WEISS KOREA OPPORTUNITY FUND LTD.
LEI 213800GXKGJVWN3BF511
(Classified Regulated Information, under DTR 6 Annex 1 section
1.2)
HALF-YEARLY FINANCIAL REPORT
FOR THE PERIOD ENDED 30 JUNE 2020
Weiss Korea Opportunity Fund Ltd. (the “Company”) has today,
released its Half-Yearly Financial Report for the period ended
30 June 2020. The Report will shortly
be available for inspection via the
Company's website www.weisskoreaopportunityfund.com.
For further information, please contact:
N+1 Singer
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 |
Summary
Information
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”), a Boston-based investment management company
registered as an investment adviser 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 focussed on South Korean companies. Specifically,
the Company invests primarily in listed preferred shares issued by
companies incorporated in South
Korea, which in many cases trade at a discount to the
corresponding common shares of the same companies. Since the
Company's Admission to AIM, the Investment Manager has assembled a
portfolio of South Korean preferred 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 preferred share is trading relative to its respective
common share, its dividend yield, its liquidity, and the weighting
of its common share (if any) in the MSCI Korea 25/50 Net Total
Return Index (the “Korea Index”), among other factors. Not all of
these factors will necessarily be satisfied for particular
investments. The Investment Manager does not generally make
decisions based on corporate fundamentals or its view of the
commercial prospects of an issuer. Preferred 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”).
The Company purchased certain credit default swaps on the
sovereign debt of South Korea and
put options on iShares MSCI South Korea as general market and
portfolio hedges, but generally did not hedge its exposure to
interest rates or foreign currencies during the period ended
30 June 2020 (2019: Nil). Please see
additional information about the nature of these hedges in the
Investment Manager’s Report within.
Realisation Opportunity
In accordance with the Company’s Articles of Incorporation and
its Admission Document, the Company offered 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 most recent being 15 May 2019 (the
“Realisation Date”) and the next Realisation Date taking place in
May 2021.
Share Buybacks
In addition to the Realisation Opportunity, the Company has
authority to repurchase on the open market up to 40 percent of its
outstanding Ordinary Shares. During the period ended 30 June 2020, the Company purchased none (2019:
Nil) of its own Shares at a consideration of £Nil (31 December 2019: £Nil) under its general buyback
authority.
Shareholder Information
Northern Trust International Fund Administration Services
(Guernsey) Limited (the “Administrator”) is responsible for
calculating the Net Asset Value (“NAV”) per Share of the Company.
The unaudited NAV per Ordinary Share is calculated on a weekly
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.
Company financial highlights and
performance summary for the period ended 30
June 2020
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As
at |
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As
at |
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30
June 2020 |
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31
December 2019 |
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£ |
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£ |
Total Net Assets |
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138,078,901 |
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126,988,732 |
NAV per share |
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1.6918 |
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1.5559 |
Basic and
diluted earnings per share |
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0.1754 |
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0.0960 |
Mid-Market Share
price |
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1.63 |
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1.50 |
Discount to NAV* |
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(3.7%) |
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(3.6%) |
As at close of business on 02 September
2020, the latest published NAV per Share had increased to
£1.8708 (as at 01 September 2020) and
the Share price stood at £1.86.
*The amount by which the market value exceeds or is less than
the face value of a stock.
Total Expense Ratio
The annualised total expense ratio for the period ended
30 June 2020 was 1.87 per cent
(31 December 2019: 1.85 per cent). The annualised total
expense ratio includes charges paid to the Investment Manager and
other expenses divided by the average NAV for the period.
Chairman’s
Review
For the period ended 30 June 2020
We are pleased to provide the 2020 Half Yearly Report on the
Company. During the period from 31 December
2019 to 30 June 2020 (the
“Period”), the Company’s net asset value increased by 11.3 per cent
including reinvested dividends1 (the return was also
11.3 per cent assuming dividends were not reinvested)2
outperforming the reference MSCI Korea 25/50 Net Total Return Index
(the “Korea Index”), which decreased 1.7 per cent in Pounds
Sterling (“GBP”). Since the admission of the Company to AIM in
May 2013, the net asset value has
increased by 96.7 per cent including reinvested
dividends1 (or 93.4 per cent assuming dividends are not
reinvested in the Company)2, compared to the Korea Index
returns of 42.9 per cent3. A report from the Investment
Manager follows.
The Directors declared a dividend of 3.9549 pence per Share, ex-dividend date
21 May 2020, to distribute the income
received by the Company in respect of the year ended 31 December 2019. This dividend was paid to all
Shareholders on 12 June 2020.
In my prior letter I commented on the rise of COVID-19, and the
disruption and uncertainty the virus would likely introduce to the
Korean economy. Compared to many, the Korean government and people
have done a good job of containing the virus. However, South Korea entered a technical recession at
the end of Q2 and cluster-based virus outbreaks continue to emerge.
Until a vaccine is found, and is effectively distributed, we
anticipate continued COVID-19 disruption to the South Korean
economy and financial markets.
During the Period Korean equity markets fell by approximately 35
per cent then staged a remarkable rebound from the mid-March lows.
Trading volumes and volatility were at levels not seen by the
Company since its inception. I’m particularly pleased to able to
report meaningful outperformance against the reference index during
the first half of the year and credit the Investment Manager’s
active management of the portfolio during this highly volatile
period.
