KPC Keystone Positive Change Investment Trust Plc

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

6 December 2024

Keystone Positive Change Investment Trust plc

Publication of Circular

Recommended proposals for the reconstruction and voluntary winding up of the Company

Introduction

On 30 September 2024 the Board of Keystone Positive Change Investment Trust plc (the "Company" or "Keystone") announced that it would put forward proposals for a scheme of reconstruction and members' voluntary winding-up of the Company under section 110 of the Insolvency Act (the "Proposals" or the "Scheme"). Further to this announcement, the Board of the Company is pleased to announce the publication of a Circular in relation to the Scheme (the "Circular").

Pursuant to the Proposals, which are conditional upon, among other things, the approval of Shareholders at the Shareholder Meetings, each Ordinary Shareholder on the Register on the Record Date (save for any Excluded Shareholder) will be entitled to elect to receive, in respect of some or all of their Ordinary Shares:

§ New BGPC Shares in the Baillie Gifford Positive Change Fund (the "Rollover Option"); and/or

§ cash (the "Cash Option").

The Board considers the Proposals to be in the best interests of Shareholders as a whole and recommends that Shareholders vote in favour of the Resolutions required to implement the Proposals at the Shareholder Meetings, as the Directors intend to do in respect of their own beneficial holdings, which in aggregate amount to 109,891 Ordinary Shares (representing approximately 0.19 per cent. of the Company's issued Ordinary Share capital as at the Latest Practicable Date).

Background to and reasons for the Proposals

In early 2021, Shareholders approved the Company's adoption of Baillie Gifford & Co's ("Baillie Gifford" or the "Investment Manager") "Positive Change" strategy, which seeks to generate attractive long term capital returns and to contribute towards a more sustainable and inclusive world. The Board retains a high degree of conviction in this strategy and believes it is well suited to the investment trust structure, which enables the Investment Manager to access the significant impact opportunities available from committing primary capital to private companies and investing in less liquid public companies.

Notwithstanding this confidence in the long term prospects for the strategy, the Board recognises that there has been a challenging period of performance during a difficult backdrop for the investment trust sector. During the financial year ended 30 September 2024, the Board took a number of steps with a view to enhancing value for Shareholders including commencing a share buyback programme, introducing a continuation vote and increasing marketing activity. However, as announced on 9 September 2024, the Board nonetheless concluded that the interests of Shareholders may be best served by implementing a transaction in the near term to address the size of the Company, the low liquidity in the Ordinary Shares and the discount at which they have been trading to Net Asset Value, while enabling Ordinary Shareholders to retain exposure to a global impact strategy should they wish to do so.

The Board subsequently considered additional Shareholder feedback and the Company's options to retain exposure to the strategy. As announced on 30 September 2024, the Board recognises that the Company has not received sufficient support from Shareholders to allow the strategy the time needed to play out over the period to the recently introduced February 2027 continuation vote and the Board has therefore reluctantly agreed to propose the Scheme, which will provide Ordinary Shareholders with an opportunity to continue their investment through the Rollover Option while, at the same time, offering Ordinary Shareholders the option of a full cash exit (subject to the Cash Option Discount). That said, Shareholders should also refer to the section titled "Illiquid Investments" below.

Summary information on the Baillie Gifford Positive Change Fund

Under the terms of the Scheme, Ordinary Shareholders will be offered the opportunity to roll over their investment into the Baillie Gifford Positive Change Fund ("BGPC").

BGPC is a sub-fund of Baillie Gifford Investment Funds ICVC (the "ICVC"), an open-ended investment company with variable capital incorporated in Great Britain under the OEIC Regulations.

BGPC is also managed by Baillie Gifford and, as at the Latest Practicable Date, it has net assets of around £1.8 billion. Kate Fox and Lee Qian, the portfolio managers of the Company, are also key decision makers of BGPC together with Thaiha Nguyen, Ed Whitten and Apricot Wilson. It has a similar investment objective to Keystone, as it also pursues Baillie Gifford's "Positive Change" investment strategy, and it shares a material overlap of portfolio holdings with the Company. BGPC uses a 'Sustainability Impact' label for the purposes of the UK Sustainable Disclosure Requirements and investment labels rules.

