and performance. The quarterly
Board Meetings are the principal source of regular information for
the Board, enabling it to determine policy and to monitor
performance, compliance, and controls. These meetings are
supplemented by communication and discussions throughout the
year.
A representative of the Investment Manager, Administrator, and
Company Secretary may attend each Board Meeting either in person,
by video conference or by telephone, thus enabling the Board to
fully discuss and review the Company’s operations and performance.
Each Director has direct access to the Investment Manager and
Company Secretary and may, at the expense of the Company, seek
independent professional advice on any matter.
The UK Corporate Governance Code limits the tenure of a Board
member to nine years, with additional explanations to be provided
should the recommendation be exceeded. Norman Crighton has reached this length of
service at the date of these Financial Statements.
Attendance at the Board and other Committee Meetings during the
year was as follows:
|
|
Number
of |
|
Norman |
|
Robert |
|
Gillian |
|
Krishna |
Wendy |
|
|
meetings held |
|
Crighton |
|
King |
|
Morris |
|
Shanmuganathan |
Dorey |
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Board
Meetings |
|
4 |
|
4 |
|
3 |
|
4 |
|
2 |
1 |
Audit Committee
Meetings |
|
4 |
|
4 |
|
4 |
|
4 |
|
1 |
- |
Management Engagement
Committee Meetings |
1 |
|
1 |
|
- |
|
1 |
|
1 |
1 |
Ad-hoc Board
Meetings |
|
5 |
|
3 |
|
4 |
|
5 |
|
2 |
1 |
Krishna Shanmuganathan was
appointed to the Board on 1 June
2022. Wendy Dorey was
appointed to the Board on 9 September
2022. Robert King resigned
from the Board on 30 September
2022.
Board Diversity
The Board considers the composition of the Board on an on-going
basis.
Composition, Succession and
Evaluation
The Board of Directors and its Committees are currently
considered to be adequately composed in order to be able to
discharge their duties effectively. However when considering new
appointments in the future, the Board will ensure that a
diverse group of candidates is considered in accordance with its
Diversity Policy and that appointments are made against set
objective criteria.
The Board members have been briefed about their ongoing
responsibilities as Directors as part of each individual Director’s
induction process and the Board receives ongoing guidance in this
regard on an “as needed” bases from the Company Secretary and legal
advisers.
The composition of the Board, together with its performance and
approach to succession planning is considered annually at the time
of the Board’s annual performance appraisal.
The performance of the Board, its committees and individual
Directors (including the Chair) is evaluated annually through a
self-assessment process coordinated by the Administrator which then
circulates the findings. The Board will consider the need for, and
the benefits of, having this process externally facilitated by an
independent third party from time to time.
Re-election
The Articles of Incorporation provide that one-third of the
Directors retire by a voluntary rotation basis at each Annual
General Meeting (“AGM”). However, in order to meet the highest
standards of corporate governance, the Directors have agreed to
stand for re-election annually. The Directors may at any time
appoint any person to be a Director either to fill a casual vacancy
or as an addition to the existing Directors. Any Director so
appointed shall hold office only until, and shall be eligible for
re-election at, the next AGM following their appointment.
Although the Company looks at not retaining the Chair of the
Board in the post beyond nine years from date of first appointment
on the Board, the Board have not set such a formal policy in place
since the Company shareholders decide, on an annual basis, whether
or not to support the continuation of the Chair.
Board Performance
The Board undertakes an evaluation of its own performance and
that of individual Directors on an annual basis. In order to review
its effectiveness, the Board carries out a process of formal
self-appraisal. The Board considers how it functions as a whole and
also reviews the individual performance of its members. This
process is conducted by the respective Chair reviewing each
members’ performance, contributions, and commitment to the Company
by verbal discussion.
The Board considers it has a breadth of experience relevant to
the Company, and the Directors believe that any changes to the
Board’s composition can be managed without undue disruption.
In accordance with the UK Code, when 20% or more of Shareholder
votes have been cast against a Board recommendation for a
resolution, the Company should explain, when announcing voting
results, what actions it intends to take to consult Shareholders in
order to understand the reasons behind the result. An update on the
views received from shareholders and actions taken should be
published no later than six months after the Shareholder meeting.
The Board should then provide a final summary in the Annual Report
and, if applicable, in the explanatory notes to resolutions at the
next shareholder meeting, on what impact the feedback has had on
the decisions the Board has taken and any actions or resolutions
now proposed. During the year, no resolution recommended by the
Board received more than 20% of votes against it.
Committees of the Board
The Board has established an Audit Committee and a Management
and Engagement Committee. All Terms of Reference for both
Committees are available from the Company Secretary upon request or
on the Company’s website, www.weisskoreaopportunityfund.com.
Audit Committee
The Company has established an Audit Committee with formally
delegated duties and responsibilities within written terms of
reference. The Audit Committee is chaired by Gill Morris. The Audit Committee meets formally
at least twice a year. Due to the small size of the Board, the
Board considers it appropriate that all Directors should be members
of the Audit Committee.
Appointment to the Audit Committee is for a period of up to
three years, which may be extended for two further three year
periods.
The table in the Report of Directors sets out the number of
Audit Committee Meetings held during the year ended
31 December 2022 and the number of such meetings attended by
each Audit Committee member.
A report of the Audit Committee detailing responsibilities and
activities is presented below.
Management and Engagement
Committee
The Company has established a Management and Engagement
Committee with formally delegated duties and responsibilities
within written terms of reference. The Management and Engagement
Committee was chaired by Robert King
until the date of his resignation and Wendy
Dorey was appointed in his place. Due to the small size of
the Board, the Board considers it appropriate that all Directors
should be members of the Management and Engagement Committee.
The principal duties of the Management and Engagement Committee
are to review the performance of and contractual arrangements with
the Investment Manager and all other service providers to the
Company (other than the External Auditor).
During the Management and Engagement Committee meeting held on
17 November 2022, the quality of the
services provided by the Investment Manager as well as the other
service providers was reviewed. The Management and Engagement
Committee also reviewed the fees of all other service providers
(other than the External Auditor).
Nomination Committee
The Board does not have a separate Nomination Committee. The
Board as a whole fulfils the function of a Nomination Committee.
Any proposal for a new Director will be discussed and approved by
the Board. The Board will determine whether an external search
consultancy or open advertising is used in the appointments of
non-executive Directors in the future.
Remuneration Committee
In view of its non-executive and independent nature, the Board
considers that it is not appropriate for there to be a Remuneration
Committee as anticipated by the UK Code because this function is
carried out as part of the regular Board business. A Remuneration
Report prepared by the Board is contained below. Directors’
remuneration is considered on an annual basis.