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 Company has an active share repurchase program as part of
its discount management strategy. During the Period, the Board
considered buying back Shares on numerous occasions when the
discount to NAV appeared to be wide. However, the Korean stock
market was so volatile that it was very difficult to ensure that
the discount quoted was achievable when realising part of the
portfolio to fund buybacks. With the stock market moving 5 per cent
to 10 per cent each day, I hope that Shareholders can understand
the difficulties the Board and the Investment Manager faced during
that difficult period.
The Board is authorised to repurchase up to 40 per cent of the
Company's outstanding Ordinary Shares in issue as at 24 July 20204. Since Admission almost
six years ago, and as at the date of this document, the Company has
repurchased, at a discount to NAV, 12,590,250 Ordinary Shares of
the original 105,000,000 Ordinary Shares issued at Admission. The
Board also has in place standing instructions with the Company’s
broker, N+1 Singer Advisory LLP ("Broker" or "N+1 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
aggressively repurchase Shares if the Company’s Shares are trading
at a significant discount to net asset value. We will continue to
keep Shareholders informed of any share repurchases through public
announcements.
If you would like to speak with the Investment Manager or learn
about potential opportunities to meet with them, please contact N+1
Singer. I would like to thank Shareholders for their support and
look forward to the continued success of the Company in the
future.
Norman Crighton
Chairman
03 September 2020
1 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.
2 This return includes the annual cash dividend paid to the
Company’s Shareholders but does not assume such dividends are
reinvested..
3 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.
4 On 24 July 2020, the Company had
81,617,828 Ordinary Shares in issue.
Investment Manager’s Report
For the period ended 30 June
2020
Performance
In the first half of 2020, WKOF’s NAV in Pounds Sterling (“GBP”)
gained 11.3 per cent, including reinvested dividends5
(the return was also 11.3 per cent assuming dividends are not
reinvested in WKOF)6 outperforming the reference MSCI
South Korea Index (“the Korea Index”)7, which decreased
1.7 per cent when converted to GBP. From its inception in
May 2013, WKOF has significantly
outperformed the Korean market. The total return to an investor in
WKOF since inception was 96.7 per cent including reinvested
dividends5 (or 93.4 per cent assuming dividends are not
reinvested in WKOF),6 compared to returns of 42.9 per
cent for the Korea Index over the same period.
The outperformance against the Korea Index during the first half
of 2020 was largely due to discount narrowing of preference shares
owned, which contributed 9.6 per cent of the 11.3 per cent NAV
performance as described in the table below.
Return Attribution
Component |
Year
to June 30, 2020 Attribution |
MSCI South Korea Index
(KRW)8 |
-4.6% |
WKOF Common Shares vs
Korea Index (KRW)9 |
3.8% |
Discount Narrowing of
Preference Shares Owned |
9.6% |
Excess Dividend Yield
of Preference Shares Owned10 |
0.0% |
Currency (KRW vs.
GBP) |
3.0% |
Fees &
Expenses |
-1.0% |
Other |
0.5% |
NAV Performance in
GBP |
11.3% |
Macroeconomic Impact of COVID-19
The major theme for the first half of 2020 was the emergence of
the COVID-19 virus from Wuhan,
China, and the resulting global pandemic. The economic
impact of COVID-19, quarantine measures and government intervention
around the world led to a tumultuous first half of the year across
markets. We stated in our 2019 Investment Manager’s Report that it
would be difficult for us to predict the full effects of the virus
on the global economy, much less how equity markets would react to
new information about infection rates, government stimulus, and the
likelihood and timing of a vaccine.
Despite South Korea recording
one of the highest numbers of cumulative COVID-19 cases in early
March, the South Korean government’s containment policies, based on
a test, trace and isolate strategy, appear to have been relatively
effective at abating the spread of the virus.11
Government tactics have included establishing testing facilities at
gas stations across the country and forming teams of contact
tracers who are empowered to access credit card and mobile phone
records for confirmed cases-typically within minutes. Perhaps due
to these government policies and compliance by the South Korean
population, South Korea has so far
avoided the worst consequences of the pandemic without incurring
the massive budget deficits we’ve seen in the U.S. and Western Europe. GDP in South Korea for the second quarter showed a
year-on-year fall of 3 per cent compared with falls of 9.5 per cent
in the U.S., 15 per cent in the Euro area and 21.7 per cent in the
U.K.12. As of August 24,
South Korea had one of the lowest
per capita death tolls due to COVID-19 at 6.03 per million
population. By comparison, the COVID-19 death toll in Japan was 9.33, 19.69 in Australia, 110.67 in Germany, 198.62 in Switzerland, 534.15 in the USA, and 610.27 in the U.K. As of the same
date, South Korea reported a
seven-day rolling average of 0.01 deaths per million people. This
compares with a seven-day rolling average for the U.S. of 2.91 and
0.13 for the United Kingdom. These
results for South Korea are
particularly impressive given the age of its population—South
Korea’s median age is 43.7, which compares with a median age in the
USA of 38.3 and a median age in
the U.K. of 40.5.
Macroeconomists have proposed several models to estimate the
speed of eventual economic recovery and the forms that equity
market rebounds might take in a post COVID-19 world. The broader
Korean index experienced a “V”-shaped rebound during the second
quarter of 2020, with the closing price of the KOSPI 200 index on
June 30 a mere 3.5 per cent lower
than the closing price on January 2
of this year. To illustrate the velocity of the market drawdown and
recovery, the peak-to-trough change for the first half of 2020 for
the KOSPI 200 was 35 per cent, and that drawdown had been almost
fully recovered by June 30. As of
August 24 the KOSPI was up 6.0 per
cent for the year. This has been one of the strongest performing
markets so far in 2020.
