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 2021
Weiss Korea Opportunity Fund Ltd. (the “Company”) has today,
released its Half-Yearly Financial Report for the period ended
30 June 2021. The Report will shortly
be available for inspection via the
Company's website www.weisskoreaopportunityfund.com.
For further information, please contact:
Singer Capital
Markets
James Maxwell/Justin McKeegan – Nominated Adviser
James Waterlow – Sales |
+44 20 7496 3000 |
Northern Trust International Fund Administration
Services (Guernsey) Limited
Andy Le Page |
+44 1481 745 405 |
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 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 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 South 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 2021 (2020: Nil). Please see
additional information about the nature of these hedges in the
Investment Manager’s Report.
Realisation Opportunity
In accordance with the Company’s Articles of Incorporation and
its Admission Document, the Company offers 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 14 May 2021 (the
“Realisation Date”).
On 15 March 2021, the Company
announced that pursuant to the Realisation Opportunity,
Shareholders who were on the register as at the record date could
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 14 April 2021 and
closed on 7 May 2021. Elections were
received from shareholders totalling of 11,710,750 Ordinary Shares,
representing 14.5 per cent of the Company’s issued share
capital.
Following the Realisation Date, the Ordinary Shares held by the
Shareholders who elected for Realisation were redesignated as
Realisation Shares and the Portfolio was 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).
On 23 June 2021, the Company
announced that it had made good progress with the sale of assets in
the Realisation Pool and would commence with the first compulsory
redemption of Realisation shares representing approximately 76.7
per cent. of Realisation Shares in issue (the “First Redemption”).
The First Redemption was effected pro-rata to holdings of
Realisation Shares on the register at the close of business on
22 June 2021 (“First Redemption
Date”). The First Redemption price was 278.4
pence per Realisation Share (the “First Redemptions Price”),
equivalent to the unaudited Net Asset Value per Realisation Share
as at 31 May 2021.
Following the period end, the Company made good progress with
the sale of the remaining assets in the Realisation Pool and on
7 September 2021 announced a second
compulsory redemption of Realisation shares representing
approximately 90 per cent of Realisation Shares (the “Second
Redemption”). The Second Redemption will be effected in the same
manner as the First Redemption at a price of 275.55 pence per Realisation Share, equivalent to
the Net Asset Value per Realisation Share as at 31 August 2021, and with a record date of
6 September 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 2021, the Company purchased 600,000
shares (2020: Nil) of its own Shares at a consideration of
£1,719,433 (31 December 2020: £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 2021
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As
at |
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As
at |
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30
June 2021 |
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31
December 2020 |
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£ |
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£ |
Total Net Assets |
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202,234,409 |
|
203,124,953 |
NAV per share -
Continuation Pool |
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|
|
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2.8038 |
|
2.4887 |
NAV per share -
Realisation Pool |
|
|
|
|
2.8975 |
|
- |
Basic and
diluted earnings per share - Continuation Pool |
|
0.3792 |
|
0.9724 |
Basic and
diluted earnings per share - Realisation Pool |
|
0.0894 |
|
- |
Mid-Market
share price - Continuation Pool |
|
|
2.73 |
|
2.38 |
Discount
to NAV* - Continuation Pool |
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|
|
(2.6%) |
|
(4.4%) |
As at close of business on 1 September
2021, the latest published NAV per Share of the Continuation
Pool had increased to £2.5605 (as at 31 August 2021) and the
Share price stood at £2.58.
*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 of the Continuation Pool and
the Realisation Pool for the six months ended 30 June 2021
were 1.76% and 1.60%, respectively (as at
31 December 2020: 1.81% and Nil, respectively). The
annualised total expense ratio includes charges paid to the
Investment Manager and other expenses divided by the average NAV
for the period.
Chair’s Review
For the period ended 30 June 2021
We are pleased to provide the 2021 Half Yearly Report on the
Company. During the period from 31 December
2020 to 30 June 2021 (the
“Period”), the Company’s net asset value increased by 14.8 per cent
including reinvested dividends1 outperforming the
reference MSCI Korea 25/50 Net Total Return Index (the “Korea
Index”), which increased 7.5 per cent in Pounds Sterling (“GBP”).
Since the admission of the Company to AIM in May 2013, the net asset value has increased by
232.2 per cent including reinvested dividends1 (or 212.2
per cent assuming dividends are not reinvested in the
Company)2, compared to the Korea Index returns of 111.2
per cent.2, an annualised outperformance of the index of
14.9%. A report from the Investment Manager follows.
The Directors declared a dividend of 5.2311 pence per Share, ex-dividend date
10 May 2021, to distribute the income
received by the Company in respect of the year ended 31 December 2020. This dividend was paid to all
Shareholders on 4 June 2021.
As I reported to investors in prior letters, WKOF is pursuing a
strategy of rebalancing the portfolio towards Korean preference
shares trading at wider discounts, where the Investment Manager
believes the greatest returns can be made. This continues to be the
strategy and WKOF’s ‘Portfolio Discount’ reached 52% at
30 June 2021 and is still currently
approximately 52%. That is the widest Portfolio Discount WKOF has
held since 2013. The widening of the Portfolio Discount was in part
due to the Company substantially reducing its exposure to the
preferred shares of Samsung Electronics while those preferred
shares were trading at historically narrow discounts to the
company’s common shares. The Company has been successful to date in
capturing returns from discount narrowing in the preferred share
space. Given the current Portfolio Discount, the Board believes the
Company is well positioned for additional outperformance from
further discount narrowing over time.
After 8 years of managing the portfolio, your Investment Manager
has demonstrated that, although a narrowing of the discounts of
preferred shares due to changes in corporate governance in Korea
would be preferable, they are not essential to outperform the
benchmark. WAM has been able to profitably trade volatility in
preferred share discounts over the past 8 years, resulting in the
significant outperformance mentioned in this review and the
Investment Manager’s Review. Corporate Governance in Korea has
significantly improved since the launch of the Company and with the
portfolio discount still at over 50%, the Board looks forward to
continued outperformance in the coming months and years. The staff
at Weiss Asset Management should be congratulated in carrying out
their mandate so successfully over the past 8 years.
When the Company was launched in 2013 it committed to offer
Shareholders the opportunity to elect to realise all or a part of
their shareholding on or prior to the fourth anniversary of the
Company's admission to AIM and every two years thereafter, unless
it has already been determined that the Company will be
wound-up.
The Company conducted its third Realisation Opportunity during
the Period and on 7 May 2021, the
Election Period for the Realisation Opportunity closed; valid
elections were received from Shareholders totalling 11,710,750
Ordinary Shares, representing approximately 14.5 per cent. of the
Company’s issued share capital. On 14 May
2021, these electing Ordinary Shares were redesignated as
Realisation Shares, and on 28 June
2021, a first cash redemption equivalent to 76.7% of
Realisation Shares in issue was paid out to holders of Realisation
Shares, followed by the second distribution of 90% of the
Realisation Shares announced on the 7
September 2021. All Realisation Shares that were redeemed
will be re-designated as Ordinary Shares and held in Treasury.