There are also certain differences between Keystone and BGPC that should be drawn to the attention of Shareholders. In particular, given that open-ended vehicles are required to retain sufficient liquidity to meet redemption requests on an ongoing basis, BGPC's portfolio does not contain any private company investments. Accordingly, the Illiquid Investments held by Keystone (as described in further detail below) will not be transferred to BGPC as part of the Rollover Pool.

Further information on BGPC and the ICVC is set out in Part 2 of the Circular and in the ICVC Prospectus. Shareholders should also refer to the risk factors set out in Part 5 of the Circular and should not subscribe for any BGPC Shares except on the basis of information provided in the ICVC Prospectus. Please note that the Board takes no responsibility for the contents of the ICVC Prospectus, the Key Information Document or the ICVC Supplementary Information Document.

Options for Shareholders and default positions under the Scheme

Ordinary Shareholders (save for Excluded Shareholders) are being offered the Rollover Option into BGPC and/or the Cash Option in respect of some or all of their Ordinary Shares in the Company. There is no limit on the amount of Ordinary Shares which may be elected for the Cash Option (by returning a Form of Election) and Ordinary Shareholders can make different Elections in respect of different parts of their holdings.

Subject to the satisfaction of Baillie Gifford's KYC Checks, the Rollover Option is the default option under the Scheme. Ordinary Shareholders (other than Excluded Shareholders) who, in respect of all or part of their holding of Ordinary Shares, do not make a valid Election for the Cash Option under the Scheme will therefore be deemed to have elected for New BGPC Shares in respect of such holding provided that they have satisfied the KYC Checks.

Individual Shareholders who hold Ordinary Shares directly on the Register, and do not already have a Baillie Gifford UK OEIC account, MUST complete and return the KYC Application Form enclosed with the Circular if they wish to receive New BGPC Shares under the Rollover Option. Institutional Shareholders who wish to receive New BGPC Shares and do not already have a Baillie Gifford UK OEIC account MUST contact Baillie Gifford to determine the information required to be provided (if any) to complete the KYC Checks. Shareholders with existing Baillie Gifford UK OEIC accounts do not need to return a KYC Application Form or contact Baillie Gifford in order to receive New BGPC Shares.

Ordinary Shareholders who have not satisfied the KYC Checks, as determined at the sole discretion of Baillie Gifford, by 1.00 p.m. on 23 January 2025 will be deemed to have elected for the Cash Option in respect of their entire holding of Ordinary Shares.

Further information on the KYC Application Form and the KYC Checks, including Baillie Gifford's contact details, are set out in paragraph 3 of Part 3 of the Circular.

Scheme mechanics

In order to implement the Scheme, the Company's assets and undertaking will be allocated to three separate and distinct pools on the Calculation Date (being market close on 27 January 2025):

§ The Board, in consultation with the Liquidators, will first allocate to the Liquidation Pool such of the cash and other assets of the Company as are estimated by the proposed Liquidators to be sufficient to meet all outstanding current and future liabilities of the Company. This will include provisions for the outstanding costs of the Scheme to be borne by the Company, the prior entitlements on a liquidation of the Preference Shares, any declared but unpaid dividends of the Company, the entitlements of any Dissenting Shareholders and a retention, estimated to be £100,000, to be retained by the Liquidators to meet any unknown or unascertained liabilities of the Company (the "Liquidators' Retention"). In addition, in the light of liquidity and redemption requirements on open-ended vehicles under the FCA rules, any Illiquid Investments (as described in further detail below) that remain unsold as at the Calculation Date cannot be transferred into BGPC and will therefore also be allocated to the Liquidation Pool.

§ The balance of the Company's assets and undertaking, the "Residual NAV", will be allocated first to the Cash Pool and then to the Rollover Pool (which will represent the entitlements of Ordinary Shareholders who have elected, or are deemed to have elected, for the Cash Option and the Rollover Option respectively). The allocation of assets to the Cash Pool will be adjusted to reflect a discount of 1.0 per cent. to the Residual NAV.

Subject to the passing of the Resolutions (and satisfaction of the other conditions of the Scheme set out in paragraph 12 of Part 1 of the Circular), the Company will then be placed into members' voluntary liquidation and the Scheme will take effect from the Effective Date. If the Scheme becomes effective:

§ Shortly after the Effective Date the Liquidators will make a cash distribution of the net realisation proceeds of the Cash Pool to Ordinary Shareholders who have elected, or are deemed to have elected, for the Cash Option in accordance with their respective entitlements under the Scheme.