The Korean economy, however, still faces significant uncertainty
due to the likely lasting impacts of the pandemic on global
aggregate demand and aggregate supply. Weak global demand from
Korea’s main trading partners resulted in total exports falling by
approximately 11 per cent year-on-year to end June.13 A
recovery in exports to China and
resilience in the semiconductor sector helped avoid a steeper
decline. Ultimately, the success of South Korea’s containment of
COVID-19 and the strength of demand from its largest trading
partners, China and the US, will
likely determine the speed of economic recovery.
In the meantime, the South Korean government has aggressively
expanded its stimulus spending by implementing broad measures
including emergency cash handouts to all South Korean households
and longer term investments like the “Korean Green New Deal”
described below.
We believe that our competitive advantage is in investing into
inefficiencies caused by preference share discounts, not in timing
macroeconomic trends. Consequently, while our trading strategy is
premised on a narrowing of preference share discounts rather than
on any specific macroeconomic condition, the rapid rebound of the
broader index was a welcome sight, as preference shares are equity
investments in Korean companies and the discounts are partially
driven by the companies’ earnings and dividend payout ratios.
Portfolio Activity
One interesting observation during the first half of 2020 was a
lack of crowdedness in WKOF’s investments. During the middle of
March, the most violent drawdowns largely occurred in less liquid
asset classes. Despite preference shares generally having lower
liquidity than the corresponding ordinary shares, we did not
observe a corresponding general widening of discounts in the
preference shares owned by WKOF.
During and after March, preference share trading volumes and the
volatility of discounts of preference shares in WKOF’s portfolio
substantially increased. This was most visible in certain illiquid
securities, but also occurred in larger capitalization preference
shares. The increased volatility provided WKOF with exceptional
trading opportunities and resulted in rebalancing within the top
ten positions as WKOF continued to reallocate monies to those
preference shares that offered the best opportunities. In the past,
this entailed substantially reducing WKOF’s exposure to Hyundai
Motors. In the first half of 2020 WKOF reduced its weighting in
Samsung Electronics, its largest holding, from 22 per cent to 12
per cent. WKOF did this because the expected returns from holding
other preference shares were substantially higher than from holding
Samsung Electronics, whose preference share discount narrowed, at
one point reaching the tightest level since 1994.
Another theme we observed in the first half of 2020 was the
ongoing international focus on developing green energy resources
and combating climate change. For example, the European Union
proposed to allocate 30 per cent of its 750
billion euro COVID-19 response stimulus to climate action
and building a sustainable green future. Similarly, the South
Korean government has made the “Korean Green New Deal” an important
part of its 2020 economic policy, focusing on green energy,
electric vehicles, and contactless/digital payments. While the
specific details of this policy have not been formally announced,
the market expects government subsidies and investments into
eco-friendly industries. As a result, companies involved in the
production of lithium-ion batteries, renewable energy, and electric
vehicles rallied strongly following the announcement.
Selling activity has resulted in WKOF holding a larger Samsung
Kodex 200 ETF position than has been typical, as proceeds from
sales were partially invested into the ETF. We anticipate,
considering the heightened volatility of current market conditions,
opportunistically reallocating from the ETF into wider discount
preference shares over the second half of the year.
Hedging
WKOF’s portfolio is generally long only. However, as described
more fully in WKOF's Annual Report and Audited Financial Statements
for the year ended 31 December 2019,
because of political tensions in Northeast Asia, the Board approved a hedging
strategy in September 2017 intended
to reduce exposure to extreme events that would be catastrophic to
its Shareholders’ investments in WKOF. As a result, WKOF has
purchased credit default swaps when deemed cost effective. These
are securities that we believe would generate high returns without
introducing material new risks into the portfolio or exacerbating
existing risks if WKOF experienced an East Asian geo-political
disaster. These catastrophe hedges are not intended to make money.
We expect that WKOF’s hedges will lose money most of the time - as
with any insurance policy. The table below provides details about
the hedges as of 30 June 2020. 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
(USD) |
Total Cost to
Expiration (USD) |
Annual Cost (USD) |
Price Paid as per cent
of Notional Value (per annum) |
Expiration Date |
Duration (Years) |
5 yr CDS |
$20m |
$457,151 |
$91,430 |
45bps |
2023 |
5.0 |
3 yr CDS |
$80m |
$431,216 |
$143,739 |
18bps |
2023 |
3.0 |
Total Cost |
|
$888,367 |
$235,169 |
|
|
|
Conclusion
Financial markets, as well as life in general, were profoundly
impacted by the emergence of COVID-19 during the first half of
2020. As nations and companies re-evaluate their priorities in
light of the pandemic, some themes that have been beneficial to
WKOF, such as corporate governance reforms, will likely be
temporarily de-prioritized. At the same time, uncertainty and price
volatility may provide WKOF with exceptional trading and investment
opportunities.
Weiss Asset Management LP
03 September 2020
5 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.
6 This return includes the annual cash dividend paid to the
Company’s Shareholders but does not assume such dividends are
reinvested.
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 MSCI Korea 25/50 Net Total Return Index denominated in KRW
9 WKOF Common Shares vs Korea Index (KRW) is calculated as the
return of a portfolio of common shares issued by the same issuers
as the preference shares the Company has owned, as if a
hypothetical investor bought or sold an equal quantity of those
common shares on the same days that the Company purchased or sold
its preference share investments.