As at 31 December 2022, Directors’
fees per annum were £35,000 payable to Norman Crighton as the Chair, £32,500 to
Gill Morris as Chair of the Audit
Committee, £30,000 to Robert King
prorated to 30 September 2022, being
his date of resignation, £30,000 to Krishna
Shanmuganathan and Wendy
Dorey prorated from their dates of appointment, 1 June 2022 and 9
September 2022 respectively. The Board increased their fees
by £1,500 per Director, per annum effective 1 January 2023.
Environmental, Social and Governance
Matters
As an investment company, WKOF’s own direct environmental impact
is minimal. Other than flights by the Chair and other directors
based in the UK to attend meetings, the Company has no greenhouse
gas emissions to report from its operations, nor does it have
responsibility for any other emissions producing sources under the
Companies Act 2006 (Strategic Reporting and Directors’ Reports)
Regulations 2013 or the Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations
2018.
The Company’s operations are delegated to third party service
providers, and the Company has no employees. The Board seeks
assurances, at least annually, from its main counterparties that
they comply with the provisions of the UK Modern Slavery Act 2015
and maintain adequate safeguards in keeping with the provisions of
the Bribery Act 2010 and Criminal Finances Act 2017.
The Board and WAM recognise that governance issues have an
effect on its investee companies. The Board supports WAM in its
belief that good corporate governance will help deliver long term
Shareholder value. Since inception of the Company, improved
corporate governance has been one of the main drivers of value, as
some Korean companies have improved the efficiency of their balance
sheets by buying back preference shares and improving dividend
payouts. The Board and WAM will continue to support these changes
in its investee companies and expect these governance improvements
to continue in Korea.
Geopolitical Risks
At the time of signing these Financial Statements, there is an
increased level of global uncertainty associated with the conflict
in Ukraine. The long-term impacts
of Ukraine, in addition to the
continued uncertainty regarding regional conflicts in North Asia, are not yet known but are likely
to result in increased market and economic volatility, which may in
turn have an impact on the Company.
Internal Controls
The Board is ultimately responsible for establishing and
maintaining the Company’s system of internal controls and for
maintaining and reviewing the system’s effectiveness. The Company’s
risk matrix continues to be the basis of the Company’s risk
management process in establishing the Company’s system of internal
financial and reporting controls. The risk matrix is prepared and
maintained by the Board, which initially identifies the risks
facing the Company and then collectively assesses the likelihood of
each risk, the impact of those risks, and the strength of the
controls operating over each risk. The Company’s system of internal
controls is designed to manage rather than to eliminate the risk of
failure to achieve the Company’s objectives, and by the internal
controls’ nature, can only provide reasonable and not absolute
assurance against misstatement and loss. These controls aim to
ensure that assets of the Company are safeguarded, proper
accounting records are maintained, and the financial information
for publication is reliable.
The UK Code requires Directors to conduct at least annually a
review of the Company’s system of internal controls, covering all
controls including financial, operational, compliance, and risk
management. The Board has evaluated the Company’s system of
internal controls. In particular, it has prepared a process for
identifying and evaluating the significant risks affecting the
Company and the policies by which these risks are managed. The
process has resulted in a low to medium risk assessment.
The Board has delegated the management of the Company’s
investment portfolio, administration, registrar, and corporate
secretarial functions, which includes the independent calculation
of the Company’s NAV and the production of the audited Annual
Report and Financial Statements. Whilst the Board delegates these
functions, it remains responsible for the functions it delegates
and for the systems of internal controls. Formal contractual
agreements have been put in place between the Company and providers
of these services. On an on-going basis, Board reports are provided
at each quarterly Board Meeting from the Investment Manager,
Administrator, Registrar, and Company Secretary, and a
representative from the Investment Manager is asked to attend these
meetings.
In common with most investment companies, the Company does not
have an internal audit function. All of the Company’s management
functions are delegated to the Investment Manager, Administrator,
Registrar, and Company Secretary, which have their own internal
audit and/or risk assessment functions.
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
Committee at its meetings and annually by the Board. The Board
believes that the Company has adequate and effective systems in
place to identify, mitigate, and manage the risks to which it is
exposed.
Shareholder Engagement
The Directors welcome Shareholders’ views and place great
importance on communication with the Company’s Shareholders.
Shareholders wishing to meet with the Chair and other Board members
should contact the Company’s Administrator.
The Investment Manager and Broker maintain a regular dialogue
with institutional Shareholders, the feedback from which is
reported to the Board.
The Company’s AGM provides a forum for Shareholders to meet and
discuss issues of the Company and provides Shareholders with the
opportunity to vote on the resolutions as specified in the Notice
of AGM. The Notice of AGM and the results are released to the
London Stock Exchange in the form of an announcement.
In addition, the Company maintains a website which contains
comprehensive information, including links to regulatory
announcements, Share price information, financial reports,
investment objective, and investor contacts.
Auditor
The Independent Auditor, KPMG Channel Islands Limited, has
indicated their willingness to continue in office. Accordingly, a
resolution for their reappointment will be proposed at the
forthcoming AGM.
Disclosure of Information to the
Independent Auditor
The Directors who hold office at the date of approval of this
Directors’ Report confirm that, so far as they are aware, there is
no relevant audit information of which the Company’s independent
auditor is unaware, and that each Director has taken all the steps
they ought to have taken as a Director to make themself aware of
any relevant audit information and to establish that the Company’s
independent auditor is aware of that information.
Signed on behalf of the Board by:
Norman
Crighton
Gill Morris
Chair
Director
28 April
2023
28 April
2023
Statement of Principal and Emerging Risks and
Uncertainties
For the year ended 31 December 2022
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
Committee at its meetings and annually by the Board. The Board
believes that the Company has adequate and effective systems in
place to identify, mitigate, and manage the risks to which it is
exposed.
Emerging Risks
In order to recognise any new risks that may impact the Company
and to ensure that appropriate controls are in place to manage
those risks, the Audit Committee undertakes a regular review of the
Company’s Risk Matrix. This review took place on four occasions
during the year.
Geopolitical Risks
Risks to global growth have been heightened as a result of the
conflict in Ukraine. The level of
tension between North and South
Korea fluctuates. There is a heightened risk of malicious
cyber activity. Through the Management Engagement Committee, the
Company asks its service providers to confirm that they have
appropriate safeguards in place to mitigate the risk of
cyber-attacks and remote working (including minimising the adverse
consequences arising from any such attack), that they provide
regular updates to the Board on cyber security, and conduct ongoing
monitoring of industry developments in this area. None of the
Service Providers has reported any problems regarding cyber
security when questioned by the MEC.
