7 May 2024
LEI:
254900Z4X5Y7NTODRI75
Ashoka WhiteOak Emerging
Markets Trust plc
(the
'Company' or 'AWEM')
Proposed Transaction with
Asia Dragon Trust plc
('Asia
Dragon')
· Attractive transaction proposals supported in principle by a
majority of Asia Dragon shareholders, delivering material benefits
for both Asia Dragon and AWEM shareholders
· Opportunity for Asia Dragon shareholders to join an
outperforming investment trust, with market-leading structural
features, zero management fee1 and an annual redemption
facility: the only premium listed equity-focused launch in recent
years
· Cash
exit of up to 50 per cent. for Asia Dragon shareholders
Martin Shenfield, Chair of AWEM commented:
"We have always sought as a Company to put the interests of
shareholders first, for example through our market-leading,
shareholder-friendly structures. We believe this is the primary
obligation of a truly independent board. We have listened to clear
feedback from a majority of Asia Dragon shareholders and proposed a
transaction that has their support. Sadly, we have not received any
meaningful engagement with the Board of Asia Dragon. Today we
announce our proposed transaction alongside the re-confirmed
support in principle of c. 56 per cent. of Asia Dragon shareholders
to advance this transformational initiative that we believe is in
the best interests of both sets of shareholders."
The Company listed on the London
Stock Exchange on 3 May 2023 as the sole equity-focused investment
company IPO to have successfully joined the premium segment of the
main market since 2018. Since launch, AWEM has both continued to
grow through new share issuance and delivered on its investment
objective to achieve capital appreciation through exposure to
securities that provide exposure to Global Emerging Markets
('GEM'), generating a net
asset value ('NAV') total
return of 14.4 per cent. to 3 May 2024, outperforming the Company's
benchmark that returned 11.9 per cent. over the same
period.
The Board is cognisant that many
investors have increasing preference for investment companies to be
larger, more liquid, and with lower Ongoing Charges Ratios. The
Board and its advisers have considered several options for the
Company's growth in the short term and, led by clear and supportive
feedback from a majority of shareholders, believe that a
combination of AWEM with Asia Dragon (the 'Proposed Transaction') would be in the
best interests of the shareholders of both companies.
The Board of AWEM believes that the
Proposed Transaction should deliver AWEM shareholders a vehicle of
materially enlarged scale, with improved secondary market liquidity
and a reduced Ongoing Charges Ratio. For Asia Dragon shareholders,
the Proposed Transaction should deliver:
· Significant uplift in the market value of an Asia Dragon
shareholder's investment due to the superior rating at which AWEM's
shares are trading and have historically traded compared with Asia
Dragon's shares over the recent past2
· Access
to the extensive resources of the seasoned WhiteOak team across the
UK, Europe, and Asia. This high-performing team, led by Prashant
Khemka, has a compelling track record of investment returns that
materially outpace those delivered by Asia Dragon.3
Since listing, AWEM has achieved a NAV total return of 14.4 per
cent., achieving top quartile performance in the GEM peer group
driven primarily by superior stock selection across the market
capitalisation spectrum, supported by the fact that GEM are a more
under-researched and inefficient sector of the global equities
asset class. Prashant Khemka's GEM track record extends prior to
his launch both of WhiteOak and AWEM, showing consistent
outperformance versus Asia Dragon under its various manager
stewardships
· Continued exposure to an investment universe with material
overlap. 55 per cent. of Asia Dragon's portfolio overlaps with AWEM
and nine of Asia Dragon's top ten stocks can be found within the
AWEM portfolio. Over 90 per cent. of the geographical exposure of
Asia Dragon's benchmark, the MSCI Asia ex Japan Index, are GEM
countries4
· Integration with an investment trust with a differentiated
investment philosophy, market-leading structural features and
proprietary frameworks, which provide shareholders with a unique
offering
· Shareholder-friendly fee structure and full alignment with
management, with WhiteOak charging a zero annual management fee and
instead entitled to a fee on delivering outperformance in AWEM
versus its benchmark1, paid entirely in AWEM shares.
AWEM has an annual redemption facility that enables shareholders to
exit all or part of their investment on an annual basis close to
NAV
· Anticipated cost reduction for Asia Dragon shareholders
rolling into AWEM, with the pro forma Ongoing Charges Ratio
expected to decrease materially, both due to the cost-efficient
structure of AWEM and the absence of an annual management fee. In
addition, the total costs of the Proposed Transaction are expected
to be mitigated in full as detailed below
· Opportunity for Asia Dragon shareholders who do not wish to
participate in the proposed rollover to AWEM to exit all or part of
their investment at close to NAV. The cash exit would be capped at
50 per cent. of Asia Dragon's shares in issue (excluding treasury
shares)
The Board of AWEM has received
feedback from shareholders controlling c. 56 per cent. of Asia
Dragon's voting rights that they would be supportive in principle
of the Proposed Transaction on the terms outlined, which are
explained further below. To progress the Proposed Transaction, the
Board of AWEM has made repeated efforts to explore discussions with
the Board of Asia Dragon, beginning on 14 March 2024. Following a
response on 18 March 2024, terms of the Proposed Transaction were
outlined on 20 March 2024 and a formal proposal was sent on 28
March 2024 (the 'Formal
Proposal'), with acknowledgement by the Board of Asia Dragon
on 1 April 2024. Since this time, there has been no further
correspondence from the Board of Asia Dragon despite several
further attempts to engage.