10 Excess dividend yield of preference shares owned relative to
a portfolio of the respective common shares. In Korea dividends are
typically paid to the entities who owned shares at the end of
December, although the dividend amounts are not declared until the
next year, so while we received dividend income in the first half
of the year, those dividends were generally attributed to the
performance during the last half of 2019. The annual and
semi-annual financials include dividends with a record date prior
to the end of the reporting period, even if they had not been paid
or even announced prior to the end of the reporting period. In
contrast, the weekly and monthly NAV announcements published by the
Company only include dividends upon receipt, with an additional
note stating the amount of announced but as yet unpaid
dividends.
11 “Emerging COVID-19 success story: South Korea learned the lessons of MERS”,
Oxford University’s Our World in Data project, June 30, 2020,
https://ourworldindata.org/covid-exemplar-south-korea
12 Data from Haver Analytics, as reported in The Economist
13 “Korea’s June exports decrease 10.9 per cent to 39.2
billion, show signs of improvement” South Korea Ministry of Trade,
Industry and Energy, July 1 2020,
https://english.motie.go.kr/en/pc/pressreleases/bbs/bbsView.do?bbs_seq_n=787&bbs_cd_n=2¤tPage=1&search_key_n=&search_val_v=&cate_n=
Statement of Principal and Emerging
Risks and Uncertainties
For the period ended 30 June 2020
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.
COVID-19
The Board continues to monitor the impact of the COVID-19
outbreak and the impact that COVID-19 will continue to have on the
future of the Company and the performance of the Portfolio.
Notwithstanding the impact the outbreak has already had on the
Company’s share price and NAV performance, there remains continued
uncertainty as to the consequences of the COVID-19 outbreak on the
economy in general.
From an operational perspective, the Company uses a number of
service providers who have established, documented and regularly
test their Business Resiliency Policies to cover various possible
scenarios whereby staff cannot be present at the designated office
and conduct business as usual. Since the COVID-19 pandemic
outbreak, service providers have deployed these alternative working
policies to ensure continued business service.
Principal Risks and Uncertainties
In respect to 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 the requirements
of its Admission Document and fail to meet its 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.
Liquidity of Investments
The Korean preferred 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.
Going Concern
The Company has continued in existence following the second
Realisation Opportunity and will continue to operate as a going
concern unless a determination to wind up the Company is made.
Given this, the Directors will propose further realisation
opportunities for Shareholders who have not previously elected to
realise all of their Ordinary Shares. Such opportunities will be
made using a similar mechanism to previously announced Realisation
Opportunities. The next Realisation Opportunity will take place
during May 2021.
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 Unaudited Half-Yearly Financial Report to be
prepared on a going concern basis.
Directors
For the period ended 30 June 2020
The Company has three non-executive Directors, all of whom are
considered independent of the Investment Manager and details are
set out below.
Norman
Crighton (aged 54)
Mr Crighton is Chairman of the Company. He is also a
non-executive chairman of RM Secured Direct Lending plc and AVI
Japan Opportunity Trust. Norman was, until May 2011, an investment manager at Metage Capital
Limited where he was responsible for the management of a portfolio
of closed-ended funds and has almost three decades of experience in
closed-ended funds having led teams at Olliff and Partners, LCF
Edmond de Rothschild, Merrill Lynch, Jefferies International
Limited and latterly Metage Capital Limited. His experience covers
analysis and research as well as sales and corporate finance.
Norman is British and resident in the United Kingdom. Norman was appointed to the
Board in 2013.
Stephen
Charles Coe (aged 54)
Stephen is Chairman of the Audit Committee. He is also a
director (and Chairman of the Audit Committee) of Leaf Clean Energy
Company and Merian Chrysalis Investment Company. He has been
involved with offshore investment funds and managers since 1990
with significant exposure to property, debt, emerging markets, and
private equity investments.
He qualified as a Chartered Accountant with Price Waterhouse
Bristol in 1990 and remained in audit practice, specialising in
financial services, until 1997. From 1997 to 2003 he was a director
of the Bachmann Group of fiduciary companies and Managing Director
of Bachmann Fund Administration Limited, a specialist third party
fund administration company. From 2003 to 2006 Stephen was a
director with Investec in Guernsey and Managing Director of
Investec Trust (Guernsey) Limited and Investec Administration
Services Limited. He became self-employed in August 2006 providing services to financial
services clients. Stephen is British and resident in Guernsey.
Stephen was appointed to the Board in 2013.
Robert Paul
King (aged 57)
Rob is a non-executive director for a number of open and
closed-ended investment funds including Tufton Oceanic Assets
Limited (chairman), Chenavari Capital Solutions Limited (chairman),
and CIP Merchant Capital Limited. Before becoming an independent
non-executive director in 2011, he was a director of Cannon Asset
Management Limited and their associated companies. Prior to this he
was a director of Northern Trust International Fund Administration
Services (Guernsey) Limited (formerly Guernsey International Fund
Managers Limited) where he had worked from 1990 to 2007. He has
been in the offshore finance industry since 1986 specialising in
administration and structuring of offshore open and closed-ended
investment funds. Rob is British and resident in Guernsey. Rob was
appointed to the Board in 2013.
Directors’
Responsibility Statement
For the period ended 30 June 2020
The Directors are responsible for preparing the Unaudited
Half-Yearly Financial Report (the “Condensed Financial
Statements”), which have not been audited by an independent
auditor, and confirm that to the best of their knowledge:
· these Condensed Financial
Statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) and in accordance with
International Accounting Standard 34 “Interim Financial Reporting”
issued by the European Union and the AIM Rules of the LSE;
· these Condensed Financial
Statements include a fair review of important events that have
occurred during the period and their impact on the Condensed
Financial Statements, together with a description of the principal
risks and uncertainties of the Company for the remaining six months
of the financial period as detailed in the Investment Manager’s
Report; and
· these Condensed Financial
Statements include a fair review of related party transactions that
have taken place during the six month period which have had a
material effect on the financial position or performance of the
Company, together with disclosure of any changes in related party
transactions in the last Annual Report and Audited Financial
Statements which have had a material effect on the financial
position of the Company in the current period.
