The unitholders of the AMP Capital China Growth Fund (AGF) will vote on the potential wind-up of the fund at an extraordinary general meeting (EGM) on 28 July 2016 in Sydney.
On Friday, AMP Capital released an explanatory memorandum (EM) about the EGM, laying out the two resolutions that will be put before unitholders: first, to continue the fund with enhancements as proposed by AMP Capital, along with a capital management initiative; and second, to wind up the fund.
The second resolution has been put forward by activist unitholder LIM Advisors, a Hong Kong-based hedge fund that owns 9.98 per cent of the units in AGF.
In an open letter to unitholders last Wednesday, LIM Advisors pointed to the under-performance of AGF against its benchmark index since its launch in December 2006.
LIM Advisors also highlighted the “persistent and excessive” discount to net asset value at which units in AGF trade.
“It has averaged more than 20 per cent since AGF was launched in late December 2006, [having] first reached this level in the second quarter of 2007; it has been as high as 35.5 per cent,” said LIM Advisors.
“If our proposal to wind up AGF is not passed, the recent narrowing of the discount may well be temporary and the discount could significantly widen again.
“Please help us keep up the pressure by voting in favour of our proposal to wind up AGF,” said LIM Advisors.
The AMP Capital EM lays out the two resolutions for unitholders, and as the responsible entity (RE) of the fund, AMP Capital pledges to wind up the fund if unitholders vote for the LIM Advisors resolution.
However, AMP Capital warned unitholders in the EM that analysis by KPMG has indicated that it could take between nine and 18 months for the net proceeds of any wind-up to be distributed to shareholders.
“Due to uncertainties associated with selling all the fund’s assets (including the underlying portfolio) and repatriating funds from mainland China, [AMP Capital] is uncertain how long it will take for unitholders to receive their wind-up proceeds,” said the EM.
“The length of time to complete the wind-up is longer than the time to complete the Capital Management Initiative because the size of the Capital Management Initiative means that realising a sufficient proportion of assets and obtaining Chinese regulatory approvals is simpler,” AMP Capital said.
In the EM, AMP Capital funds management chairman Adam Tindall said if unitholders want the fund to continue with enhancements proposed by the RE, they should vote against LIM’s resolution.
“Unitholders have told us they want the fund to continue because it gives them rare exposure to the China A-share market. They also said they wanted it to remain listed as they like the liquidity of AGF in its current structure,” Mr Tindall said.
“We therefore recommend that unitholders vote to continue the fund with its suite of enhancements, which are aimed at improving the performance of the fund and making it more cost-effective.
“If investors tell us they want to wind up the fund, we will do so and will continue to act in their best interests to get their funds back to them as quickly as possible.
“However, that may take some time due to the challenges associated with repatriating cash from China.
“Based on current information, which includes independent tax advice and our own past experience repatriating money from China, we estimate that it could take between nine and 18 months before all proceeds could be distributed to unitholders on a wind-up,” he said.
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