Recommended Proposals re the future of the Company

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

 

6 April 2018

 

Aseana Properties Limited

("Aseana" or the "Company")

 

Recommended Proposals regarding the future of the Company

Posting of Circular and Notice of General Meeting

 

 

Aseana Properties Limited (LSE: ASPL), a property developer in Malaysia and Vietnam, listed on the Main Market of the London Stock Exchange, announces that it has today posted to the Company's shareholders ("Shareholders") a circular (the "Circular") putting forward recommended Proposals regarding the future of the Company, including an amendment to the Management Agreement, to be considered at a General Meeting.

 

The General Meeting will be held at 12 Castle Street, St. Helier, Jersey, JE2 3RT, Channel Islands on Monday, 23 April 2018 at 10.30 a.m. BST.

 

The Circular will shortly be made available on the Company's website: http:// http://www.aseanaproperties.com/ and submitted to the National Storage Mechanism and will shortly be available for public inspection at http://www.morningstar.co.uk/uk/nsm. Capitalised terms used but not defined in this announcement have the meanings set out in the Circular. Further details of the recommended Proposals, extracted from the Circular, are set out below.

 

 

For further information:

 

Aseana Properties Limited		Tel: +603 6411 6388
Chan Chee Kian		Email: [email protected]
N+1 Singer		Tel: 020 7496 3000
James Maxwell / Liz Yong / James Moat (Corporate Finance)
Sam Greatrex (Sales)
Tavistock Communications		Tel: 020 7920 3150
Jeremy Carey / James Verstringhe		Email: [email protected]

Set out below is a reproduction, without material adjustment, of the key sections of the Chairman's letter to Shareholders which are contained within the Circular:

 

PROPOSALS REGARDING THE FUTURE OF THE COMPANY

 

1.     Introduction and background to the Proposals

When the Company was launched in 2007 the Board considered it desirable that Shareholders should have an opportunity to review the future of the Company at appropriate intervals. Accordingly, at the 2015 AGM, held on 22 June 2015, the Board put forward a resolution to Shareholders to determine if the Company should continue in existence. Shareholders voted for the Company to continue in existence, at the same time as approving the adoption of a divestment investment policy to enable the controlled, orderly and timely realisation of the Company's assets, with the objective of achieving a balance between periodically returning cash to Shareholders and maximising the realisation value of the Company's investments (the "Divestment Investment Policy"). Pursuant to the Divestment Investment Policy, the Company committed to dispose of all of its assets by June 2018, ahead of the annual general meeting of the Company to be held in 2018 (the "2018 AGM"), at which, pursuant to the Existing Articles, the Board is required to propose a discontinuation resolution for the Company to cease trading as presently constituted (the "2018 Discontinuation Resolution").

 

Whilst significant progress has been made in realising the Company's assets in an orderly manner and paying down project debts since the Divestment Investment Policy was adopted, not all of the Company's assets have yet been realised. Although discussions are ongoing in relation to the realisation of the Company's remaining assets, the Board cannot be certain that these discussions will successfully conclude by June 2018 and therefore ahead of the 2018 AGM and the 2018 Discontinuation Resolution.

 

Since the Divestment Investment Policy was adopted the Company has been unable to return capital to Shareholders to the extent indicated in the circular to Shareholders dated 22 May 2015. The lenders behind the Company's existing facilities are required to approve certain distributions of capital by the Company, however they have been unwilling to give their approval for further distributions. The last distribution of capital made by the Company was pursuant to a tender offer on 10 January 2017.

 

The Board remains of the view that ceasing to trade and placing the Company into liquidation would have a significant adverse effect upon Shareholder value and, whilst the Board is obliged to put forward the 2018 Discontinuation Resolution in accordance with the Existing Articles, it does not consider that such a resolution is in the best interests of Shareholders.

 

In light of this, and as announced on 24 November 2017, the Board, together with N+1 Singer and the Manager, undertook a consultation with certain Shareholders to establish whether there are suitable alternative proposals that may be put forward to better serve the interests of, and maximise the value of returns to, Shareholders.