None of the Directors and personnel associated with the
Investment Manager participated in the Realisation Opportunity in
respect of all, or any part of, their respective shareholdings.
As I previewed in my year end letter to you, the Board and the
Investment Manager have been working on a number of initiatives to
broaden the shareholder base, increase liquidity for all
Shareholders and make WKOF more attractive to a wider audience. In
furtherance of these goals, the Company became a member of the
Association of Investment Companies and registered under the
Alternative Investment Fund Managers Directive (“AIFMD”) during the
Period. AIFMD registration allows the Company to issue new shares
at a premium to NAV as well as redesignating Realisation Shares as
Ordinary Shares that may be held in Treasury and be reissued
without the costs typically associated with a new share issue.
Registration also permits the Investment Manager to promote
outstanding stock more actively to institutional investors in the
UK which the Company intends to do in the near future as the
opportunity to invest through preferred shares is the most
attractive it has been since the launch of the Company 8 years
ago.
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. On 27
January 2021, the Company purchased 600,000 ordinary shares
at a price of 286.00p per share in accordance with the authority
granted to it by Shareholders at its 2020 Annual General
Meeting.
The Board is authorised to repurchase up to 40 per cent of the
Company's outstanding Ordinary Shares in issue as at 22 July 2021.3 Since Admission almost
six 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. The
Board also has in place standing instructions with the Company’s
broker, Singer Capital Markets (“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
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.
As mentioned above, the portfolio of preferred shares held by
your Company is trading at a discount to their equivalent ordinary
shares not seen since the IPO over 8 years ago. The Board and the
Investment Manager therefore believe that, for the first time since
2013, there is an opportunity for additional equity capital to be
raised and invested in WKOF’s strategy. This will allow existing
and new investors access to a strategy that has proved successful
on an absolute and relative basis over the past 8 years, an
opportunity that the Board and Investment Manager believe will
continue to be attractive over the medium term.
The Board is therefore exploring the most appropriate way of
raising additional capital with a view to delivering further value
for shareholders. A further announcement will follow in due
course.
The Directors are pleased to welcome Gill Morris on to the Board where she will take
over as head of the Audit Committee from Steve Coe in due course, as Steve’s 8-year
tenure on the Board approaches. Rob and I would like to thank Steve
for his expertise, help and guidance to the Board and Shareholders
since the launch of the Company, as well as his friendship. Gill
also has a wealth of experience to bring to the role of audit chair
as well as bringing a fresh perspective to the various issues,
opportunities and challenges the Company will encounter over the
next few, exciting years.
Update on Environmental, Social and
Governance (“ESG”) Initiatives
In the Chair’s Statement in the last Annual Report, several
paragraphs were dedicated to a discussion on how the Company could
engage more effectively with its various stakeholders on
Environmental, Social and Governance issues. During the first half
of the year, I spoke with several shareholders of the three
investment trusts I am a director of, and subsequently several
service providers on a confidential basis about what approach they
were taking with regard to ESG issues. As the Directors have made
corporate governance central to their entire approach to the
custodianship of Shareholders’ interests, most of the time was
spent discussing Environmental and Social (“E&S”) issues. I
would like to thank all those who took part.
The aim of the discussions with the various investment managers
was not to determine, encourage or suggest that they use ESG
criteria in stock selection. Some investment mandates may take that
into consideration, others will not. The aim was to start a
conversation on how investment managers, and other stakeholders,
apply ESG criteria within their own organisations. Shareholders pay
investment managers, lawyers, accountants, and other service
providers fees on an annual basis so many shareholders are keen to
establish that some of that money is used to further E&S
issues. WKOF is in an unusual position in that the Company owns
non-voting shares so the influence over our underlying investments
is negligible. WAM also uses quantitative factors in establishing
buy and sell levels for the preferred shares in the portfolio. It
is not in WKOF’s Investment Policy to use ESG metrics in stock
selection but to invest in undervalued or mispriced Korean
preferred shares. This doctrine has served Shareholders well over
the 8-year life of the Company and the Board expects this approach
will continue for the foreseeable future.
All but one of the stakeholders approached was willing to
discuss E&S issues in detail and those agreeable gave up a
great deal of their valuable time to help in this process. The
overwhelming impression from my discussions was that many
Shareholders and service providers are treating E&S
considerations with an increasing sense of importance and that
changes being made in these areas are being driven from the ground
up, by shareholders, clients and staff rather than top down by
governments or industry bodies. Some have taken it upon themselves
to push E&S matters up the corporate agenda, whereas others
have created committees to ensure that ESG issues are promoted
within their organisation and encouraged in the wider community. It
is clear that an organization’s ESG principles are now scrutinised
when Shareholders and service providers determine with whom to do
business. As one person said, “If we pay anyone, then we believe
they should adhere to our ESG principles.”
Many of those contacted believed that the UN Principles of
Responsible Investment (“UNPRI”) provided a useful standard. I
encourage all the Company’s shareholders and service providers to
familiarise themselves with the Principles (further information may
be found here www.unpri.org). Another common theme was that many
shareholders and service providers use interactions with other
groups to promote the ESG agenda. This may include the companies in
which investment managers invest on behalf of shareholders, other
shareholders they might interact with, as well as governments,
national pension funds and other interested parties.
On Environmental issues, the main concern raised by shareholders
and service providers was climate change. Several recognised that
business travel is one of the biggest sources of carbon emissions
within their workplace and had used offset programs in the past.
Some were now in the process of refining that approach to find the
best offset program or reduce business travel accordingly. Others
still were looking to quantify less obvious sources of carbon
emissions by asking staff to detail their modes of travel to work.
Once the problem has been measured, it is much easier to work on a
solution. The Board felt this was a very sensible approach and will
be adopting this in the coming months for your Company. Many were
looking to lower carbon emissions by encouraging more
environmentally friendly modes of transport such as cycling or
walking to work, which may mean the installation of bicycle racks
and showers. Only one of the companies approached was able to say
that they used green suppliers for their electricity, but we are
sure that number will increase over time as this is an obvious way
to reduce everyone’s carbon footprint.
The response to Social issues was even more positive. Social
issues such as sexism, racism, bullying and mental health are now
much higher priority to service providers, and all are working hard
to address these problems. It is positive that mental health is now
a focus of several service providers. The Directors are pleased
that some of the money that Shareholders pay to service providers
is being used to address this issue, which has been brought clearly
into focus during the current pandemic. Many of us have worked in
the industry long enough to have lost friends and colleagues to
suicide, drugs, alcohol or just over-work to understand the
importance of good mental health support. Commendably, some
stakeholders are also expanding this care into support for groups
outside their offices. Many stakeholders support local charities
with one stakeholder going even further and donating 10% of
corporate profit to charities around the world, selected by
employees.
The E&S issues touched on above should be important in a
civilised society but all too often they are downplayed in the
quest for profit. One stakeholder approached has an Ethics
Committee, and that is arguably more important. If we are acting in
an ethical manner, then are not the Environmental and Social issues
mentioned above already covered by ethics? An Ethics Committee with
a broad enough remit and the power to address issues raised should
cover all the ESG problems and many more.