The Directors confirm that the Condensed Financial Statements
comply with the above requirements.
On behalf of the Board,
Norman Crighton
Chairman
03 September 2020
Robert King
Director
03 September 2020
Condensed Statement
of Financial Position
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
30
June |
|
31
December |
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
|
|
|
|
Notes |
£ |
|
£ |
Assets |
|
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
assets at fair value through profit or loss |
|
8 |
133,970,854 |
|
117,853,987 |
Derivative
financial assets |
|
|
9 |
- |
|
33,218 |
Other
receivables |
|
|
|
|
119,262 |
|
2,445,789 |
Cash and
cash equivalents |
|
|
|
3,143,083 |
|
6,430,069 |
Margin
account |
|
|
|
|
3,204,448 |
|
1,435,750 |
Total
assets |
|
|
|
|
140,437,647 |
|
128,198,813 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
Derivative
financial liabilities |
|
|
9 |
2,023,106 |
|
704,019 |
Other
payables |
|
|
|
|
335,640 |
|
506,062 |
Total
liabilities |
|
|
|
|
2,358,746 |
|
1,210,081 |
Net assets |
|
|
|
|
|
138,078,901 |
|
126,988,732 |
|
|
|
|
|
|
|
|
|
Represented by: |
|
|
|
|
|
|
|
Shareholders' equity and reserves |
|
|
|
|
|
|
Share
capital |
|
|
|
10 |
68,124,035 |
|
68,124,035 |
Other
reserves |
|
|
|
|
69,954,866 |
|
58,864,697 |
Total
shareholders' equity |
|
|
|
138,078,901 |
|
126,988,732 |
Net
assets per share |
|
|
|
7 |
1.6918 |
|
1.5559 |
The Notes form an integral part of these Condensed Financial
Statements.
The Condensed Financial Statements were approved and authorised
for issue by the Board of Directors on
03 September 2020.
Norman Crighton
Chairman
Robert King
Director
Condensed Statement
of Comprehensive Income
|
|
|
|
|
|
For
the period ended |
|
For
the period ended |
|
|
|
|
|
|
30
June 2020 |
|
30
June 2019 |
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
|
Note |
£ |
|
£ |
Income |
|
|
|
|
|
|
|
Net changes in fair value of financial assets
at fair value through profit or loss through profit or
loss |
14,222,572 |
|
11,651,316 |
Net changes in fair value of derivative financial
instruments through profit or loss |
1,581,263 |
|
206,014 |
Net
foreign currency gains/(losses) |
|
53,624 |
|
(137,822) |
Other
income |
|
|
|
|
509,844 |
|
711,676 |
Total
income |
|
|
|
|
16,367,303 |
|
12,431,184 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
(1,937,790) |
|
(1,554,650) |
Total
operating expenses |
|
|
(1,937,790) |
|
(1,554,650) |
|
|
|
|
|
|
|
|
|
Profit
for the period before tax |
|
|
14,429,513 |
|
10,876,534 |
Withholding tax |
|
|
|
(111,440) |
|
(156,739) |
Profit
for the period after tax |
|
|
14,318,073 |
|
10,719,795 |
Profit
and total comprehensive income for the period |
14,318,073 |
|
10,719,795 |
Basic
and diluted earnings per Share |
6 |
0.1754 |
|
0.1281 |
|
|
|
|
|
|
|
|
|
|
All items derive from continuing activities.
The Notes form an integral part of these Condensed Financial
Statements.
Condensed Statement
of Changes in Equity
|
|
|
Share |
Other |
|
|
|
|
capital |
reserves |
Total |
|
|
Notes |
£ |
£ |
£ |
Balance at 1
January 2020 |
|
|
68,124,035 |
58,864,697 |
126,988,732 |
Total
comprehensive income for the period |
|
- |
14,318,073 |
14,318,073 |
Transactions with Shareholders, recorded directly in
equity |
|
|
|
|
Distributions
paid |
|
4 |
- |
(3,227,904) |
(3,227,904) |
Balance at 30 June
2020 |
|
|
68,124,035 |
69,954,866 |
138,078,901 |
|
|
|
|
|
|
For the
period ended 30 June 2019 (Unaudited) |
|
|
|
|
|
|
|
|
|
|
Balance at 1
January 2019 |
|
|
72,080,642 |
54,408,953 |
126,489,595 |
Total
comprehensive loss for the period |
|
- |
10,719,795 |
10,719,795 |
Transactions with Shareholders, recorded directly in
equity |
|
|
|
|
Redemption of
Realisation Shares |
|
10 |
(3,956,607) |
- |
(3,956,607) |
Distributions
paid |
|
4 |
- |
(3,475,415) |
(3,475,415) |
Balance at 30 June
2019 |
|
|
68,124,035 |
61,653,333 |
129,777,368 |
The Notes form an integral part of these Condensed Financial
Statements.
