Interactive Investor

Continuation votes put two more trusts’ futures in doubt

Investment trusts are under pressure as interest rates rise and discounts widen, writes Sam Benstead.

30th August 2023 11:34

by Sam Benstead from interactive investor

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Two struggling “alternative” investment trusts face an uncertain future as their boards push shareholders to vote for changes.

The first is ThomasLloyd Energy Impact, where 58% of shareholders voted against its continuation last week.

The trust, which is backed by the UK government, invests in renewable energy assets in Asia. In April, shares were suspended after it failed to publish its annual accounts on time due to issues at a solar farm in India.

In August, the board of the trust urged shareholders to vote against its continuation, saying the investment manager failed to raise issues with the board, which led it to carry out its own independent due diligence.

Following the vote, the board has four months to deliver proposals for the future of the trust. This will include proposals to relaunch the trust with a different investment manager.

Sue Inglis, chair of ThomasLloyd Energy Impact Trust, said: The board would like to thank shareholders for their support and giving the board a clear mandate for the way forward. In addition to completing the key workstreams required for lifting the share trading suspension, the board will also now develop proposals for the companys future, consulting and updating shareholders at key stages during this process.

Blackstone Loan Financing is the other investment trust facing an uncertain future. The private loan trust will ask shareholders to vote on the implementation of a managed wind-down, meaning that its assets will be liquidated and cash returned to shareholders.

The €256 million (£220 million) trust has delivered a total return of 46% to investors since launch in 2014. It trades on a 31% discount and yields around 14%.

The board said it took a number of factors into account when proposing the wind-down, including the discount to net asset value (NAV) and the size of the trust.

It adds: “The company's share price continues to trade at a discount to NAV per share, reinvestment into the Blackstone Corporate Funding DAC portfolio at NAV is not accretive to shareholders, and the ability to grow through further share issuance is limited.

“The board therefore determined that an orderly return of the net proceeds of the realisation of the company's investments on an available funds basis and subject to certain applicable regulatory and contractual constraints will be in the best interest of its shareholders as a whole.”

The board says that the wind-down could take seven years due to the illiquid nature of the assets that it owns. It unanimously recommends that shareholders vote in favour of the resolution.

It needs a majority vote from shareholders to go ahead with the wind-down, with the extraordinary general meeting to be held on 15 September 2023.

The continuation votes come as consolidation in the investment trust sector picks up. Wide discounts to NAV, caused in part by rising interest rates, which has affected the valuation of trust assets, is leading to mergers and takeovers.

Civitas Social Housing, a real estate investment trust, is being bought at a 27% to NAV. CT Property accepted an offer in the spring from LondonMetric Property (LSE:LMP), sending shares 26% higher after the bid was announced. Industrials REIT was bought by private equity group BlackStone at 42% premium to its share price.

abrdn New Dawn Ord (LSE:ABD), a £258 million market cap trust on a 16% discount, is set to merge into Asia Dragon Ord (LSE:DGN), a £419 million trust, also on a 16% discount.

We explain why investment trust consolidation is picking up here and highlight eight trusts that could be takeover targets here.

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