During these discussions it was suggested that the Company
should introduce a framework to measure progress in ESG issues. I
am reluctant to do this now as many groups already have a great
deal of form-filling to deal with and adding to that burden should
be avoided. We will however continue to discuss ESG with our
stakeholders on an informal basis for the moment and I will report
back to shareholders in the next Annual Report.
At the moment your Board will be satisfied to see an improvement
in ESG standards from all of your stakeholders. Some are just
beginning to address E&S issues whereas others have a very
sophisticated approach. We look forward to helping everyone work
together to improve all aspects of ESG for the investment trust
industry.
The investment trust industry pays billions of pounds to
investment managers and hundreds of millions of pounds to
accountants, lawyers, company secretaries and all the other groups
that make our industry run effectively. It is clear that
shareholders of investment trusts have recently added E&S to
their list of priorities along with Governance. I believe the
boards of investment trusts, as the representatives of
shareholders, have a duty to reflect these new priorities to other
stakeholders, and to ensure that these new concerns are
communicated well. Just as the industry responded to higher
governance standards during my career from the 1990’s onwards, so
must the entire industry react to increasing concerns to E&S
standards. On behalf of my fellow directors and Shareholders, I
look forward to helping everyone work together to improve all
aspects of ESG for the investment trust industry.
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 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.
3 On 22 July 2020, the
Company had 69,307,078 Ordinary Shares in issue.
Norman
Crighton
Chair
7 September 2021
Investment Manager’s Report
For the period ended 30 June
2021
Performance
In the first half of 2021, Weiss Korea Opportunity Fund’s
(“WKOF’s”) NAV in Pounds Sterling (“GBP”) gained 14.6 per cent,
including reinvested dividends.1 This was an
outperformance compared with the MSCI Korea 25/50 Index, which
gained 7.5 per cent in GBP during the same period.2 From
its inception in May 2013 through
30 June 2021, WKOF has significantly
outperformed the MSCI Korea 25/50 Index: WKOF’s NAV has increased
231.8 per cent (including reinvested dividends), compared to a
111.2 per cent return for the MSCI Korea 25/50 Index. The
outperformance against the MSCI Korea 25/50 Index during the first
half of 2021 was largely due to narrowing of discounts among
preferred shares held in WKOF’s portfolio.
Macroeconomics & COVID-19
The South Korean economy continues to recover from the effects
of the COVID-19 pandemic. Based on improving economic data, the
Governor of the Bank of Korea (the “Bank”) commented in late June
that the Bank expected to raise interest rates within the year.
However, the Bank has not yet begun implementing that change; at
its 15 July meeting, the Bank held rates steady at 0.50 per cent,
an all-time low, which we believe is attributable to a spike in
COVID-19 cases during the month. South
Korea's headline CPI inflation moderated to 2.4 per cent
year-on-year in June from 2.6 per cent in May but remains higher
than the Bank of Korea’s medium target inflation rate of 2 per
cent.
South Korea’s economy continued to benefit from a strong upswing
in exports, driven largely by pent up demand for its memory chips
and cars. Export figures continue to rise as June ended with a 5.1
per cent month-over-month seasonally-adjusted expansion, marking
five months of consecutive gains, and contributing to a
year-over-year increase in overseas shipments of approximately 40
per cent. A substantial contributor to this increase in exports is
a rise in semiconductor exports. As a major semiconductor exporter,
Korea has benefited from the shortages in global semiconductor
supply; moreover, the government has recently enacted policies to
further boost the industry. For example, in May, President Moon
announced a ‘K-Semiconductor Strategy’ to increase its market share
across memory and non-memory chips by providing tax breaks and
easing regulations for domestic chipmakers.
Not all recent economic developments have been positive,
however. In July, the emergence of the Delta variant led to a
fourth wave of COVID-19 infections across South Korea. In response, the government
reinstated social distancing guidelines and pandemic controls that
it had been easing over the prior months. Seoul has been subject to the most stringent
social distancing protocols (Level 4) while surrounding regions
have implemented ‘Level 2’ procedures. As the Delta variant has
already produced the highest 7-day average number of new cases
since the start of the pandemic, we are carefully monitoring this
fourth wave of new cases and its impact. Fortunately, case fatality
rates in South Korea remain at
their lowest levels since April 2020.
Vaccination rates have been slow but have showed meaningful
progress since March; these rose from near zero at end-March to
greater than 29 per cent of the total population being fully
vaccinated as of end-August, with 56 per cent having received at
least one dose.
Portfolio Changes
WKOF’s Portfolio Discount widened from 49 per cent at
end-December to 52 per cent at end-June. This is the widest
month-end Portfolio Discount that WKOF has had. 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 preferred shares. We believe that a wider
Portfolio Discount is generally consistent with a portfolio with
higher expected returns. Note that a widening Portfolio Discount
need not imply underperformance. Rather, an increase in the
Portfolio Discount could occur if we sold securities with smaller
discounts and purchased securities with larger discounts. We
have been doing just that opportunistically from time to time, as
we believe that securities with wider discounts have greater
potential for future outperformance. WKOF’s NAV outperformed the
MSCI Korea 25/50 Index during the first half of 2020 even as the
Portfolio Discount increased.
A large driver of WKOF’s returns since inception has been the
narrowing of discounts of individual preferred shares owned versus
the corresponding ordinary shares. In 2018, we previewed our plans
to rebalance the Company’s portfolio over time toward
wider-discount Korean preferred shares; this rebalancing has
enabled us to maintain a substantial Portfolio Discount by trading
preferred shares with narrow discounts for those with wider
ones.
WKOF’s annualised portfolio turnover for the first half of 2021
was higher than in all years apart from 2013 when the portfolio was
under construction. The opportunities to profitably trade into and
out of preferred shares are a function of the dispersion of
discounts and available liquidity; currently both are high. As a
result, WKOF’s portfolio turnover remained elevated and on an
annualized basis higher than turnover in 2020. The Fund purchased
approximately 82 million GBP and sold
approximately 118 million GBP over an
average monthly NAV of 274 million
GBP. See Note 8 for purchase and disposal information.
In line with this plan, WKOF continued to reduce its exposure to
Samsung Electronics’ (“Samsung”) preferred shares during the first
half of the year, resulting in Samsung no longer constituting a
top-ten holding by end-June. When WKOF launched in May 2013, Samsung’s preferred shares were trading
at approximately a 35 per cent discount. At the end of June 2021, that discount had narrowed to 8.7 per
cent. Replacing Samsung and Korean ETF exposure with securities
trading at wider discounts was a significant contribution to the
widening of the Portfolio Discount.
We remind Shareholders to consider the preferred share discount
levels described above in the context of the general fundamentals
of the Korean equities market. The KOSPI 200 Index trades at a
discount to other regional indices such as the Nikkei or Taiwan
Stock Exchange Weighted Index based on forward price-to-earnings
multiples. As of 31 August 2021, the
KOSPI 200 Index had a forward P/E Ratio of 10.7, compared to the
TAIEX at 14.1, the S&P at 22.4, and the Nikkei at 17.1.