The Board of AWEM has in recent days
further consulted with the aforementioned Asia Dragon shareholders,
who have re-confirmed their support in principle for the Proposed
Transaction. The Board of AWEM welcomes further engagement by the
Board of Asia Dragon on the Proposed Transaction.
Terms of the Formal
Proposal
The Proposed Transaction would be
effected by way of a scheme of reconstruction pursuant to section
110 of the Insolvency Act 1986 (the 'Scheme'). In accordance with customary
practice for such schemes involving investment companies, the City
Code on Takeovers and Mergers is not expected to apply to the
Proposed Transaction pursuant to the Scheme.
As outlined above,
the Board of AWEM submitted the Formal Proposal to the Board of
Asia Dragon on 28 March 2024, that included the following
illustrative terms:
· Proposed Transaction to be effected by way of the Scheme,
resulting in the voluntary liquidation of Asia Dragon and its
shareholders being offered the choice of (i) rolling their
investment into new shares to be issued by AWEM (the 'Rollover Option') and/or (ii) electing
for a cash exit, capped at 50 per cent. of Asia Dragon's shares in
issue (excluding treasury shares) (the 'Cash Option'). The terms and
illustrative effects set out in this announcement assume the Cash
Option is exercised in full
· As is
customary, the Proposed Transaction would be effected on the basis
of Formula Asset Value ('FAV'), being the prevailing NAV of each
company with customary adjustments to be agreed between AWEM and
Asia Dragon
· Asia
Dragon shareholders electing for the Cash Option would have all or
part of their shareholding in Asia Dragon realised at a one per
cent. discount to FAV. The uplift arising from the Cash Option
would be entirely allocated to shareholders utilising the Rollover
Option, in such a way that this should more than cover all the
estimated costs of Asia Dragon implementing the Proposed
Transaction. In return, AWEM would issue its shares under the
Rollover Option at a one per cent. premium to FAV
It is emphasised that there can be
no certainty that engagement will progress, that heads of terms
will be agreed (either on the basis set out in this announcement or
otherwise), or whether the Proposed Transaction will take place at
all. Should heads of terms for the Proposed Transaction be agreed,
further details and a proposed timetable of the Scheme will be
announced.
The Proposed Transaction remains
subject to, inter alia, further due diligence, the recommendation
of the Boards of Asia Dragon and AWEM to proceed, necessary
approvals by the shareholders of Asia Dragon and AWEM, relevant tax
clearances being received by Asia Dragon, and relevant Financial
Conduct Authority ('FCA')
approvals.
Notes:
1. AWEM does not charge
a management fee but instead solely a performance fee based on
outperformance (the 'Alpha
Fee'). The Alpha Fee is calculated as 30 per cent. of the
outperformance of the Company's adjusted net assets over the
performance of the MSCI Emerging Markets Net Total Return Index (in
Sterling), measured over discrete periods of three years and capped
at 12 per cent. of the time weighted average adjusted net assets
during the relevant period.
2. Since AWEM's IPO on 3
May 2023 to 3 May 2024, AWEM's shares have traded at a 0.2 per
cent. discount to NAV versus a 15.6 per cent. discount to NAV for
Asia Dragon's shares over the same period.
3. Since AWEM's IPO on 3
May 2023 to 3 May 2024, AWEM's shares have delivered a NAV total
return of 14.4 per cent. versus 1.5 per cent. for Asia Dragon's
shares over the same period.
4. MSCI Asia ex Japan
Index - Emerging Market countries include China, India, Indonesia,
Korea, Malaysia, the Philippines, Taiwan and Thailand. Developed
market countries include Hong Kong and Singapore. Based on
the latest available information, MSCI data as at 31 March 2024,
Asia Dragon portfolio as at 28 February 2024 and AWEM as at 31
March 2024.
For further
information:
JTC Group
(Company Secretary)
020 7409 0181
AWEMT.Cosec@jtcgroup.com
WhiteOak Capital Partners Pte
Ltd.
Via Buchanan
Prashant
Khemka
Fadrique
Balmaseda
Ben
Hayward
Ellora Capital
Partners (Corporate
Broker) 020 7016
6704
Oliver
Kenyon
Priyan
Rayatt
Mark
Thompson
Eddie
Nissen
Buchanan
(Public
Relations)
020 7466 5000
AWEM@buchanancomms.co.uk
Henry
Harrison-Topham
Henry
Wilson
07788 528 143
George
Beale
07450 295 099
About Ashoka WhiteOak
Emerging Markets Trust plc
Ashoka WhiteOak Emerging Markets
Trust plc (AWEMT) is a UK investment trust seeking to achieve
long-term capital appreciation primarily through investing in a
multi-cap portfolio of equities that provide exposure to global
emerging markets. AWEMT is advised by WhiteOak Capital Partners
Pte. Ltd, founded by Prashant Khemka with leading Emerging Markets
investment experience. WhiteOak Capital Group has delivered an
exceptional track record for its other strategies, and has £6.4
billion in assets under management or advisory. WhiteOak Capital
Group pursues a disciplined research process underpinned by its
proprietary frameworks OpcoFinco™ for valuation and
ABLExTM for ESG research. While Emerging Markets
remain under-researched and inefficient, AWEMT leverages WhiteOak's
investment approach to capture the higher alpha potential in these
markets. There is no fixed management fee, instead the Investment
Manager is remunerated solely as a function of outperformance over
the benchmark and hence is directly aligned with shareholders'
interests.