Shareholders vote for JPMorgan Russia mandate change
24th November 2022 11:35
by Sam Benstead from interactive investor
The trust will no longer just in invest in Russia following the suspension of Russian shares to foreign investors.
Shareholders of JPMorgan Russian Securities have voted to amend the investment mandate of the trust to include emerging Europe, the Middle East and Africa.
The trust will be renamed JPMorgan Emerging Europe, Middle East & Africa Securities, with the stock market ticker changing to JEMA as soon as possible.
The shareholder vote was relatively tight, with 61% of votes in favour of the amendment and 39% voting against. In total 10.3 million votes were cast, accounting for 25% of the shares.
In the build-up to the vote, an informal group of DIY investors banded together to oppose the mandate change.
They argued that the trust could be caught up in a flash sale of Russian assets when the Moscow Stock Exchange opens to foreign investors if it needs to reposition its portfolio to include stocks from other regions.
“This would result in the trust disposing of shares below intrinsic value due to a short-term supply/demand imbalance in the shares,” a spokesperson for the group told interactive investor.
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The group also suggested that the real net asset value of the portfolio is far greater than JPMorgan estimates and waiting until normal market conditions – and valuations – are restored would be the best investment approach for shareholders.
Another concern was that the trust may issue new shares and therefore dilute existing shareholders’ capital.
Nevertheless, the board achieved its goal of changing the mandate of the trust, which it says will allow the trust to resume investment and income generation.
Where 20% or more of votes cast at an investment trust vote are against a board recommendation, the trust is required by Provision 4 of the Association of Investment Companies (AIC) code of corporate governance to explain what action it will take to consult shareholders to understand the reasons behind the result.
The board said it had received a number of questions from shareholders regarding the proposals. These included concerns over the implementation of the new investment objective and whether new shares would be issued.
It also said that some shareholders were concerned the trust may undertake a “fire sale” of its Russian holdings if the Russian market reopened to the company.
In response, the board said there are currently no plans to issue shares or raise capital, even in the event that the current prohibitions on the trading of and receipt of dividends from Russian securities are lifted.
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It added that it was mindful of shareholders' pre-emption rights, which give existing shareholders the right to purchase new shares before they are offered to other investors, and its duty to “promote the success of the trust for the benefit of the members as a whole”.
The board said it will continue to engage with shareholders to understand their concerns and that an updated list of shareholders' questions and answers will be uploaded on to the trust’s website.
Eric Sanderson, chair of the trust, said: “As a board we condemn the actions of the Russian state in Ukraine and our thoughts are with the Ukrainian people. It is a tragedy for them. We will take the approval of today’s resolution to amend the company’s investment objective and policy as a step forward in attempting to avoid the crystallisation of current shareholders’ losses in the company of circa 95%.
“The widening of the trust’s investment objective is not a proposal that we would have made in normal trading conditions. However, with the situation for the company since Russia’s invasion of Ukraine on 28 February 2022 remaining unchanged and no one knowing where these tragic events will lead or what the future holds, today’s approval will at least provide an opportunity for the trust to resume investment and income generation.
“As previously stated, the board is conscious of existing shareholders’ pre-emption rights and concerns about possible dilution of their holdings following the widening of the investment objective and it is in that context that we will implement today’s mandate.”
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