Index Name |
Forward P/E Ratio3 |
P/B
Ratio |
Dividend Yield |
Nifty Index
(India) |
23.5 |
3.6 |
1.0% |
S&P 500
(US) |
22.4 |
4.7 |
1.3% |
Nikkei 225
(Japan) |
17.1 |
1.9 |
1.6% |
TAIEX
(Taiwan) |
14.1 |
2.3 |
2.6% |
FTSE 100
(UK) |
12.6 |
1.8 |
3.8% |
KOSPI 200 (S.
Korea) |
10.7 |
1.1 |
2.2% |
Shanghai
Composite (China) |
13.0 |
1.7 |
2.0% |
Hang Seng Index
(HK) |
12.3 |
1.0 |
2.6% |
Source: Bloomberg,
as of 31 August 2021
In addition to reducing its holdings of Samsung preferred
shares, WKOF also increased exposure to Hyundai Motor Co
(“Hyundai”) during the period. This change has further contributed
to the divergence of WKOF’s holdings from the MSCI 25/50 Index
weightings. Shareholders should be aware that WKOF was
significantly underweight Samsung and overweight Hyundai Motor Co
relative to MSCI Korea 25/50 Index at the end of June.
Hyundai has three series of preferred shares outstanding, all
trading at greater than 50 per cent discounts to Hyundai’s ordinary
shares. WKOF has previously held all three preferred share series,
but currently only holds the 2nd and 3rd
series. The three series have historically traded at different
levels, with the most liquid 2nd series trading at the
narrowest discount, and the least liquid 3rd series at
the widest discount. However, in January and late February, the
2nd series of preferred shares traded considerably wider
than the 1st series. Following this development, WKOF
transferred its exposure from the 1st series to the
2nd series since it continued to have greater liquidity
and upside potential conditional upon a reversion to historical
discount levels. This effect is enhanced as the discounts between
Hyundai’s preferred shares and its common shares have widened
significantly. As of 30 June 2021,
the 2nd series of preferred shares of Hyundai were
trading at a 52% discount, compared to a 42% discount in
June 2020. Additionally, the chairman
of Hyundai Motor Group announced he is considering options for a
restructuring of the conglomerate and the modernization of its
current cross-shareholding structure. As it stands, entities within
the conglomerate have controlling interests in each other. We
believe that a restructuring would benefit shareholders of Hyundai
and have the potential to cause preferred share discounts to
narrow.
Discounts in other substantial positions in WKOF’s portfolio
have also narrowed, notably Amorepacific and Kumho Petro Chem
(“Kumho”). Interestingly, in the case of Kumho, the discount change
appears to have been largely driven by activism by members of
Kumho’s controlling family. This led to a proxy battle for board
seats between the current chairman and the chairman’s nephew, who
is also the largest individual shareholder. Both parties pressed
for a dividend increase; the Chairman suggested a 174 per cent
increase in dividend per share while the activist (nephew)
suggested a greater than 600% increase. The chairman won most
agenda items at March’s Annual General Meeting, including the
contested dividend increase. Following this development, the
preferred discount narrowed from 61 per cent to 56 per cent. While
this specific set of circumstances is unlikely to repeat, we
believe preferred shares trading at greater than 60 per cent
discounts to common shares present an attractive opportunity.
Positive dividend trends
Dividend trends in the Korean market also remain positive.
According to the Korea Exchange, combined dividend payments in 2020
by KOSPI companies closing their books in December increased by
60.7 per cent year-over-year, reaching a five-year high. The
average dividend yield of all listed preferred shares also reached
a five year high of 2.62 per cent (compared to 2.58, 2.51, and 2.28
per cent in 2019, 2018, and 2017, respectively). At the same time,
the dividend payout ratio of the KOSPI has increased significantly
since 2017, to around 40% at the end of 2020.
While the companies in WKOF’s portfolio pay a lower dividend on
average, we are hopeful that broader market trends relating to
dividends will extend to these companies as well, and that such
trends will be accompanied by common price increases and narrowing
preferred discounts.
Hedging
WKOF pursues its investment strategy with a portfolio that is
generally long only. However, as described more fully in WKOF's
Annual Report and Audited Financial Statements for the year ended
31 December 2017, because of
political tensions in Northeast
Asia, the Board approved a hedging strategy in September 2017 that was intended to reduce
exposure to extreme events that would be catastrophic to its
Shareholders’ investments in WKOF. As a result, 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 WKOF experienced
geopolitical disaster without introducing material new risks into
the portfolio. 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
30 June 2021. 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 % of
Notional Value
(per annum) |
Expiration Date |
Duration (Years) |
5 year CDS |
$20m |
$457,151 |
$91,430 |
45bps |
2023 |
5.0 |
3 year CDS |
$80m |
$431,216 |
$143,739 |
18bps |
2023 |
3.0 |
Total Cost |
|
$888,367 |
$235,169 |
|
|
|
Number of Put Option Contracts Held
on EWY4 |
Strike Price (USD) |
Total Cost to Expiration (USD) |
Purchase Date |
Expiration Date |
2,000 |
$78 |
$504,069 |
18 June 2021 |
21 January 2022 |
Total Cost |
|
$504,069 |
|
|
Conclusion
In the context of WKOF’s performance over its more than eight
year history, it is perhaps surprising to find that the prospects
for the current portfolio of Korean preferred shares seem as
attractive as they have been since WKOF’s inception. The overall
Korean market remains one of the more cheaply valued equity markets
globally and in the Asian region. There are more opportunities to
invest in preferred shares at wide discounts today than we have
seen in the last few years. Volatility in discounts over the last
several years has presented opportunities to generate additional
returns to investors. WKOF has a diversified portfolio of
preference shares that as a group trade at less than half of the
market value of the voting shares. While we do not have a crystal
ball, we believe that this portfolio is a compelling value
proposition for long term investors.
Weiss Asset Management LP
7 September 2021
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 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.
3 Forward Price/Earnings ratio based on estimated
earnings, Bloomberg.
4 iShares MSCI South Korea ETF, U.S. ticker EWY
Statement of Principal and Emerging
Risks and Uncertainties
For the period ended 30 June 2021
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 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
In accordance with the Company’s Articles of Incorporation and
its Admission Document, the Company offers 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 14 May 2021 (the
“Realisation Date”).
On 15 March 2021, the Company
announced that pursuant to the Realisation Opportunity,
Shareholders who were on the register as at the record date 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. The
Election Period commenced on 14 April
2021 and closed at 1pm,
7 May 2021. Elections were received
from shareholders totalling of 11,710,750 Ordinary Shares,
representing 14.5 per cent of the Company’s issued share
capital.
As the aggregate NAV of the continuing Ordinary Shares at the
close of business on the last Business Day before the Realisation
Date was more than £50 million, the Ordinary Shares held by the
Shareholders who have elected for Realisation have been
redesignated as Realisation Shares and the Portfolio 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.
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.
Directors
For the period ended 30 June 2021
The Company has four non-executive Directors, all of whom are
considered independent of the Investment Manager and details are
set out below.