Principal Risks and Uncertainties
In respect of the Company’s system of internal controls and
reviewing its effectiveness, the Directors:
• are satisfied that they
have carried out a robust assessment of the principal risks facing
the Company, including those that would threaten its business
model, future performance, solvency, or liquidity; and
• have reviewed the effectiveness
of the risk management and internal control systems, including
material financial, operational, and compliance controls (including
those relating to the financial reporting process) and no
significant failings or weaknesses were identified.
The principal risks and uncertainties which have been identified
and the steps which are taken by the Board to mitigate them are as
follows:
Investment Risks
The Company is exposed to the risk that its portfolio fails to
perform in line with its investment objective and policy if markets
move adversely or if the Investment Manager fails to comply with
the investment policy. The Board reviews reports from the
Investment Manager at the quarterly Board Meetings, with a focus on
the performance of the portfolio in line with its investment
policy. The Administrator is responsible for ensuring that all
transactions are in accordance with the investment
restrictions.
Operational Risks
The Company is exposed to the risk arising from any failures of
systems and controls in the operations of the Investment Manager,
Administrator, and the Custodian. The Board and its Committees
regularly review reports from the Investment Manager and the
Administrator on their internal controls. The Administrator will
report to the Investment Manager any valuation issues which will be
brought to the Board for final approval as required.
Accounting, Legal and Regulatory
Risks
The Company is exposed to the risk that it may fail to maintain
accurate accounting records, fail to comply with requirements of
its Admission Document, and fail to meet listing obligations. The
accounting records prepared by the Administrator are reviewed by
the Investment Manager. The Administrator, Broker, and Investment
Manager provide regular updates to the Board on compliance with the
Admission Document and changes in regulation.
Discount Management
The Company is exposed to Shareholder dissatisfaction through
inability to manage the Share price discount to NAV. The Board and
its Broker monitor the Share price discount (or premium)
continuously and have engaged in Share buybacks from time to time
to help minimise any such discount. The Board believes that it has
access to sufficiently liquid assets to help manage the Share price
discount. The Company's discount management programme is described
within Note 18.
Liquidity of Investments
The Korean preference shares typically purchased by the Company
generally have smaller market capitalisations and lower levels of
liquidity than their common share counterparts. These factors,
among others, may result in more volatile price changes in the
Company’s assets as compared to the South Korean stock market or
other more liquid asset classes. This volatility could cause the
NAV to go up or down dramatically.
In order to realise its investments, the Company will likely
need to sell its holdings in the secondary market, which could
prove difficult if adequate liquidity does not exist at the time
and could result in the values received by the Company being
significantly less than their holding values. The liquidity of the
market for preference shares may vary materially over time. There
can be no guarantee that a liquid market for the Company’s assets
will exist or that the Company’s assets can be sold at prices
similar to the published NAV. Illiquidity could also make it
difficult or costly for the Company to purchase securities, and
this could result in the Company holding more cash than
anticipated. Furthermore, it is possible that South Korea could impose currency-exchange or
capital controls on foreign investors, making it difficult or
impossible for the Company to repatriate funds. The Investment
Manager considers the liquidity of secondary trading in assessing
and managing the liquidity of the Company’s investments. The Board
reviews the Company’s resources and obligations on a regular basis
with a view to ensuring that sufficiently liquid assets are held
for the expected day to day operations of the Company. However, if
the Company were required to liquidate a substantial portion of its
assets at a single time, it is likely that the market impact of the
necessary sale transactions would impact the value of the portfolio
materially.
Fraud Risk
The Company is exposed to fraud risk. The Audit Committee
continues to monitor the fraud, bribery, and corruption policies of
the Company. The Board receives an annual confirmation from all
service providers that there have been no instances of fraud or
bribery.
Financial Risks
The financial risks, including market, credit, and liquidity
risks, faced by the Company are set out in the Annual Report of the
Company. These risks and the controls in place to reduce the risks
are reviewed at the quarterly Board Meetings.
Climate Risks
Climate change is a growing area of focus for regulators,
companies, investors and other stakeholders. Climate related
risks include both physical risks from global warming and extreme
weather events as well as transition risks (e.g. increased
regulation) and litigation risks. Climate risks are incorporated in
the ESG analysis under environmental factors.
Directors’ Responsibility
Statement
For the year ended 31 December 2022
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law they have
elected to prepare the Financial Statements in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by
the European Union and applicable law.
Under Company law the Directors must not approve the Financial
Statements unless they are satisfied that the Financial Statements
give a true and fair view of the state of affairs of the Company
and of its profit or loss for that period. In preparing these
Financial Statements, the Directors are required to:
· select suitable accounting policies
and then apply them consistently;
· make judgements and estimates that are
reasonable, relevant, and reliable;
· state whether applicable accounting
standards have been followed, subject to any material departures
disclosed and explained in the Financial Statements;
· assess the Company’s ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern; and
· use the going concern basis of
accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do
so.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable the Directors to
ensure that the Financial Statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal
controls as they determine is necessary to enable the preparation
of Financial Statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for
taking such steps as are reasonably open to them to safeguard the
assets of the Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in Guernsey governing the
preparation and dissemination of Financial Statements may differ
from legislation in other jurisdictions.
The Directors confirm that they have complied with the above
requirements in preparing the Annual Report and Financial
Statements and that to their best knowledge and belief:
· the Financial Statements, prepared in
accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position,
and profit or loss of the Company; and
· the Directors’ Report includes a fair
review of the development and performance of the business and the
position of the issuer, together with a description of the
principal risks and uncertainties that they face.
We consider the Annual Report and Financial Statements, taken as
a whole, to be fair, balanced, and understandable and provides the
information necessary for Shareholders to assess the Company’s
position and performance, business model, and strategy.
The Board of Directors confirms that, throughout the period
covered by the Financial Statements, the Company complied with the
GFSC Code through its compliance with the UK Code.
On behalf of the Board,
Norman Crighton
Gill Morris
Chair
Director
28 April
2023
28 April 2023
Audit Committee Report
For the year ended 31 December 2022
Dear Shareholders,
On the following pages, we present the Audit Committee’s Report
for 2022, setting out the responsibilities of the Audit Committee
and its key activities in 2022.