Condensed Statement
of Cash Flows
|
|
For
the period ended |
For the period ended |
|
|
30 June 2020 |
|
30
June 2019 |
|
|
(Unaudited) |
|
(Unaudited) |
|
Notes |
£ |
|
£ |
Cash flows from
operating activities |
|
|
|
|
Profit for the
period |
|
14,318,073 |
|
10,719,795 |
|
|
|
|
|
Adjustments for: |
|
|
|
|
Net change in fair value of financial assets held at
fair value through profit or loss |
(14,276,196) |
|
(11,651,318) |
Net change in fair value of derivative financial
instruments held at fair value through profit or loss |
(1,581,263) |
|
(206,014) |
Net change in NAV of
Realisation Shares |
|
- |
|
(41,089) |
Effect of foreign
exchange rate fluctuations |
|
53,624 |
|
- |
Decrease in
debtors* |
|
2,326,527 |
|
2,292,859 |
Increase in
creditors |
|
(170,422) |
|
(211,529) |
Net cash generated
from operating activities |
|
670,343 |
|
902,704 |
|
|
|
|
|
Cash flows from
investing activities |
|
|
|
|
Purchase of financial
assets at fair value through profit or loss |
|
(50,381,604) |
|
(2,085,317) |
Open of derivative
financial instruments |
|
1,720,421 |
|
(310,732) |
Proceeds from the sale
of financial assets at fair value through profit or loss |
8 |
48,487,308 |
|
10,321,790 |
Closure of derivative
financial instruments |
|
1,213,148 |
|
1,884,115 |
(Increase)/decrease in
margin account |
|
(1,768,698) |
|
364,430 |
Net cash (used
in)/generated from investing activities |
|
(729,425) |
|
10,174,286 |
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
Redemption of
Realisation Shares |
|
- |
|
(3,915,517) |
Distributions
paid |
4 |
(3,227,904) |
|
(3,475,415) |
Net cash used in
financing activities |
|
(3,227,904) |
|
(7,390,932) |
|
|
|
|
|
Net
(decrease)/increase in cash and cash equivalents |
|
(3,286,986) |
|
3,686,058 |
Cash and cash
equivalents at the beginning of the period |
|
6,430,069 |
|
1,304,537 |
Cash and cash
equivalents at the end of the period |
|
3,143,083 |
|
4,990,595 |
|
|
|
|
|
|
The Notes form an
integral part of these Condensed Financial Statements.
*Decrease in debtors
includes dividends receivable.
Notes to the Unaudited Condensed
Financial Statements
For the period ended 30 June 2020
1. General information
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 Condensed Financial Statements of the Company for the period
ended 30 June 2020 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.
b) Basis of preparation
The Condensed 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 at fair value through profit or loss.
The Condensed Financial Statements, covering the period from 1
January to 30 June 2020, are not
audited.
The accounting policies adopted are consistent with those used
in the Annual Report and Audited Financial Statements for the year
ended 31 December 2019.
The Condensed Financial Statements do not include all the
information and disclosures required in the Annual Report and
Audited Financial Statements and should be read in conjunction with
the Annual Report and Audited Financial Statements for the year
ended 31 December 2019. The Auditor’s
Report contained within the Annual Report and Audited Financial
Statements provided an unmodified opinion.
The preparation of the Condensed Financial Statements requires
management to make estimates and assumptions that affect the
reported amounts of revenues, expenses, assets, and liabilities at
the date of these Condensed Financial Statements. If in the
future such estimates and assumptions, which are based on
management’s best judgement at the date of the Condensed Financial
Statements, deviate from the actual circumstances, the original
estimates and assumptions will be modified as appropriate in the
period in which the circumstances change.
c) Going concern
The Company has continued in existence following the second
Realisation Opportunity and will continue to operate as a going
concern unless a determination to wind up the Company is made.
Given this, the Directors will propose further realisation
opportunities for Shareholders who have not previously elected to
realise all of their Ordinary Shares. Such opportunities will be
made using a similar mechanism to previously announced Realisation
Opportunities. The next Realisation Opportunity will take place
during May 2021.
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 Condensed Financial Statements to be prepared
on a going concern basis.
3. 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 (2019:
£1,200).
The amounts disclosed as taxation in the Condensed 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 per cent.
4. Dividends to
Shareholders
Dividends, if any, will be paid annually each year. An annual
dividend of 3.9549 pence per Share
(£3,227,904) was approved on 13 May 2020 and paid on
12 June 2020 in respect of the year ended 31 December 2019.
An annual dividend of 4.1195 pence
per Share (£3,475,415) was approved on 1 May 2019 and paid on
31 May 2019 in respect of the year ended 31 December 2018.
5. Significant accounting
judgements, estimates and assumptions
The preparation of the Condensed 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 significant judgements, estimates,
and assumptions made by management when applying the Company’s
accounting policies, as well as the key sources of estimation
uncertainty, were the same for these Condensed Financial Statements
as those that applied to the Annual Report and Audited Financial
Statements for the year ended 31 December
2019.
6. Basic and diluted
earnings per Share
The basic and diluted earnings per Share for the Company has
been calculated based on the total comprehensive gain for the
period of £14,318,073 (period ended 30 June
2019: £10,719,795) and the weighted average number of
Ordinary Shares in issue during the period of 81,617,828 (period
ended 30 June 2019: 83,666,809).