Norman
Crighton (aged 55)
Having worked within the investment trust and global closed-end
fund industries for over 30 years, Mr Crighton has extensive
experience of these sectors. Starting his career as an investment
banker, he was soon running multinational teams within major
investment banks overseeing sales, research, market making and
corporate finance departments. He then moved on to the buy-side,
managing a portfolio of closed-end funds for institutional
investors on a long and hedged basis. Since 2011, he has joined the
boards of many closed-end funds and trading companies, overseeing
IPOs and capital raises, as well as restructurings and wind downs.
He has expertise, and a particular interest, in ESG issues. Mr
Crighton is also the Chair of RM Infrastructure Income and AVI
Japan Opportunity Trust.
Stephen
Charles Coe (aged 55)
Stephen is Chair of the Audit Committee. He is also Chair of the
Audit Committee for Chrysalis Investment Company Limited. 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 58)
Rob is a non-executive director for a number of open and
closed-ended investment funds including Tufton Oceanic Assets
Limited (chair) 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.
Gillian Yvonne
Morris (aged 58)
Gill was appointed to the Board in 2021 and will become Chair of
the Audit Committee when Stephen Coe
retires. Gill is a non-executive director and Chair of the Audit
Committee at The International Stock Exchange, a panel member of
the States of Guernsey Financial Scrutiny Panel and the Guernsey
Tax Tribunal. She also runs her own consultancy and coaching
business. Gill 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. Gill 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. Gill moved into 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. As part of her
role, she was a director of Specsavers Finance (Guernsey) Limited.
She ultimately served as Director of Risk and Government Affairs
until 2020. Gill has also held other government roles in Guernsey
since 2012, including as a Non States member of the Public Accounts
and the Scrutiny Management Committees and a panel member of The
Trade Policy Advisory Panel. Gill is British and resident in
Guernsey.
Directors’
Responsibility Statement
For the period ended 30 June 2021
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 London Stock
Exchange (“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
Chair
7 September 2021
Stephen Coe
Director
7 September 2021
Condensed Statement
of Financial Position
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
30
June |
|
31
December |
|
|
|
|
|
|
2021 |
|
2020 |
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
|
|
|
|
Notes |
£ |
|
£ |
Assets |
|
|
|
|
|
|
|
|
Financial
assets at fair value through profit or loss |
|
8 |
194,741,212 |
|
193,058,894 |
Derivative
financial assets |
|
|
9 |
231,331 |
|
62,951 |
Other
receivables |
|
|
|
|
243,440 |
|
3,857,730 |
Cash and
cash equivalents |
|
|
|
6,847,850 |
|
5,972,867 |
Margin
account |
|
|
|
|
1,707,673 |
|
2,095,974 |
Due from
broker |
|
|
|
|
289,611 |
|
2,989,619 |
Total
assets |
|
|
|
|
204,061,117 |
|
208,038,035 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Derivative
financial liabilities |
|
|
9 |
1,315,412 |
|
1,588,314 |
Due to
broker |
|
|
|
|
- |
|
2,711,434 |
Other
payables |
|
|
|
|
511,296 |
|
613,334 |
Total
liabilities |
|
|
|
|
1,826,708 |
|
4,913,082 |
Net assets |
|
|
|
|
|
202,234,409 |
|
203,124,953 |
|
|
|
|
|
|
|
|
|
Represented by: |
|
|
|
|
|
|
|
Shareholders' equity and reserves |
|
|
|
|
|
|
Share
capital: |
|
|
|
|
|
|
|
Continuation Pool |
|
|
|
10 |
33,986,846 |
|
68,124,035 |
Realisation Pool |
|
|
|
10 |
7,417,757 |
|
- |
Other
reserves: |
|
|
|
|
|
|
|
Continuation Pool |
|
|
|
|
160,334,893 |
|
135,000,918 |
Realisation Pool |
|
|
|
|
494,913 |
|
- |
Total
shareholders' equity |
|
|
|
202,234,409 |
|
203,124,953 |
Net
assets per share: |
|
|
|
|
|
|
|
Continuation Pool |
|
|
|
7 |
2.8038 |
|
2.4887 |
Realisation Pool |
|
|
|
7 |
2.8975 |
|
- |
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
7 September 2021.
Norman Crighton
Chair
7 September 2021
Stephen Coe
Director
7 September 2021
Condensed Statement
of Comprehensive Income
|
|
|
|
|
|
For
the period ended |
For
the period ended |
|
|
|
|
|
|
30
June 2021 |
30
June 2020 |
|
|
|
|
|
|
(Unaudited) |
(Unaudited) |
|
|
|
|
|
Notes |
£ |
£ |
Income |
|
|
|
|
|
|
Net changes in fair value of financial assets
at fair value through profit or loss |
|
32,880,404 |
14,222,572 |
Net
changes in fair value of derivative financial
instruments through profit or loss |
|
82,819 |
1,581,263 |
Net
foreign currency (losses)/gains |
|
|
(311,025) |
53,624 |
Dividend
income |
|
|
|
619,918 |
506,542 |
Bank
interest (expenses)/income |
|
(90) |
3,302 |
Total
income |
|
|
|
|
33,272,026 |
16,367,303 |
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
Operating
expenses |
|
|
|
(3,068,708) |
(1,937,790) |
Total
operating expenses |
|
|
(3,068,708) |
(1,937,790) |
|
|
|
|
|
|
|
|
Profit
for the period before tax |
|
|
30,203,318 |
14,429,513 |
Withholding tax |
|
|
3 |
(136,305) |
(111,440) |
Profit
for the period after tax |
|
|
30,067,013 |
14,318,073 |
Profit and total
comprehensive income for the period |
|
|
|
|
|
30,067,013 |
14,318,073 |
Basic
and diluted earnings per Share: |
|
|
|
Continuation Pool |
|
|
6 |
0.3792 |
0.1754 |
Realisation Pool |
|
|
6 |
0.0894 |
- |
|
|
|
|
|
|
|
|
|
All items derive from continuing activities.
The Notes form an integral part of these Condensed Financial
Statements.