The Audit Committee has reviewed the Company’s financial
reporting, significant areas of judgement and estimation within the
Company’s Financial Statements, the independence and effectiveness
of the External Auditor, and the internal control and risk
management systems of the Company’s service providers. The Audit
Committee considered whether the Annual Report and Financial
Statements are fair, balanced, and understandable and whether they
provided the necessary information for Shareholders to assess the
Company’s performance, business model, and strategy before
recommending them to the Board for approval. In order to assist the
Audit Committee in discharging these responsibilities, regular
reports are received from the Investment Manager, Administrator,
and External Auditor. Following its review of the independence and
effectiveness of the Company’s External Auditor, the Audit
Committee has recommended to the Board that KPMG Channel Islands
Limited be reappointed as Auditor, which the Board will submit for
approval to the Company’s Shareholders at the forthcoming AGM.
A member of the Audit Committee will continue to be available at
each AGM to respond to any Shareholder questions on the activities
of the Audit Committee.
Responsibilities
The Audit Committee reviews and recommends the approval of the
Financial Statements of the Company to the Board and is the forum
through which the External Auditor reports to the Board of
Directors. The External Auditor and the Audit Committee will meet
together without representatives of either the Administrator or
Investment Manager being present at least once a year.
The role of the Audit Committee includes:
• monitoring the integrity of the
published Financial Statements of the Company;
• reviewing and reporting to the
Board on the significant issues, judgements, and estimates made in
the preparation of the Company’s published Financial
Statements;
• monitoring and reviewing the
quality and effectiveness of the External Auditor and their
independence;
• considering and making
recommendations to the Board on the appointment, reappointment,
replacement, and remuneration of the Company’s External
Auditor;
• reviewing the Company’s
procedures for prevention, detection and reporting of fraud,
bribery, and corruption; and
• monitoring and reviewing the
internal control and risk management systems of the service
providers.
The Audit Committee’s full terms of reference can be obtained by
contacting the Company’s Secretary or on the Company’s website,
www.weisskoreaopportunityfund.com.
Key Activities of the Audit
Committee
The following sections discuss the assessments made by the Audit
Committee during the year:
Financial Reporting
The Audit Committee’s review of the Annual Report and Audited
Financial Statements focused on the following significant
areas:
Valuation of Investments
The Company’s financial investments had a fair value of
£120,764,446 as at 31 December 2022
and represent the majority of the net assets of the Company. The
majority of the investments are listed and traded, and the
valuation is by reference to the fair value measurement required by
IFRS. The Audit Committee considered the fair value of the
investments held by the Company as at 31
December 2022 to be reasonable from a review of the
information provided by the Investment Manager and Administrator.
All prices have been confirmed by the Administrator to independent
pricing sources as at 31 December
2022.
The Investment Manager and Administrator confirmed to the Audit
Committee that they were not aware of any material misstatements
including matters relating to the Financial Statements’
presentation, nor were they aware of any fraud or bribery relating
to the Company’s activities. Furthermore, the External Auditor
reported to the Audit Committee that no material misstatements were
found in the course of their work.
Following a review of the presentations and reports from the
Administrator and consulting, where necessary with the External
Auditor, the Audit Committee is satisfied that the Financial
Statements appropriately address the critical judgements and key
estimates made in the preparation of the Financial Statements (both
in respect to the amounts reported and the disclosures). The Audit
Committee is also satisfied that the significant assumptions used
for determining the value of assets and liabilities have been
appropriately scrutinised and challenged and are sufficiently
robust.
Risk Management
The Audit Committee continues to manage the Company's risks. All
risks are reviewed and assessed at least once a year with key risks
or a sub-section thereof being presented to the Board and discussed
at most Board meetings. Where necessary, actions to improve
controls or mitigation of risks are implemented. The last Board
meeting at which risks were discussed was held on 17 November 2022.
Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery, and
corruption policies of the Company. The Board receives a
confirmation from all service providers that there have been no
instances of fraud or bribery.
The External Auditor
Independence, Objectivity and
Fees
The independence and objectivity of the External Auditor is
reviewed by the Audit Committee, which also reviews the terms under
which the External Auditor is appointed to perform non-audit
services. The Audit Committee has established pre-approval policies
and procedures for the engagement of the External Auditor to
provide audit and assurance services.
The External Auditor may not provide a service which:
• places them in a position to
audit their own work;
• creates a mutuality of
interest;
• results in the External Auditor
developing close relationships with service providers of the
Company, in respect of services to the Company;
• results in the External Auditor
functioning as a manager or employee of the Company; and
• puts the External Auditor in the
role of advocate of the Company.
As a general rule, the Company does not utilise the External
Auditor for internal audit purposes, secondments, or valuation
advice. Services such as tax compliance, tax structuring, private
letter rulings, accounting advice, quarterly reviews, and
disclosure advice are normally permitted but will be pre-approved
by the Audit Committee.
The following table summarises the remuneration payable to KPMG
Channel Islands Limited and to other KPMG member firms for audit
and non-audit services:
|
|
For the year ended |
|
For the year ended |
|
|
31 December 2022 |
|
31 December 2021 |
KPMG
Channel Islands Limited |
|
£ |
|
|
|
£ |
Annual audit |
|
|
|
43,500 |
|
|
|
39,000 |
|
|
|
|
|
|
|
|
|
KPMG LLP |
|
|
|
|
|
|
|
|
Tax fees
(UK Reporting Fund Status) |
|
|
12,000 |
|
|
|
5,750 |
For the year ended 31 December
2022, the Company has engaged KPMG LLP to provide tax
services, a separate entity to KPMG Channel Islands Limited.
The Audit Committee does not consider KPMG Channel Islands
Limited’s independence to be under threat. In making this
assessment, the Audit Committee has concluded that the non-audit
fees, disclosed above, do not relate to prohibited services. In
approving the non-audit services, the Audit Committee considered
the safeguards put in place by KPMG Channel Islands Limited to
reduce the threats to independence and objectivity to an acceptable
level.
KPMG Channel Islands Limited has been the External Auditor from
the date of the initial listing on the London Stock Exchange. The
UK Code introduced a recommendation that the external audit be put
out to tender every ten years. The Audit Committee has noted this
and will develop a plan for the tender process in 2023.
The Audit Committee has examined the scope and results of the
audit, its cost effectiveness, and the independence and objectivity
of the External Auditor, with particular regard to non-audit fees,
and considers KPMG Channel Islands Limited, as External Auditor, to
be independent of the Company.