§ The Liquidators (in their personal capacity and on behalf of the Company) will enter into the Transfer Agreement with the ICVC (for the benefit of BGPC). Pursuant to the Transfer Agreement, the cash, other assets and undertaking comprising the Rollover Pool will be transferred into BGPC and, in return, the relevant numbers of New BGPC Shares will be issued to Ordinary Shareholders who have elected, or are deemed to have elected, for the Rollover Option.

§ The assets in the Liquidation Pool will first be used to settle the Company's liabilities (including the prior entitlements, on a liquidation, of the Preference Shares). The remaining assets in the Liquidation Pool, expected to comprise, predominantly, any unsold Illiquid Investments, will be realised on an orderly basis during the liquidation period (that is, following the Effective Date of the Scheme). Throughout this process, which is expected to take some time (as discussed in the section titled "Illiquid Investments" below), the Liquidators will make ongoing assessments as to the availability of amounts for distribution in cash to Ordinary Shareholders. Any distribution made by the Liquidators during the liquidation period will be on the basis set out in the paragraph below.

§ To the extent that any part of the Liquidation Pool remains at the conclusion of the Company's liquidation, it will be distributed in cash to all Ordinary Shareholders on the Register on the Effective Date. If, however, any such amount payable to an Ordinary Shareholder is less than £5.00, it will not be paid to the Ordinary Shareholder but instead will be paid by the Liquidators to the Nominated Charity. The conclusion of the Company's liquidation, and therefore any final distribution to Ordinary Shareholders, will be dependent on the completion of the programme to realise the Illiquid Investments.

Benefits of the Proposals

The Board believes that the Proposals have the following benefits for Shareholders:

§ Continuity of investment manager and strategy: the Proposals enable Ordinary Shareholders to roll over some or all of their investment into BGPC, which is also managed by Baillie Gifford and pursues the Investment Manager's "Positive Change" strategy.

§ Ability to stay invested in a tax efficient manner: Ordinary Shareholders who roll over their investment into BGPC may do so without triggering a charge to capital gains tax.

§ Opportunity for unlimited cash exit: An unlimited cash exit option will give Ordinary Shareholders the option to realise all or part of their holding (subject to the Cash Option Discount).

Further details of the Proposals

Dividends

In order to ensure that the Company meets the distribution requirements to maintain investment trust status in respect of the period from 1 October 2024 to the Effective Date, the Board has declared an interim dividend of 0.35 pence per Ordinary Share which will be paid to Ordinary Shareholders at the same time as the interim dividend of 0.10 pence per Ordinary Share declared in respect of the year to 30 September 2024 (together, the "Interim Dividends"). Both Interim Dividends will be paid on 31 December 2024 to Ordinary Shareholders who are on the Register as at close of business on 13 December 2024. The ex-dividend date for both Interim Dividends is 12 December 2024.

The dividend entitlement on the Preference Shares, in respect of the period to the Effective Date, will be paid to Preference Shareholders pursuant to the winding-up of the Company following the Effective Date.

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

The Board has instructed the Company's AIFM and Investment Manager to consider the potential realignment of the Company's investment portfolio such that, by the Effective Date, the Company has sufficient cash to meet the amounts expected to be due under the Cash Option and assets that are suitable for transfer to the ICVC, taking account of BGPC's investment objective and policy. That said, given the significant overlap in investment strategy and portfolio holdings between the Company and BGPC, it is not expected that a significant realignment exercise will be required.

Illiquid Investments

Whilst the Company is pleased to announce that its holding in Boston Metals has been sold, the Board reiterates its previous statements that the Scheme needs to take into account the illiquidity of the Company's four remaining private company investments, details of which are set out below (the "Illiquid Investments"), which comprised c.2.6 per cent. of the portfolio as at 30 November 2024. Shareholders should note that, in the light of liquidity and redemption requirements on open-ended vehicles under the FCA rules, the Illiquid Investments are not being transferred to BGPC as part of the Rollover Pool. Whilst the Investment Manager's efforts to realise these assets are ongoing, the Board has been advised that the Illiquid Investment are unlikely to be sold in advance of the Effective Date of the Scheme. If this proves correct, the unrealised Illiquid Investments will not be incorporated in the Residual Net Asset Value and will instead be allocated to the Liquidation Pool and managed in accordance with an orderly realisation process during the liquidation period.