Condensed Statement
of Changes in Equity
For the
period ended 30 June 2021 (Unaudited) |
|
|
|
|
|
|
|
|
Continuation Pool |
Realisation Pool |
|
|
|
|
|
Share
capital |
Other
reserves |
Share capital |
Other reserves |
Total |
|
|
|
Notes |
£ |
£ |
£ |
£ |
£ |
Balance
at 1 January 2021 |
|
|
68,124,035 |
135,000,918 |
- |
- |
203,124,953 |
Total
comprehensive income for the period |
|
- |
29,572,100 |
- |
494,913 |
30,067,013 |
Transactions with Shareholders, recorded directly in
equity |
|
|
|
|
|
|
Redesignation of Realisation Shares |
10 |
(32,417,757) |
- |
32,417,757 |
- |
- |
Distributions
paid |
|
|
4 |
- |
(4,238,125) |
- |
- |
(4,238,125) |
Redemption
of Realisation Shares |
10 |
- |
- |
(25,000,000) |
- |
(25,000,000) |
Repurchase
of Ordinary Shares |
10 |
(1,719,432) |
- |
- |
- |
(1,719,432) |
Balance
at 30 June 2021 |
|
33,986,846 |
160,334,893 |
7,417,757 |
494,913 |
202,234,409 |
|
|
|
|
|
|
|
|
|
For the
period ended 30 June 2020 (Unaudited) |
|
|
|
|
|
|
|
|
Continuation Pool |
Realisation Pool |
|
|
|
|
|
Share
capital |
Other
reserves |
Share capital |
Other 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 |
- |
(3,227,903) |
- |
- |
(3,227,903) |
Balance
at 30 June 2020 |
|
68,124,035 |
69,954,867 |
- |
- |
138,078,902 |
|
|
|
|
|
|
|
|
|
|
|
|
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 2021 |
30
June 2020 |
|
|
(Unaudited) |
(Unaudited) |
|
Notes |
£ |
£ |
Cash flows from
operating activities |
|
|
|
Profit for the
period |
|
30,067,013 |
14,318,073 |
|
|
|
|
Adjustments for: |
|
|
|
Net change in fair
value of financial assets held at fair value through profit or
loss |
|
(32,569,379) |
(14,276,196) |
Net change in fair
value of derivative financial instruments held at fair value
through profit or loss |
|
(82,819) |
(1,581,263) |
Dividend received |
|
4,248,379 |
2,841,992 |
Effect of foreign
exchange rate fluctuations |
|
(311,025) |
53,624 |
Increase in
receivables* |
|
(14,171) |
(8,923) |
Decrease in other
payables |
|
(102,038) |
(170,422) |
Dividend income |
|
(619,918) |
(506,542) |
Net cash generated
from operating activities |
|
616,042 |
670,343 |
|
|
|
|
Cash flows from
investing activities |
|
|
|
Purchase
of financial assets at fair value through profit or loss |
(76,849,505) |
(50,381,604) |
Opening of derivative
financial instruments |
9 |
(358,461) |
1,720,421 |
Proceeds from the sale
of financial assets at fair value through profit or loss |
|
108,036,164 |
48,487,308 |
Closure of derivative
financial instruments |
9 |
- |
1,213,148 |
Decrease/(increase) in
margin account |
|
388,301 |
(1,768,698) |
Net cash generated
from/(used in) investing activities |
|
31,216,499 |
(729,425) |
|
|
|
|
Cash flows from
financing activities |
|
|
|
Repurchase of Ordinary
Shares |
|
(1,719,433) |
- |
Repurchase of
Realisation Shares |
|
(25,000,000) |
- |
Distributions
paid |
4 |
(4,238,125) |
(3,227,903) |
Net cash used in
financing activities |
|
(30,957,558) |
(3,227,903) |
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents |
|
874,983 |
(3,286,985) |
Cash and cash
equivalents at the beginning of the period |
|
5,972,867 |
6,430,069 |
Cash and cash
equivalents at the end of the period |
|
6,847,850 |
3,143,084 |
The Notes form an
integral part of these Condensed Financial Statements.
Notes to the Unaudited Condensed
Financial Statements
For the period ended 30 June 2021
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 2021 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 2021, 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 2020.
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 2020. 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 Board reviews the liquidity of the Portfolio quarterly and
is satisfied that positions are sufficiently liquid to meet current
and future obligations. The Board notes the Realisation Opportunity
and is again satisfied that the balance of the realisation requests
can be made from liquidating investments. The Board has reviewed
the level of assets following the Realisation Date and determined
that the Company retains the ability to continue as a going concern
(based primarily on asset size). The Board and the Investment
Manager believe the investment thesis continues to be valid.
In accordance with the Company’s Articles of Incorporation and
its Admission Document, the Company offers 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 14 May 2021 (the
“Realisation Date”).
On 15 March 2021, 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 14 April
2021 and closed at 1pm,
7 May 2021. Elections were received
from shareholders totalling of 11,710,750 Ordinary Shares,
representing 14.5 per cent of the Company’s issued share
capital.
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
were redesignated as Realisation Shares and the Portfolio 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 future
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.
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 (2020:
£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 5.2311 pence per Share
(£4,238,125) was approved on 4 May 2021 and paid on
4 June 2021 in respect of the year ended 31 December 2020. An annual dividend of
3.9549 pence per Share (£3,227,903)
was approved on 13 May 2020 and paid on 12 June 2020 in
respect of the year ended 31 December
2019.
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
2020.
6. Basic and diluted
earnings per Share
The basic and diluted earnings per Share for the Company have
been calculated based on the total comprehensive income for the
period and the weighted average number of Ordinary Shares in issue
during the period as shown in the tables below.
|
|
For
the period ended |
For
the period ended |
|
|
30
June 2021 |
30
June 2020 |
|
|
£ |
£ |
Profit and
total comprehensive income for the period |
|
|
Continuation Pool |
|
29,572,100 |
14,318,073 |
Realisation Pool |
|
494,913 |
- |
Total
profit and total comprehensive income for the period |
30,067,013 |
14,318,073 |
|
|
|
|
Weighted
average number of Ordinary Shares |
|
|
Continuation Pool |
|
77,981,628 |
81,617,828 |
Realisation Pool |
|
5,537,079 |
- |
7. Net Asset Value per
Ordinary Share
The NAV of each Share is determined by dividing the net assets
of the Company attributed to the Ordinary Shares by the number of
Ordinary Shares in issue at the end of the period/year.
|
|
|
For
the period ended |
For
the year ended |
|
|
|
30
June 2021 |
31
December 2020 |
|
|
|
£ |
£ |
Net assets: |
|
|
|
|
Continuation Pool |
|
|
194,321,739 |
203,124,953 |
Realisation Pool |
|
|
7,912,670 |
- |
Net Assets
at the end of the period/year |
|
202,234,409 |
203,124,953 |
|
|
|
|
|
|
|
|
No.
of Shares |
No.