Performance and Effectiveness
During the year, when considering the effectiveness of the
External Auditor, the Audit Committee has taken into account the
following factors:
• The audit plan presented to it
before the audit;
• Changes in audit personnel;
• The post audit report including
variations from the original plan, if any;
• The External Auditor’s report on
independence; and
• Feedback from both the
Investment Manager and Administrator.
Further to the above, at the conclusion of the 2022 audit
fieldwork, the Audit Committee performed specific evaluation of the
performance of the External Auditor through discussion with the
Administrator and Investment Manager, as well as the audit team
itself.
There were no significant adverse findings from this
evaluation.
Reappointment of External Auditor
As noted above the Board intends to commence a formal tender
process for the position of External Auditor with suitably
qualified firms during 2023.
Internal Control and Risk Management
Systems
After consultation with the Investment Manager, Administrator,
and External Auditor, the Audit Committee has considered the impact
of the risk of the override of controls by its service providers,
the Investment Manager, and Administrator.
The Audit Committee reviews externally prepared assessments of
the control environment in place at the Administrator, with the
Administrator providing a Service Organisation Controls Report on a
bi-annual basis. The Audit Committee noted that the Management and
Engagement Committee received a self-assessment from the Investment
Manager and no issues were identified in this. Additionally,
representatives of the Investment Manager meet with the Board of
Directors annually to discuss and review the controls in place at
the Investment Manager. No significant failings or weaknesses were
identified in these reviews.
The Audit Committee has also reviewed the need for an internal
audit function. The Audit Committee has decided that the systems
and procedures employed by the Investment Manager, as well as the
Administrator’s internal audit function provide sufficient
assurance that a sound system of internal controls, which
safeguards the Company’s assets, is maintained. An internal audit
function specific to the Company is therefore considered
unnecessary.
In finalising the Financial Statements for recommendation to the
Board for approval, the Audit Committee is satisfied that, taken as
a whole, the Annual Report and Financial Statements are fair,
balanced, and understandable. The Board has accepted this
approval.
For any questions on the activities of the Audit Committee not
addressed in the foregoing, a member of the Audit Committee remains
available to attend each AGM to respond to such questions.
The Audit Committee Report was approved by the Board on
28 April 2023 and signed on behalf of
the Audit Committee by:
Gill
Morris
Chair, Audit Committee
28 April 2023
Directors’ Remuneration Report
For the year ended 31 December 2022
Introduction
An ordinary resolution for the approval of the Directors’
Remuneration Report was put to the Shareholders at the AGM held on
21 July 2022.
Remuneration Policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers matters
relating to the Directors’ remuneration. No advice or services were
provided by any external person in respect of the Board’s
consideration of the Directors’ remuneration.
The Company’s policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company’s
affairs and the responsibilities borne by the Directors, and be
sufficient to attract, retain, and motivate Directors of a quality
required to run the Company successfully. The Chair of the Board is
paid a higher fee in recognition of his additional
responsibilities, as is the Chair of the Audit Committee. The
policy is to review fee rates periodically, although such a review
will not necessarily result in any changes to the rates, and
account is taken of fees paid to directors of comparable companies.
The Directors of the Company are remunerated for their services at
such a rate as the Directors determine, provided that the aggregate
amount of such fees does not exceed £150,000 per annum.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors.
None of the Directors has a service contract with the Company,
but each of the Directors is appointed by a letter of appointment
which sets out the main terms of their appointment. Directors hold
office until they retire by rotation or cease to be a Director in
accordance with the Articles of Incorporation, by operation of law,
or until they resign.
Remuneration
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally. No Director has been paid
additional remuneration outside their normal Directors’ fees and
expenses.
As at 31 December 2022, Directors'
fees were: £35,000 payable to the Chair of the Board, £32,500 to
the Chair of the Audit Committee, and £30,000 to the other
Directors. The Board increased their fees by £1,500 per Director,
per annum effective 1 January
2023.
The Directors paid during the year were as follows:
|
|
For the year ended |
|
For the year ended |
|
|
31 December 2022 |
|
31 December 2021 |
|
|
|
|
£ |
|
|
|
£ |
Norman Crighton |
|
|
|
35,000 |
|
|
|
30,000 |
Gillian Yvonne
Morris |
|
|
|
32,500 |
|
|
|
11,553 |
Robert King |
|
|
|
22,500 |
|
|
|
24,000 |
Stephen Coe |
|
|
|
- |
|
|
|
20,625 |
Krishna
Shanmuganathan |
|
|
|
17,466 |
|
|
|
- |
Wendy Dorey |
|
|
|
9,308 |
|
|
|
- |
|
|
|
|
116,774 |
|
|
|
86,178 |
Stephen Coe resigned from the
Board on 30 September 2021.
Krishna Shanmuganathan was appointed
to the Board on 1 June 2022.
Wendy Dorey was appointed to the
Board on 9 September 2022.
Robert King resigned from the Board
on 30 September 2022.
Signed on behalf of the Board by:
Norman
Crighton
Gill Morris
Chair
Director
28 April 2023
28 April 2023
Board of Directors
The Company had five Directors during the year ended
31 December 2022 and will revert to
three Directors after the current Chair has resigned this year. All
Directors are considered independent of the Investment Manager.
Norman
Crighton (aged 56)
Norman Crighton is Chair of the
Company. Norman Crighton is an
experienced public company director having served on the boards of
eight closed-end funds and one operating company over the past ten
years. Currently Norman is also Non-Executive Chair of RM
Infrastructure Income plc, AVI Japan Opportunity Trust plc and
Harmony Energy Income Trust plc.
Norman has extensive fund experience having previously been Head
of closed-end Funds at Jefferies International and Investment
Manager at Metage Capital Ltd. leveraging his 31 years of
experience in investment trusts. His career in investment banking
covered research, sales, market making and proprietary trading,
servicing major international institutional clients over 15 years.
His work in many countries included restructuring closed-end funds
as well as several IPOs. During his time as a fund manager, Norman
managed portfolios of closed-end funds on a hedged and unhedged
basis covering developed and emerging markets.
Following on from his long-term promotion of best corporate
governance practice, Norman has more recently been focusing on
expanding his work into Environmental and Social issues. His work
in the investment trust industry is backed up with a master’s
degree from the University of Exeter in Finance and Investment and a
BA(Hons) in Applied Economics. Norman is British and resident in
the United Kingdom.
Gillian Yvonne
Morris (aged 59)
Gill is Chair of the Audit Committee. She is also a
non-executive director and Chair of the Audit Committee at The
International Stock Exchange and a Director of CICAP GP Limited.