7. Net Asset Value per
Ordinary Share
The NAV of each Share of £1.6918 (as at 31 December 2019: £1.5559) is determined by
dividing the net assets of the Company attributed to the Ordinary
Shares of £138,078,091 (as at 31 December 2019: £126,988,732)
by the number of Ordinary Shares in issue at 30 June 2020 of 81,617,828 (as at
31 December 2019: 81,617,828 Ordinary Shares in issue).
8. Financial assets at
fair value through profit or loss
|
|
|
|
As
at |
|
As
at |
|
|
|
|
30
June |
|
31
December |
|
|
|
|
2020 |
|
2019 |
|
|
|
|
£ |
|
£ |
Cost of
investments at beginning of the period/year |
|
|
106,419,418 |
|
110,153,284 |
Purchases
of investments in the period/year |
|
|
50,381,602 |
|
8,239,027 |
Disposal
of investments in the period/year |
|
|
(48,487,307) |
|
(18,803,751) |
Realised
gain on disposal of investments in the period/year |
|
19,802,055 |
|
6,830,858 |
Cost of
investments held at end of the period/year |
|
|
128,115,768 |
|
106,419,418 |
Unrealised
gain on investments |
|
|
5,855,086 |
|
11,434,569 |
Financial
assets at fair value through profit or loss |
|
|
133,970,854 |
|
117,853,987 |
9. Derivative financial instruments
at fair value through profit or loss
|
|
|
|
As
at |
|
As
at |
|
|
|
|
30
June |
|
31
December |
|
|
|
|
2020 |
|
2019 |
|
|
|
|
£ |
|
£ |
Cost of
derivatives at beginning of the period/year |
|
|
(1,174,737) |
|
(552,309) |
Open of
derivatives in the period/year |
|
|
(1,720,421) |
|
593,087 |
Closure of
derivatives in the period/year |
|
|
(1,213,146) |
|
(1,884,116) |
Realised
gain/(loss) on closure of derivatives in the period/year |
|
2,100,459 |
|
668,601 |
Net cost
of derivatives held at end of the period/year |
|
|
(2,007,845) |
|
(1,174,737) |
Net
changes in fair value on derivative financial instruments at fair
value through profit or loss |
|
(15,261) |
|
503,936 |
Net fair
value on derivative financial instruments at fair value through
profit or loss |
|
(2,023,106) |
|
(670,801) |
The following are the composition of the Company’s derivative
financial instruments at year end:
|
|
|
|
|
As
at |
|
|
|
As
at |
|
|
|
|
|
30
June |
|
|
|
31
December |
|
|
|
|
|
2020 |
|
|
|
2019 |
|
|
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
Derivatives held for
trading: |
|
|
£ |
|
£ |
|
£ |
|
£ |
Options |
|
|
- |
|
- |
|
33,218 |
|
- |
Credit default
swaps |
|
|
- |
|
(2,023,106) |
|
- |
|
(704,019) |
Total |
|
|
- |
|
(2,023,106) |
|
33,218 |
|
(704,019) |
10. Share capital
The share capital of the Company consists of an unlimited number
of Ordinary Shares of no par value.
|
|
|
|
As
at |
|
As
at |
|
|
|
|
30
June |
|
31
December |
|
|
|
|
2020 |
|
2019 |
Authorised |
|
|
|
|
|
|
Unlimited
Ordinary Shares at no par value |
|
|
- |
|
- |
|
|
|
|
|
|
|
Issued at no par
value |
|
|
|
|
|
|
81,617,828
(2019: 81,617,828) unlimited Ordinary Shares at no par value |
- |
|
- |
|
|
|
|
|
|
|
Reconciliation of number of Shares |
|
|
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
30
June |
|
31
December |
|
|
|
|
2020 |
|
2019 |
|
|
|
|
No. of
Shares |
|
No. of
Shares |
Ordinary
Shares at the beginning of the period/year |
|
|
81,617,828 |
|
84,364,981 |
Purchase
of Realisation Shares |
|
|
- |
|
(2,747,153) |
Total
Ordinary Shares in issue at the end of the period/year |
|
81,617,828 |
|
81,617,828 |
|
|
|
|
|
|
|
Share capital
account |
|
|
|
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
30
June |
|
31
December |
|
|
|
|
2020 |
|
2019 |
|
|
|
|
£ |
|
£ |
Share
capital at the beginning of the period/year |
|
|
68,124,035 |
|
72,080,642 |
Purchase
of Realisation Shares |
|
|
- |
|
(3,956,607) |
Total
Share capital at the end of the period/year |
|
|
68,124,035 |
|
68,124,035 |
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 20 March 2019, being
46 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 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 elected to
participate in the Realisation Opportunity, the Company’s portfolio
was divided into two pools: the Continuation Pool; and the
Realisation Pool.
e) On 15 May 2019,
2,747,153 Ordinary Shares, which represented 3.3 per cent of the
Company’s issued Ordinary Share capital were redesignated as
Realisation Shares. On the 7 June
2019 the Board approved the compulsory redemption of the
Realisation Shares in issue. The redemption price was 142.53 pence per Realisation Share, being the net
assets of the Realisation Pool of £3,915,557, divided by the number
of outstanding Realisation Shares in issue, being 2,747,153
Realisation Shares. The redemption proceeds were paid to the
Realisation Shareholders on 18 June
2019, after which the Realisation Shares were cancelled and
were no longer in issue.
Share buyback and cancellation
During the period ended 30 June
2020 and throughout 2019, the Company did not purchase any
of its own Ordinary Shares under the Share buyback authority
originally granted to the Company in 2014.
At the AGM held on 23 July 2020,
Shareholders approved the authority of the Company to buy back up
to 40 per cent of the issued Ordinary Shares to facilitate the
Company’s discount management. Any Ordinary Shares bought back may
be cancelled or held in treasury.
11. 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 £30,000 payable to Mr
Crighton as the Chairman, £27,500 to Mr Coe as Chairman of the
Audit Committee and £24,000 to Mr King.