The Liquidators will, with the benefit of some assistance from Baillie Gifford (as described in further detail below), seek to realise the Illiquid Investments in an orderly wind-down process which aims to achieve best value for Ordinary Shareholders. Any net proceeds from the disposal of the Illiquid Investments during the liquidation period would be returned to Ordinary Shareholders in due course. However, there can be no guarantee as to the value, if any, and/or timing of distribution(s) that may result from the realisation of the Company's remaining Illiquid Investments. Both of these factors will depend on, among other things, prevailing market conditions.

*As at 30 November 2024.

Management termination fee waiver and Investment Services Agreement

The Investment Management Agreement between the Company and the AIFM will terminate upon the Scheme becoming effective. The AIFM has undertaken to waive, in full, the period of notice to which it is contractually entitled under the Investment Management Agreement and has agreed that no compensation will be payable in respect of such waiver or termination.

In the light of the position in respect of the Illiquid Investments, Baillie Gifford & Co Limited has agreed to be re-engaged by the Company (without remuneration save for out-of-pocket expenses) during the liquidation period to assist the Company and the Liquidators in their orderly realisation of the remaining Illiquid Investments. Baillie Gifford & Co Limited's role will include it continuing to maintain dialogue and acting as a liaison between the Company and relevant contacts to support the realisation strategy in respect of the Illiquid Investments.  For the avoidance of doubt, following the Effective Date it will be the Liquidators who have responsibility for management of the Company's affairs (and not Baillie Gifford & Co Limited).

Entitlements of Ordinary Shareholders under the Scheme

Entitlements under the Cash Option

The value of the Cash Pool upon its creation will be equal to the value of the Residual NAV per Ordinary Share less the 1.0 per cent. Cash Option Discount (the "Cash Pool FAV per Ordinary Share") multiplied by the number of Ordinary Shares elected or deemed to have been elected, for the Cash Option (calculated to six decimal places) (the "Cash Pool FAV"). The value arising from the application of the Cash Option Discount shall be allocated to the value of the Rollover Pool for the benefit of Ordinary Shareholders who have elected, or are deemed to have elected, for the Rollover Option.

Pursuant to the Scheme, an Ordinary Shareholder who elects, or is deemed to have elected, for the Cash Option will receive the net realisation proceeds of the Cash Pool FAV per Ordinary Share, (generated by the disposal of the assets comprising the Cash Pool), multiplied by the number of Ordinary Shares so elected.

As the value of Ordinary Shareholders' entitlements under the Cash Option will be based on the net realisation proceeds of the Cash Pool, such entitlements may be affected by movements in the value of the assets contained in the Cash Pool between the Calculation Date and completion of the realisation process, and also will be net of the costs and expenses incurred in effecting this realisation process.

Entitlements under the Rollover Option

The Rollover Pool shall comprise the remaining cash, undertaking and other assets of the Residual NAV after deduction of the Cash Pool FAV, appropriated as at the Calculation Date but valued for the purposes of the Scheme (in accordance with the valuation policies and procedures of the ICVC, as described in the ICVC Prospectus (save that no dilution adjustment will be applied)) as at 10.00 a.m. on the Effective Date (the "Rollover Pool FAV").

Pursuant to the Scheme, an Ordinary Shareholder who has elected, or is deemed to have elected, for the Rollover Option will receive such number of New BGPC Shares as is produced by dividing the proportion of the value of the Rollover Pool FAV (as at the Effective Date) to which they are entitled by the BGPC Share Subscription Price (being the prevailing Net Asset Value per BGPC Share as at 10.00 a.m. on the Effective Date). The minimum subscription amount set out in the ICVC Prospectus will be waived in respect of Ordinary Shareholders who are deemed to have elected for the Rollover Option. Fractional entitlements will be dealt with by the issue of smaller denomination shares each equivalent to one thousandth of a BGPC Share, in accordance with the terms of the ICVC Prospectus.

As the appropriation of the Company's assets to the Rollover Pool will occur on the Calculation Date, the value of Ordinary Shareholders' entitlements may be affected by movements in the value of the assets contained in the Rollover Pool between the Calculation Date and the Effective Date (both within the Rollover Pool itself and relative to the value of the assets attributed to the Cash Pool).

