City of London Investment Group PLC Letter to icapital.biz Berhad
15 September 2016 - 6:46PM
RNS Non-Regulatory
TIDMCLIG
City of London Investment Group PLC
15 September 2016
CITY OF LONDON INVESTMENT GROUP PLC
TEXT OF LETTER TO ICAPITAL.BIZ BERHAD
(LONDON, 15 September, 2016) - City of London Investment
Management has sent a letter (published in full below) to the board
of icapital.biz Berhad (ICAP:MK) explaining its intention to oppose
the re-election of directors at ICAP's forthcoming AGM.
Background
City of London Investment Group is an emerging markets fund
manager which specialises in investing in closed-end investment
companies. The firm is authorised and regulated by the Financial
Conduct Authority and registered as an Investment Advisor with the
Securities and Exchange Commission.
For further information, please contact:
Simon Westlake
City of London Investment Group
020 7711 1552
simon.westlake@citlon.co.uk
Full text of letter
The Directors
icapital.biz Berhad
Unit 30-01, Level 30, Tower A
Vertical Business Suite
Avenue 3, Bangsar South
No. 8, Jalan Kerinchi
59200 Kuala Lumpur
Malaysia
15(th) September 2016
Dear Directors,
Twelfth Annual General Meeting of icapital.biz Berhad (ICAP)
Clients of City of London Investment Management Limited (CLIM)
own 21,970,900 ICAP shares (15.7%). There has been no action in
response to any of the points that were raised in our letter to you
dated 26(th) August 2015, which set out our concerns regarding
ICAP's poor performance and persistently wide discount to NAV. CLIM
therefore confirms that it intends to continue voting against the
re-election of incumbent directors. Accordingly, CLIM intends to
vote against the re-election of Madam Leong So Seh at ICAP's 12(th)
AGM on Saturday, 24(th) September 2016.
-- Performance
We reiterate our call for performance comparisons in shareholder
communications to be made on a total return basis, which is
universally accepted in the investment industry as best
practice.
The total return in the five years to end May 2016 for the FTSE
Bursa Malaysia Index has been 23.1% cumulative (equivalent to 4.2%
pa). In comparison ICAP's NAV return has been 13.0% cumulative
(2.5% pa). The share price return over this period has been even
worse due to discount widening, at 6.4% cumulative (1.3% pa). These
performance figures have been sourced from Bloomberg.
The Chairman stated, in his letter to shareholders, dated 19(th)
July 2016, that ICAP has 'performed beyond expectations'. We wish
to make clear that ICAP's performance over the past five years has
fallen significantly short of our own expectations.
-- Cash Management
We note the continued extraordinarily high cash level, which has
persisted at over 50% for 3 years and on which shareholders have
been paying fees for fund management and investment research
services. Cash at each calendar year end since ICAP was launched
(31 December 2005 to 31 December 2015) has averaged 39%. ICAP is
clearly operating with surplus cash which, in our opinion should be
returned to shareholders.
-- Expense Ratio
ICAP's expense ratio in 2016 was 1.9% (2015: 1.9%) which
compares unfavourably with other country specific closed-end funds.
The most significant item is the aggregate 1.5% incurred for fund
management and investment research. CLIM urges the Board to
negotiate competitive fees in order to reduce the expense ratio to
an acceptable level.
-- Discount Control
ICAP's prospectus dated 26 September 2005 explained clearly that
the return for closed-end fund investors is a product of NAV
performance and the discount movement. The Chairman's letter to
Shareholders in the 2016 Annual Report refers to a 4% rise in
ICAP's NAV for the 12 months ended 31 May 2016. However it does not
mention that the share price actually declined over this period,
because the discount widened. The discount averaged 22% in 2016
versus 20% in 2015 (source: Bloomberg). Neither the level nor the
trend is acceptable and CLIM is disappointed that the Board has
again failed to take any action to address this problem.
CLIM notes from the 2016 Annual Report the Board's deliberations
on 27(th) July 2015 regarding share buy-backs and the accompanying
statement that the "Fund's NAV could deteriorate if it uses its
available fund to purchase own shares". Repurchasing shares at a
discount to NAV will actually increase the NAV per share and in
CLIM's opinion this would be a sensible use of ICAP's cash,
particularly in view of the Manager's apparent shortage of
investment ideas.
ICAP's prospectus included a section (6.7, page 64) on managing
discounts, noting that the options available include 'share
repurchase, open-ending, takeover, liquidation'. CLIM urges the
Board to consider all these options and to formulate a strategy to
reduce the discount from its present unacceptable level.
Yours sincerely,
Simon Westlake
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September 15, 2016 04:46 ET (08:46 GMT)