of Shares |
Total
Shares in issue at the end of the period/year: |
|
|
|
Continuation Pool |
|
|
69,307,078 |
81,617,828 |
Realisation Pool |
|
|
2,730,865 |
- |
|
|
|
|
|
Net assets
per share at the end of the period/year: |
|
|
|
Continuation Pool |
|
|
2.8038 |
2.4887 |
Realisation Pool |
|
|
2.8975 |
- |
8. Financial assets
at fair value through profit or loss
|
|
|
|
As
at |
|
As
at |
|
|
|
|
30
June |
|
31
December |
|
|
|
|
2021 |
|
2020 |
|
|
|
|
£ |
|
£ |
|
|
|
|
(Unaudited) |
|
(Audited) |
Cost of
investments at beginning of the period/year |
|
|
137,878,681 |
|
106,419,418 |
Purchases
of investments in the period/year |
|
|
106,552,181 |
|
109,275,618 |
Disposal
of investments in the period/year |
|
|
(137,750,267) |
|
(111,376,783) |
Proceeds
from disposal of investments in the period/year |
|
39,426,189 |
|
33,560,428 |
Cost of
investments held at end of the period/year |
|
|
146,106,784 |
|
137,878,681 |
Unrealised
gain on investments |
|
|
48,634,428 |
|
55,180,213 |
Financial
assets at fair value through profit or loss |
|
|
194,741,212 |
|
193,058,894 |
9. Derivative financial instruments
at fair value through profit or loss
|
|
|
|
|
As
at |
|
|
As
at |
|
|
|
|
|
30
June |
|
|
31
December |
|
|
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
£ |
|
|
£ |
|
|
|
|
|
(Unaudited) |
|
|
(Audited) |
Cost of
derivatives at beginning of the period/year |
|
|
(1,745,063) |
|
|
(1,174,737) |
Opening of
derivatives in the period/year |
|
|
|
358,463 |
|
|
(1,457,636) |
Closure of
derivatives in the period/year |
|
|
|
- |
|
|
(1,422,226) |
Realised
(loss)/gain on closure of derivatives in the period/year |
|
(262,783) |
|
|
2,309,536 |
Net cost of
derivatives held at end of the period/year |
|
|
(1,649,383) |
|
|
(1,745,063) |
Unrealised
gain on derivative financial instruments at fair value through
profit or loss |
|
|
565,302 |
|
|
219,700 |
Net fair
value on derivative financial instruments at fair value through
profit or loss |
|
|
(1,084,081) |
|
|
(1,525,363) |
The following are the composition of the Company’s derivative
financial instruments at period/year end:
|
|
|
|
As
at |
|
|
|
As
at |
|
|
|
|
30
June |
|
|
|
31
December |
|
|
|
|
2021 |
|
|
|
2020 |
|
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
(Audited) |
Derivatives held for
trading: |
|
£ |
|
£ |
|
£ |
|
£ |
Options |
|
231,331 |
|
- |
|
62,951 |
|
- |
Credit default
swaps |
|
- |
|
(1,315,412) |
|
- |
|
(1,588,314) |
Total |
|
231,331 |
|
(1,315,412) |
|
62,951 |
|
(1,588,314) |
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 |
|
|
|
|
2021 |
|
2020 |
|
|
|
|
(Unaudited) |
|
(Audited) |
Authorised |
|
|
|
|
|
|
Unlimited
Ordinary Shares at no par value |
|
|
- |
|
- |
|
|
|
|
|
|
|
Issued at no par
value |
|
|
|
|
|
|
69,307,078
(2020: 81,617,828) unlimited Ordinary Shares at no par value |
- |
|
- |
|
|
|
|
|
|
|
Reconciliation of number of Shares |
|
|
|
|
|
|
|
|
|
As at |
|
As
at |
|
|
|
|
30 June |
|
31
December |
|
|
|
|
2021 |
|
2020 |
|
|
|
|
No. of Shares |
|
No.
of Shares |
Continuation
Shares |
|
|
|
(Unaudited) |
|
(Audited) |
Ordinary
Shares at the beginning of the period/year |
|
|
81,617,828 |
|
81,617,828 |
Repurchase
of Ordinary Shares |
|
|
(600,000) |
|
- |
Redesignation of Realisation Shares |
|
|
(11,710,750) |
|
- |
Total
Ordinary Shares in issue at the end of the period/year |
|
69,307,078 |
|
81,617,828 |
|
|
|
|
|
|
|
Share capital
account |
|
|
|
As at |
|
As
at |
|
|
|
|
30 June |
|
31
December |
|
|
|
|
2021 |
|
2020 |
|
|
|
|
£ |
|
£ |
|
|
|
|
(Unaudited) |
|
(Audited) |
Share
capital at the beginning of the period/year |
|
|
68,124,035 |
|
68,124,035 |
Repurchase
of Ordinary Shares |
|
|
(1,719,433) |
|
- |
Redesignation of Realisation Shares |
|
|
(32,417,756) |
|
- |
Total
Share capital at the end of the period/year |
|
|
33,986,846 |
|
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 15 March 2021, being
44 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 14 May 2021,
11,710,750 Ordinary Shares, which represented 14.5 per cent of the
Company’s issued Ordinary Share capital were redesignated as
Realisation Shares. On 23 June 2021,
the Board approved the First Redemption representing approximately
76.7 per cent of the Realisation Shares in issue. Accordingly,
8,979,885 Realisation Shares were redeemed at the First Redemption
price. The First Redemption price was 278.40
pence per Realisation Share. The net assets of the
Realisation Pool of £32,602,728, divided by the number of
outstanding Realisation Shares in issue, being 11,710,750
Realisation Shares. The redemption proceeds were paid to the
Realisation Shareholders during the week commencing 28 June 2021. The redeemed Realisation Shares
were re-designated as Ordinary Shares and held in Treasury with
effect from the First Redemption Date.
Share buyback
During the period ended 30 June
2021, the Company purchased 600,000 of its own Ordinary
Shares (31 December 2020: Nil) at a
consideration of £1,719,433 (31 December
2020: £Nil) under the Share buyback authority originally
granted to the Company in 2014.
Following the Share buyback and redesignation of Realisation
Shares, the Company has 69,307,078 Ordinary Shares in issue as of
30 June 2021 (as at 31 December
2020: 81,617,828).
At the AGM held on 22 July 2021,
Shareholders granted the Company a general buy-back authority of up
to 40% of the Company's issued share capital. Any Ordinary
Shares bought back may be cancelled or held in treasury.
On 6 March 2021, the Company
reappointed Singer Capital Markets to manage the Closed Period
Buy-Back Programme to buy back Ordinary Shares within certain
pre-set parameters during the closed period leading up to the date
of publication of these Unaudited Half-Yearly results. Any Ordinary
Shares purchased in the Closed Period Buy-Back Programme will count
towards the Company's Ordinary Share buy-back authority of 40% of
the Company's issued Ordinary Share capital, as approved at the
Company's AGM.
|
|
|
|
As
at |
|
As
at |
|
|
|
|
30
June |
|
31
December |
|
|
|
|
2021 |
|
2020 |
Realisation
Shares |
|
|
|
(Unaudited) |
|
(Audited) |
|
|
|
|
|
|
|
Redesignated at no par value |
|
|
|
|
|
2,730,865
(2020: Nil) Realisation Shares at no par value |
|
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
30
June |
|
31
December |
|
|
|
|
2021 |
|
2020 |
|
|
|
|
No.
of Shares |
|
No.
of Shares |
|
|
|
|
(Unaudited) |
|
(Audited) |
Redesignation of Realisation Shares |
|
|
11,710,750 |
|
- |
Repurchase
of Realisation Shares |
|
|
(8,979,885) |
|
- |
Total
Realisation Shares in issue at the end of the period/year |
|
2,730,865 |
|
- |
|
|
|
|
|
|
|
Share capital
account |
|
|
|
As
at |
|
As
at |
|
|
|
|
30
June |
|
31
December |
|
|
|
|
2021 |
|
2020 |
|
|
|
|
£ |
|
£ |
|
|
|
|
(Unaudited) |
|
(Audited) |
Redesignation of Realisation Shares |
|
|
32,417,757 |
|
- |
Repurchase
of Realisation Shares |
|
|
(25,000,000) |
|
- |
Total
Realisation Shares in issue at the end of the period/year |
|
7,417,757 |
|
- |
With effect from the Realisation Date, the assets in the
Realisation Pool have been 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 have
elected to redesignate their Ordinary Shares as Realisation Shares.
Ordinary Shares held by Shareholders who did not submit a valid and
complete election in accordance with the Articles during the
Election Period have remained Ordinary Shares.