Illustrative entitlements

For illustrative purposes only, had the Calculation Date been market close on 3 December 2024 (being the Latest Practicable Date), the Liquidation Pool would have had a value (as at the same date) of approximately £4.4 million, being equivalent to approximately 7.46 pence per Ordinary Share. The figures in this paragraph assume, for illustrative purposes, that payment of the Interim Dividends (scheduled for 31 December 2024) has been made. These illustrative figures also assume the inclusion in the Liquidation Pool of (i) the nominal amount of, and the dividend entitlement to the Effective Date on, the Preference Shares; (ii) any expected costs not yet accrued in the Company's Net Asset Value; and (iii) all of the Illiquid Investments (which therefore do not form part of the Residual Net Asset Value).

After allocation of assets to the Liquidation Pool on the above basis, and assuming (i) that 50 per cent. of the Company's current issued Ordinary Share capital is elected for the Cash Option; and (ii) there is no change in the value of the assets of the Company and BGPC between the Calculation Date and the Effective Date:

§ the Cash Pool FAV per Ordinary Share would have been 255.82 pence*;

§ the Interim Dividends per Ordinary Share (received by all Ordinary Shareholders) would have been 0.45 pence;

§ the value of the Illiquid Investments (held within the Liquidation Pool) per Ordinary Share would have been 7.29 pence;

§ the BGPC Share Subscription Price would have been 348.10 pence; and

§ 0.7497 New BGPC Shares would have been issued for each Ordinary Share elected, or deemed to have been elected, for the Rollover Option.

Based on the assumptions and illustrative figures shown above, Ordinary Shareholders who elected, or were deemed to have elected, for the Rollover Option would not suffer any NAV per Ordinary Share dilution as a result of the Scheme.

*Note that the Cash Pool FAV per Ordinary Share does not represent the value of Ordinary Shareholders' entitlements under this option, which will be based on the net realisation proceeds of the Cash Pool.

Costs of the Proposals

The Company will bear its own costs in relation to the Proposals, which are estimated to be approximately £812,000 (including VAT). Save as set out below, a provision for such costs will be attributed to the Liquidation Pool to the extent not already reflected in the Net Asset Value as at the Calculation Date.

BGPC's costs in relation to the Proposals will be borne in full by the ACD.

Any liability for transfer taxes in respect of the transfer of certain assets to BGPC will be borne by the ACD, provided that, in those jurisdictions where it is customary for the liability for transfer tax to be split between the transferor and the transferee, the Company shall bear such part of the transfer tax liability to the extent that such part of the transfer tax liability is customarily borne by the transferor in the relevant jurisdiction. The ACD will also meet the reinvestment costs in respect of any cash that BGPC receives in the Rollover Pool (such that no dilution adjustment will be applied in calculating the number of New BGPC Shares to be issued pursuant to the Rollover Option). Such transfer taxes and reinvestment costs will not form part of the transaction expenses for the purposes of the Scheme calculations for either party.

Conditions of the Scheme

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

§ the passing of the Resolutions to be proposed at the Ordinary Shareholders' Class Meeting, the First General Meeting and the Second General Meeting, or any adjournment of those meetings, and any conditions of such Resolutions being fulfilled;

§ the FCA agreeing to amend the listing of the Ordinary Shares to reflect their reclassification as Reclassified Shares for the purposes of implementing the Scheme; and

§ the Directors and the ACD (on behalf of BGPC) resolving to proceed with the Scheme.

If any condition is not satisfied, the Proposals will not become effective, the Company will not proceed with the members' voluntary winding up and instead the Company will continue in existence managed in accordance with its current investment policy. In such circumstances, the Directors will reassess the options available to the Company at that time.

Ordinary Shareholders' Class Meeting and General Meetings

As noted above, the Proposals are conditional upon, among other things, the approval of Shareholders at a separate class meeting of Ordinary Shareholders and two General Meetings of the Company.

The Ordinary Shareholders' Class Meeting and the General Meetings will each be held at the offices of Deutsche Numis, 45 Gresham Street, London EC2V 7BF. The Ordinary Shareholders' Class Meeting will be held at 9.00 a.m. on 27 January 2025. The First General Meeting will be held at 9.15 a.m. on 27 January 2025 (or as soon thereafter as the Ordinary Shareholders' Class Meeting has concluded or been adjourned).  The Second General Meeting will be held at 2.00 p.m. on 7 February 2025. 

Further details on the Resolutions are set out in the Circular.

Recommendation

Important Information

Capitalised terms used in this announcement have the meaning as defined in the Circular, unless otherwise defined in this announcement.

LEI: 5493002H3JXLXLIGC563