She also runs her own consultancy business. She qualified as a
Chartered Accountant with the Institute of Chartered Accountants of
England & Wales in 1988 and a Chartered Tax Advisor with
the Chartered Institute of Taxation in 1994. She started her career
in 1985 as a tax advisor at Touche Ross & Co. in London. She worked with Touche Ross & Co.
and KPMG in Australia before
returning to Guernsey with KPMG. She moved into the industry in
1994, joining Specsavers Optical Group as their tax manager and
during her time with the Group was promoted to Director of Tax and
Treasury and ultimately served as Director of Risk and Government
Affairs until 2020. She has also assumed government roles in
Guernsey since 2012, including as a Non – States member of the
Public Accounts Committee and the Scrutiny Management Committee as
well as a panel member for the Financial Scrutiny Panel, Guernsey
Tax Tribunal and the Trade Policy Advisory Panel. She is British
and resident in Guernsey. She was appointed to the Board in
2021.
Krishna
Shanmuganathan - appointed 1 June
2022 (aged 49)
Krishna Shanmuganathan is an
independent non-executive director of the Company. He is also an
independent non-executive director of abrdn Asia Focus plc since
June 2020 and founded Scylax Partners
in 2016, a provider of specialist advisory services. Prior to
Scylax, Krishna was a managing partner at Hakluyt & Company
(Asia), a risk advisory company,
having established and led the Asia
Pacific offices of the firm based in Singapore. Krishna has also held research and
analyst roles at Fidelity International and Cambridge Associates
after a successful and varied career in the Foreign &
Commonwealth Office. He holds a number of other non-executive
appointments, including being on the advisory board of Serendipity
Capital, chair of the trustees of St Jude India ChildCare Centres
UK and a trustee of Solefield School Educational Trust. Krishna has
Masters degrees from University of
Cambridge and University of London, is British and resident in the
United Kingdom. Krishna was
appointed to the board in 2022.
Wendy
Dorey - appointed 9 September
2022 (aged 50)
Wendy is an experienced professional in the financial services
industry, with key competencies in business strategy, financial
regulation, risk management and investment marketing and
distribution. She is currently a Director of Dorey Financial
Modelling, an investment consulting firm, a Commissioner for the
Guernsey Financial Services Commission, and a Non-Executive
Director for Schroders (CI) Limited and TwentyFour Select Monthly
Income Fund Limited.
She has over 25 years’ industry experience working for asset
managers, pension consultants and retail banks in the UK, Guernsey
and France. She has worked for a
number of leading asset managers: BNY Mellon, M&G Asset
Management, Friends Ivory & Sime and
Robert Fleming/Save & Prosper. She has also consulted to
the Defined Contribution Consulting arm of the Punter Southall Group and obtained retail banking
experience at Lloyds bank and Le Credit Lyonnais. She is a Fellow
of the Institute of Directors and qualified as a Chartered Director
in 2020. She is also currently the Chair of the Guernsey Branch of
the Institute of Directors.
Weiss Asset Management
Weiss Asset Management is an investment management firm
headquartered in Boston, MA and is
registered with the U.S. Securities and Exchange Commission as an
investment adviser. In addition to WKOF, WAM manages multiple
investment vehicles, including private hedge funds, an
institutional separate account and an opportunity fund.
The firm was founded by Dr. Andrew
Weiss, an academic economist, who launched his first fund in
1991.
WAM employs deep fundamental and statistical analysis to find
undervalued securities globally and seeks to maximise risk-adjusted
returns for its investor base that includes charitable foundations,
pension plans, endowments, hospitals, government entities and
private investors. A portion of WAM’s profits is donated annually
to the Weiss Asset Management Foundation Inc., a foundation
launched internally in response to employees’ interest in
allocating resources globally to alleviate suffering.
WAM has been investing in the Korean market for over 20 years.
Over this time, the firm has built out a dedicated night desk of 6
employees focused on trading its Asian strategies, as well as
strong relationships with a number of Korean brokers.
The firm has 90+ employees and assets under management of
approximately £2.5 billion.
Andrew
Weiss
Founder and Chief Executive Officer
Andrew is the Founder and Chief Executive Officer of WAM. Andrew
received his Ph.D. in Economics from Stanford
University, was elected a fellow of the Econometric Society
in 1989 and is currently Professor Emeritus of Economics at
Boston University.
Andrew’s academic research interests have included markets with
imperfect information, macroeconomics, development economics, and
labour economics. He ranks in the top 1% of published economists by
citations, and his co-authored paper “Credit Rationing in Markets
with Imperfect Information” with Joseph
Stiglitz was prominently featured in the Nobel Prize
committee statement for Stiglitz’s 2001 Nobel Prize Award.
Andrew began his career as an Assistant Professor at
Columbia University and as a Research
Economist in the Mathematics Center at Bell Laboratories. He has
lectured at numerous major universities and international
organisations and is the author of numerous articles published in
professional journals.
Andrew began managing the predecessor to WAM’s existing domestic
hedge fund in 1991 and founded WAM in 2003. Andrew and WAM’s
strategies have been featured in articles in Forbes, Time, and
Outstanding Investor Digest, as well as newspaper articles in the
U.S. and Europe.
Additionally, Andrew is a member of the Advisory Board of the
University of California Center for
Effective Global Action, the Advisory Board for the Center for
Development Economics at Williams
College and the Council on Foreign Relations. Andrew and his
wife Bonnie are the founders of Child Relief International, a
foundation dedicated to fighting poverty in less developed
countries. Andrew is also a board member of the WAM Foundation, a
non-profit focused on maximising the alleviation of suffering
worldwide.
Jack Hsiao
Managing Director
Jack joined WAM in February 2008;
he is a Managing Director and a member of the Investment Committee.
Prior to that, Jack interned at WAM from 2006 to 2008 while
performing his undergraduate studies. Jack works from Boston and oversees all strategies in
Asia including investments across
preference shares, holding companies, bonds, distressed, value
equities and other instruments. After graduating Valedictorian from
his high school, Jack received his Bachelor degree in Economics
from Harvard.
Ethan Lim
Portfolio Manager
Ethan joined WAM in June 2015; he
is a Portfolio Manager at the firm and is primarily responsible for
managing the firm’s investments in Korea, while overseeing the
Asia team and other strategies
during Asia hours. Prior to
joining Weiss, Ethan interned at Goldman Sachs Seoul office. Ethan
graduated from Seoul National
University, where he received a BS in Mechanical and
Aerospace Engineering, a BA in Economics, and completed his
Master’s degree in Financial Engineering at Columbia University.