During the period ended 30 June
2020, Directors’ fees of £40,750 (period ended 30 June 2019: £40,750) were charged to the
Company and £Nil remained payable at the end of the period (as at
31 December 2019: £Nil).
b) Shares held by
related parties
The Directors who held office at 30 June 2020 and up to the
date of this Report held the following number of
Ordinary Shares beneficially:
|
|
As at 30 June 2020 |
As at 31 December 2019 |
|
|
Ordinary |
|
% of
issued |
Ordinary |
|
% of
issued |
|
|
Shares |
|
share
capital |
Shares |
|
share
capital |
Norman Crighton |
|
20,000 |
|
0.02% |
20,000 |
|
0.02% |
Stephen Coe |
|
10,000 |
|
0.01% |
10,000 |
|
0.01% |
Robert King |
|
15,000 |
|
0.02% |
15,000 |
|
0.02% |
The Investment Manager is principally owned by Dr Andrew Weiss and certain members of the
Investment Manager’s senior management team.
As at 30 June 2020, Dr
Andrew Weiss and his immediate
family members held an interest in 6,486,888 Ordinary Shares (as at
31 December 2019: 6,486,888)
representing 7.95 per cent. (as at 31 December 2019: 7.95 per
cent.) of the issued share capital of the Company.
As at 30 June 2020, 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 2,844,333 Ordinary Shares (as at
31 December 2019: 2,844,333)
representing 3.48 per cent (as at 31
December 2019: 3.48 per cent.) of the issued share capital
of the Company.
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 IMA dated 8 May
2013, the Investment Manager is entitled to an annual
management fee of 1.5 per cent 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 period ended 30 June 2020,
investment management fees and charges of £907,692 (for the period
ended 30 June 2019: £935,306) were
charged to the Company and £176,829 (as at 31 December 2019: £310,841) remained payable at
the period end.
12. Financial risk management
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 following table presents the Company’s financial assets and
liabilities by level within the valuation hierarchy as of
30 June 2020:
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
|
|
|
30
June |
|
|
Level
1 |
Level
2 |
Level
3 |
2020 |
|
|
£ |
£ |
£ |
£ |
Financial
assets/(liabilities) at fair value through |
|
|
|
|
profit or loss: |
|
|
|
|
|
Korean preferred shares |
|
119,138,494 |
- |
- |
119,138,494 |
Exchange traded funds |
|
14,832,360 |
- |
- |
14,832,360 |
Financial derivative liabilities |
|
- |
(2,023,106) |
- |
(2,023,106) |
Total net assets |
|
133,970,854 |
(2,023,106) |
- |
131,947,748 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
|
|
|
31
December |
|
|
Level
1 |
Level
2 |
Level
3 |
2019 |
|
|
£ |
£ |
£ |
£ |
Financial
assets/(liabilities) at fair value through |
|
|
|
|
profit or loss: |
|
|
|
|
|
Korean preferred shares |
|
114,486,850 |
- |
- |
114,486,850 |
Exchange traded funds |
|
3,367,138 |
- |
- |
3,367,138 |
Financial derivative assets |
|
33,218 |
- |
- |
33,218 |
Financial derivative liabilities |
|
- |
(704,019) |
- |
(704,019) |
Total net assets |
|
117,887,206 |
(704,019) |
- |
117,183,187 |
The Company recognises transfers between levels of the fair
value hierarchy as of the end of the reporting period during which
the transfers have occurred. During the period ended 30 June
2020, financial assets of £Nil were transferred from Level 2 to
Level 1 (for the year ended 31 December
2019: £Nil).
Investments whose values are based on quoted market prices in
active markets, and are therefore classified within Level 1,
include Korean preference shares, exchange traded funds, 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 (£2,023,106) (as at 31 December 2019: (£704,019).
As at 30 June 2020, Level 1
financial derivative assets of £Nil were held (as at
31 December 2019: £33,218).
13. NAV reconciliation
The Company announces its NAV to the LSE after each weekly and
month end valuation point. The following is a reconciliation of the
NAV per Share attributable to participating Shareholders as
presented in these Condensed Financial Statements, using IFRS to
the NAV per Share reported to the LSE:
|
|
As at 30 June 2020 |
As at 31 December 2019 |
|
|
|
NAV
per |
|
NAV
per |
|
|
|
Participating |
|
Participating |
|
|
NAV |
Share |
NAV |
Share |
|
|
£ |
£ |
£ |
£ |
Net Asset Value
reported to the LSE |
|
137,976,556 |
1.6905 |
124,536,322 |
1.5258 |
Adjustment to accruals
and cash |
|
(6,203) |
(0.0001) |
8,412 |
0.0001 |
Adjustment for
dividend income |
|
108,548 |
0.0014 |
2,443,998 |
0.0300 |
Net Assets
Attributable to Shareholders per Financial Statements |
138,078,901 |
1.6918 |
126,988,732 |
1.5559 |
The published NAV per Share of £1.6905 (as at 31 December 2019: £1.5258) is different from the
accounting NAV per Share of £1.6918 (as at 31 December 2019: £1.5559) due to the adjustments
noted above.
14. Subsequent events
These Condensed Financial Statements were approved for issuance
by the Board on 03 September 2020.
Subsequent events have been evaluated until this date.
Since the start of 2020, the outbreak of COVID-19 has adversely
impacted global commercial activities and financial markets. The
rapid development and fluidity of this situation precludes any
prediction as to its ultimate impact, which may have a continued
adverse impact on economic and market conditions and may trigger a
period of global economic slowdown. The Company, consistent with
other in the industry, does not believe there is any impact to the
financial statements as of 30 June
2020 as a result of this subsequent event. No additional
events or transactions require further disclosure.