The Portfolio was 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).
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 used in the previously announced Realisation
Opportunity.
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 Chair, £27,500 to Mr Coe as Chair of the Audit
Committee and £24,000 to Mr King. On 13
August 2021, the Board announced the appointment of Mrs
Morris, who has joined the Audit and the Management &
Engagement committees of the Board and will replace Stephen Coe as Chair of the Audit Committee
prior to 31 December 2021. The annual
Director’s fees payable to Mrs Morris will be £24,000 and these
will increase to £27,500 following Mr Coe’s retirement.
During the period ended 30 June
2021, Directors’ fees of £40,750 (period ended 30 June 2020: £40,750) were charged to the
Company and £Nil remained payable at the end of the period (as at
31 December 2020: £Nil).
b) Shares held by
related parties
The Directors who held office at 30 June 2021 and up to the
date of this Report held the following number of
Ordinary Shares beneficially:
|
|
As at 30 June 2021 |
|
As at 31 December 2020 |
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
(Audited) |
|
|
Ordinary |
|
% of
issued |
|
Ordinary |
|
% of
issued |
|
|
Shares |
|
share
capital |
|
Shares |
|
share
capital |
Norman Crighton |
|
20,000 |
|
0.03% |
|
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 2021, Dr
Andrew Weiss and his immediate
family members held an interest in 6,486,888 Ordinary Shares (as at
31 December 2020: 6,486,888)
representing 9.36 per cent. (as at 31 December 2020: 7.95 per
cent.) of the Ordinary issued share capital of the Company.
As at 30 June 2021, 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 2020: 2,844,333)
representing 4.10 per cent (as at 31
December 2020: 3.48 per cent.) of the Ordinary 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 Investment Management Agreement (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 2021,
investment management fees and charges of £1,599,511 (for the
period ended 30 June 2020: £907,692)
were charged to the Company and £261,300 (as at 31 December 2020: £456,843) 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 2021:
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
|
|
|
30
June |
|
|
Level
1 |
Level 2 |
Level
3 |
2021 |
|
|
£ |
£ |
£ |
£ |
|
|
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
Financial
assets/(liabilities) at fair value through |
|
|
|
|
profit or loss: |
|
|
|
|
|
Korean preferred shares |
|
194,741,212 |
- |
- |
194,741,212 |
Financial derivative assets |
|
231,331 |
- |
- |
231,331 |
Financial derivative liabilities |
|
- |
(1,315,412) |
- |
(1,315,412) |
Total net assets |
|
194,972,543 |
(1,315,412) |
- |
193,657,131 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
As
at |
|
|
|
|
|
31
December |
|
|
Level
1 |
Level
2 |
Level 3 |
2020 |
|
|
£ |
£ |
£ |
£ |
|
|
(Audited) |
(Audited) |
(Audited) |
(Audited) |
Financial
assets/(liabilities) at fair value through |
|
|
|
|
profit or loss: |
|
|
|
|
|
Korean preferred shares |
|
193,058,894 |
- |
- |
193,058,894 |
Financial derivative assets |
|
62,951 |
- |
- |
62,951 |
Financial derivative liabilities |
|
- |
(1,588,314) |
- |
(1,588,314) |
Total net assets |
|
193,121,845 |
(1,588,314) |
- |
191,533,531 |
|
|
|
|
|
|
|
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
2021, financial assets of £Nil were transferred from Level 2 to
Level 1 (for the year ended 31 December
2020: £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 (£1,315,412) (as at 31 December 2020: (£1,588,314).
As at 30 June 2021, Level 1
financial derivative assets of £231,331 were held (as at
31 December 2020: £62,951).
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 2021 |
As at 31 December 2020 |
|
|
|
(Unaudited) |
|
(Audited) |
|
|
|
NAV
per |
|
NAV
per |
|
|
|
Participating |
|
Participating |
|
|
NAV |
Share |
NAV |
Share |
|
|
£ |
£ |
£ |
£ |
Continuation
Pool |
|
|
|
|
|
Net Asset
Value reported to the LSE |
194,097,647 |
2.8005 |
199,269,014 |
2.4415 |
Adjustment to accruals
and cash |
|
(3,387) |
- |
- |
- |
Adjustment for dividend
income |
|
227,478 |
0.0033 |
3,855,939 |
0.0472 |
Net Assets
Attributable to Shareholders per Financial Statements |
194,321,738 |
2.8038 |
203,124,953 |
2.4887 |
|
|
|
|
|
|
Realisation
Pool |
|
|
|
|
|
Net Asset
Value reported to the LSE |
7,912,670 |
2.8975 |
- |
- |
Net Assets
Attributable to Shareholders per Financial Statements |
7,912,670 |
2.8975 |
- |
- |
The Continuation Pool’s published NAV per Share of £2.8005
(31 December 2020: £2.4415) is
different from the accounting NAV per Share of £2.8038
(31 December 2020: £2.4887) due to
the adjustment noted in the table above. The Realisation Pool’s
published NAV per Share of £2.8975 (31 December 2020:
Nil) is the same as the accounting NAV per Share.
14. Subsequent events
These Condensed Financial Statements were approved for issuance
by the Board on 7 September 2021.
Subsequent events have been evaluated until this date.
At the AGM held on 22 July 2021,
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. Shareholders also approved the
authority of the Company to issue, to grants rights to subscribe
for, or to convert and make offers or agreements to issue Ordinary
Shares for cash, provided that this power shall be limited so that
it:
i. Expires at the earlier of either the
conclusion of the next AGM or 15 months from the granting of this
authority; and
ii. Shall be limited to the issued of Ordinary
Shares up to 6,930,707 Ordinary Shares being approximately 10 per
cent. of the Issued Share Capital of the Company, as at
22 July 2021.
On 20 July 2021, the Board
announced that it expected to appoint Gill
Morris to the Board of the Company as Non-Executive
Director, subject to the completion of customary due diligence
checks by the Company’s Nominated Adviser. On 13 August 2021, the Board announced that it had
appointed Gill Morris to the Board
of the Company as Non-Executive Director with immediate effect
following the successful completion of customary due diligence
checks by the Company’s Nominated Adviser. Mrs Morris has joined
the Audit and the Management & Engagement committees of the
Board and will replace Stephen Coe
as Chair of the Audit Committee prior to 31
December 2021.
On 7 September 2021, the Company
announced the Second Redemption of 2,457,780 Realisation Shares at
275.55 pence per Realisation Share.
All Realisation Shares will be redesignated as Ordinary Shares and
held in Treasury. Following the Second Redemption 273,085
Realisation Shares will remain in issue.
No further subsequent events have occurred.
Corporate
Information
Directors
Norman Crighton (Non-executive Chair)
Stephen Charles Coe (Non-executive Director)
Robert Paul King (Non-executive Director)
Gillian Yvonne Morris (Non-executive Director) appointed 13 August
2021 |
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
Weiss Asset Management LP
222 Berkeley Street, 16th Floor
Boston, MA 02116
USA |
|
Guernsey Legal
Adviser to the Company
Mourant Ozannes
PO Box 186
1 Le Marchant Street
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 |