How to invest in Weiss Korea Opportunity Fund
You can invest in the Fund through the following:
Via the nominated broker
The nominated broker is Singer Capital Markets.
The Board encourages all of its Shareholders to exercise their
rights and notes that many specialist platforms provide
shareholders with the ability to receive company documentation, to
vote their shares and to attend general meetings, at no cost.
Please refer to your investment platform for more details, or
visit the Association of Investment Companies’ (“AIC”) website at
www.theaic.co.uk/aic/shareholder-voting-consumer-platforms for
information on which platforms support these services and how to
utilise them.
Through a professional adviser
Professional advisers are usually able to access the products of
all the companies in the market and can help you find an investment
that suits your individual circumstances. An adviser will let you
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Shareholder Information
AIFMD Disclosures
The Company's Alternative Investment Fund Manager is Weiss Asset
Management LP (the "AIFM").
Under the Alternative Investment Fund Managers Regulations 2013
(the “UK AIFM Regulations”) and the FCA’s Investment Funds
sourcebook (“FUND”), the Company is a non-UK Alternative Investment
Fund (“AIF”) and the AIFM is an “above-threshold non-UK AIFM”.
Accordingly, the AIFM has obligations pursuant to the UK AIFM
Regulations and FUND to make certain disclosures to investors
before they invest in the Company. These are set out in the AIFM’s
Supplemental Disclosure to the Admission Document dated
May 2013 which can be found on the
Company’s website www.weisskoreaopportunityfund.com. The AIFM
confirms that, apart from changes to the latest net asset value of
the Company, there have been no material changes to this
information in the year ended 31 December
2022.
The AIFM is also required to make certain disclosures as to the
remuneration it pays to its employees. The portion of the total
amount of remuneration paid by the AIFM to its 75 employees
attributable to the Company for the financial year ended
31 December 2022 was £2,075,355,
consisting of £204,425 fixed and £1,870,930 variable
remuneration.
The aggregate amount of remuneration for the 10 employees and/or
members constituting senior management and those employees whose
actions have a material impact on the risk profile of the Company
was £1,737,727.
Realisation Opportunity
In accordance with the Company’s Articles of Incorporation and
its Admission Document, the Company shall offer all Shareholders
the right to elect to realise some or all of the value of their
Ordinary Shares (the “Realisation Opportunity”), less applicable
costs and expenses, on or prior to the fourth anniversary of
Company’s admission to AIM and, unless it has already been
determined that the Company be wound-up, every two years thereafter
(the “Realisation Date”). See Note 18 for further details.
On 13 March 2023, the Company
announced that pursuant to the Realisation Opportunity,
Shareholders who are on the register as at the record date may
elect, during the Election Period, to redesignate all or part of
their Ordinary Shares as Realisation Shares (provided that any part
is rounded up to the nearest whole Ordinary Share). The Election
Period commenced on 12 April 2023 and
closes on 5 May 2023 at 1pm BST.
Subject to the aggregate NAV of the continuing Ordinary Shares
at the close of business on the last Business Day before the
Realisation Date being not less than £50 million, the Ordinary
Shares held by the Shareholders who have elected for Realisation
will be designated as Realisation Shares and the Portfolio will be
split into two separate and distinct Pools, namely the Continuation
Pool (comprising the assets attributable to the continuing Ordinary
Shares) and the Realisation Pool (comprising the assets
attributable to the Realisation Shares). If one or more Realisation
Elections are duly made and the NAV of the continuing Ordinary
Shares at the close of business on the last Business Day before the
Realisation Date is less than £50 million, the Directors may
propose an ordinary resolution for the winding up of the Company
and may pursue a liquidation of the Company instead of splitting
the Portfolio into the Continuation Pool and the Realisation
Pool.
Share buybacks
In addition to the Realisation Opportunity, the Company has
authority to repurchase on the open market up to 40% of its
outstanding Ordinary Shares. During the year ended 31 December 2022, the Company purchased Nil
shares (2021: 600,000) of its own Shares at a consideration of £Nil
(31 December 2021: £1,719,433) under
its general buyback authority. For additional information on Share
Buybacks refer to Note 18
Net Asset Value
Northern Trust International Fund Administration Services
(Guernsey) Limited (the “Administrator”) is responsible for
calculating the Net Asset Value (“NAV”) per Share of the Company.
Since 4 April 2022, the unaudited NAV
per Ordinary Share is calculated on a daily basis and at the month
end by the Administrator, and is announced by a
Regulatory News Service and is available through the Company’s
website www.weisskoreaopportunityfund.com.
Corporate Information
Directors
(Non-Executive)
Norman Crighton (Chair)
Robert King (resigned 30 September 2022)
Gillian Morris
Krishna Shanmuganathan
(appointed 1 June 2022)
Wendy Dorey
(appointed 9 September 2022) |
Company Secretary,
Administrator and
Designated Manager
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
GY1 3QL |
Registered
Office
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
GY1 3QL |
|
Financial Adviser,
Nominated
Adviser and Broker
Singer Capital Markets
1 Bartholomew Lane
London
EC2N 2AX |
|
|
|
Investment Manager
and AIFM
Weiss Asset Management LP
222 Berkeley Street, 16th Floor
Boston, MA 02116
USA |
|
Guernsey Legal
Adviser to the Company
Mourant Ozannes (Guernsey) LLP
Royal Chambers
St. Julian's Avenue
St. Peter Port
Guernsey
GY1 4HP |
|
|
|
English Legal
Adviser to the Company
Stephenson Harwood LLP
1 Finsbury Circus
London
EC2M 7SH |
|
Registrar
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH |
|
|
|
Custodian and
Principal Bankers
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
GY1 3DA |
|
Independent
Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St. Peter Port
Guernsey
GY1 1WR |
|
|
|
Endnotes and Alternative Performance Measures
1,2,3 The NAV published in this annual report and
audited financial statement will include dividends receivable as
part of the NAV. Please refer to the Admission Document for more
information regarding the announcement and payment of Korean
dividends.
4,7 For WKOF, this return includes all dividends paid
to WKOF’s Shareholders and assumes that these dividends were
reinvested in WKOF’s Shares at the next date for which WKOF reports
a NAV, at the NAV for that date. MSCI total return indices are
calculated as if any dividends paid by constituents are reinvested
at their respective closing prices on the ex date of the
distribution. iShares MSCI Korea UCITS ETF also assumes
reinvestment of dividends.
5 Since inception of Weiss Korea Opportunity Fund on
14 May 2013. The WKOF return since
inception is calculated on the basis of the Net Asset Value per
Ordinary Share and not on the price of WKOF shares on AIM. The
value of WKOF NAV per share performance since inception represents
a total return, inclusive of all dividends paid to WKOF
shareholders since inception. The NAV per share may differ from the
price at which shares of WKOF may be purchased or sold on AIM, and
performance of NAV per share during any specific period may
therefore not be reflective of the returns an investor would
receive by investing in shares of WKOF during such period. For
WKOF, this return includes all dividends paid to WKOF’s
Shareholders and assumes that these dividends were reinvested in
WKOF’s Shares at the next date for which WKOF reports a NAV, at the
NAV for that date.
6,7 MSCI Korea 25/50 Net Total Return Index
denominated in GBP. MSCI total return indices are calculated as if
any dividends paid by constituents are reinvested at their
respective closing prices on the ex-date of the distribution.
8 If the share price of an investment company is
lower than the NAV per share, the shares are said to be trading at
a discount. The size of the discount is calculated by subtracting
the share price from the NAV per share and is usually expressed as
a percentage of the NAV per share. If the share price is higher
than the NAV per share, the shares are said to be trading at a
premium.
9 Calculated as the dividend per share over the last
12 months divided by the share price as of the date of this
report.
10 The Average Trailing 12-Month P/E Ratio of
Preference Shares Held is based on the consolidated diluted
earnings per share over the trailing 12-month period as reported by
Bloomberg, and is calculated as the total market value of WKOF’s
preference share portfolio on the report date divided by the total
earnings allocable to WKOF based on WKOF’s holdings on the report
date. Investments with negative reported earnings are excluded.
11 P/B Ratio of Preference Shares Held is calculated
as the weighted average price to book ratio of all preference
shares held at 31 December 2022.
12 The annualised total expense ratio includes
charges paid to the Investment Manager and other expenses divided
by the average NAV for the year. See Note 10 for details of such
expenses.
13 Bloomberg L.P. (2022). Bloomberg Innovation Scores
since 2013. Retrieved from Bloomberg terminal.
[1]4 WIPO IP Facts and Figures 2021. (n.d.).
World Intellectual Property Organization.
[1]5 Most recent sovereign credit ratings from
Moody’s, S&P, and Fitch as of 31
December 2022.
[1]6 Leading export countries worldwide in 2021.
(n.d.). Statista.
[1]7 GDP, current prices. (2022).
International Monetary Fund.
[1]8Doing Business 2020. (2020). World Bank.
[1]9 PISA 2018
Insights and Interpretations. (n.d.). Organisation for Economic
Co-operation and Development.
20 Bloomberg L.P. Weiss Asset Management LP Data
retrieved as of 29 December 2022.
2[1] Activist Targets. (2022). Activist
Insight.
22 Bloomberg LP. Data as of 31
December 2022.
23 Market capitalisation of the leading chemical
companies worldwide in March 2023.
(2022). Statista.
24 Global EV battery usage in 2022 is 517.9GWh, up
71.8% from the previous year. (2023). SNE Research.
25 About Us. (2022). LG Chem.
26 Market share of the top six car manufacturers in
South Korea in 2022, based on
sales volume. (2023). Statista.
27 Hyundai Motor Reports 2022 Global Sales and 2023
Goals. (2023). Hyundai.
28 Brands. (n.d.). AmorePacific Group.
29 Brands. (n.d.). CJ Cheijedang.
30 Subsidiaries Info. (n.d.). Hanwha Corporation.
31 Samsung maintains No.1 position in global TV
market. (2023). The Korea Economic Daily.
32 Global Business. (n.d.). Mirae Asset
Securities
33 Company. (n.d.). LG H&H.
34 Our Business. (n.d.). SK Chemicals.
35 Technology and Products. (n.d.). Doosan Fuel
Cell
36 This return includes all dividends paid to the
Company’s Shareholders and assumes that these dividends were
reinvested in the Company’s Shares at the next date for which the
Company reports a NAV, at the NAV for that date.
37 MSCI total return indices are calculated as if any
dividends paid by constituents are reinvested at their respective
closing prices on the ex-date of the distribution.
38 On 31 December 2022
the Company had 69,307,078 shares outstanding.
39 This return includes all dividends paid to WKOF’s
Shareholders and assumes that these dividends were reinvested in
WKOF’s Shares at the next date for which WKOF reports a NAV, at the
NAV for that date.
40 MSCI Korea 25/50 Net Total Return Index
denominated in GBP. MSCI total return indices are calculated as if
any dividends paid by constituents are reinvested at their
respective closing prices on the ex-date of the distribution.
41 Bloomberg L.P. and Weiss Asset Management LP; Data
as of 31 December 2022.
42 Bloomberg L.P. Data as of 31 December 2022.
43 Market Data System. (n.d.). Korea
Exchange.
44 Consumer Price Index in December 2022. Statistics Korea.
45 Bloomberg L.P. Data as of 31 December 2022.
46 The Bank of Korea Base Rate. (2023). Bank of
Korea.
47 Bloomberg L.P. Data as of 31 December 2022.
48 S. Korea to report best ever exports performance
this year: trade ministry. (2022). Yonhap News Agency.
49 Bloomberg L.P. Data as of 29 December 2022.
50 Weiss Asset Management LP. Data as of 31 December 2022.
51 HMC’s first preference shares traded at a 55%
discount relative to its common shares as of December 31, 2021, as compared to its 3-year
historical average discount of 46% prior to 2020.
52 The estimated value of LG Chem’s assets includes
the market value of publicly traded subsidiaries and estimated
values of private subsidiaries.
53 If voting rights were important determinants of
the price of securities, due to LG Chem’s control over its publicly
traded securities one would expect the common shares of LG Chem to
trade at a premium to the value of its underlying holdings in its
publicly traded subsidiaries, not at a discount as is the case.
54 LG to buy back $398
mm of its own shares. (2022). The Korea Economic Daily.
55 SK’s investment arm to buy back shares worth
W200b. (2022). The Korea Herald.
56 Number of Companies publicly subjected to activist
demands by HQ and time period. (2022). Activist Insight.
57 Activist fund wins over K-pop pioneer at SM
Entertainment annual meeting. (2022). The Korea Economic Daily.
58 South Korea plans
reforms to tackle ‘Korea discount’ for its stocks. (2022).
Reuters.
59 Converted into GBP from USD using the prevailing
currency exchange spot rate as of 31
December 2022.
60 Bloomberg L.P. and Weiss Asset Management LP. Data
as of 29 December 2022.