 

This document sets out a summary of the feedback from the consultation process and details of the Proposals (defined and more fully described in section 3 below), together with considerations that Shareholders should take into account in determining how to vote on the Resolutions to be proposed at the General Meeting. A schedule of the expected timeline of disposals of the Company's remaining assets is set out in section 4 below.

 

2.     Feedback from the Shareholder consultation process

In response to the Board's stated intention to identify alternative proposals to proposing the 2018 Discontinuation Resolution at the 2018 AGM, the Board, together with N+1 Singer and the Manager, undertook a consultation with certain Shareholders to establish whether there are suitable alternative proposals that may be put forward to better serve the interests of, and maximise the value of returns to, Shareholders. Key findings from the consultation are summarised below:

 

·      Proposed date for a discontinuation resolution: there was support for the Company to continue trading as presently constituted for between 1 - 2 years prior to the next discontinuation resolution being proposed and, overall, the majority of Shareholders consulted indicated that a period of less than two years until the next discontinuation resolution would be appropriate;

·      Revised fee structure for the Manager: a number of Shareholders indicated that they wish to see the remuneration structure of the Manager re-negotiated so as to: (i) reduce the fixed management fee payable by the Company to the Manager; and (ii) introduce a variable fee that will incentivise the Manager to maximise sales proceeds and achieve the expected disposal schedule (set out in section 4 below) regarding the realisation of the Company's remaining assets; and

·      Reducing the ongoing costs of the Company: a number of Shareholders indicated that they wish to see a reduction in the costs incurred by the Company which would include a reduction in the size of the Board so as to increase Board efficiency and bring the Board size in line with the size and nature of the Company.

 

3.     The Proposals

Further to the Shareholder consultation process, the Board is proposing to:

 

·      amend the Existing Articles to remove the requirement to propose the 2018 Discontinuation Resolution at the 2018 AGM and instead require the 2018 Discontinuation Resolution to be proposed at the earlier, forthcoming General Meeting (notice of which is contained at the back of this document), with a further discontinuation resolution to be proposed at a general meeting of the Company in December 2019;

·      propose the 2018 Discontinuation Resolution at the forthcoming General Meeting (notice of which is contained at the back of this document); and

·      amend the Management Agreement to adopt a revised fee structure between the Company and the Manager that would seek to better align the Manager's interests with those of Shareholders by incentivising the Manager to maximise sales proceeds and achieve the current disposal schedule regarding the realisation of the Company's remaining assets,

(together, the "Proposals").

 

3.1   Amendment to the Existing Articles

The Existing Articles require the Board to propose the 2018 Discontinuation Resolution at the 2018 AGM and, in the event that the 2018 Discontinuation Resolution is not passed, at every third annual general meeting thereafter.

 

In the event that the 2018 Discontinuation Resolution is rejected or irrevocable commitments from a sufficient number of Shareholders to reject the 2018 Discontinuation Resolution have been received, the Directors will need to determine on what basis the Company's accounts for the financial year ended 31 December 2017 (the "2017 Financial Statements") are prepared. This may mean that the 2017 Financial Statements may be prepared on a "break-up" basis or that it may not be possible to obtain an unqualified, clean audit report should the accounts be prepared on a "going concern" basis. This could trigger an event of default under the lending covenants of certain of the Company's existing facility arrangements, requiring the immediate repayment of those loans. This would force the Company to enter into liquidation, due to having insufficient liquid assets to repay the facilities immediately and could lead to the Company's remaining assets being disposed of at significantly depressed prices.

 

As it would be necessary to finalise the 2017 Financial Statements before 30 April 2018 and before the time of convening the 2018 AGM, at which the 2018 Discontinuation Resolution would be proposed, it would have been necessary for the Board to seek irrevocable commitments from a necessary majority of Shareholders to vote against the 2018 Discontinuation Resolution well in advance of the 2018 AGM. The Board did not consider it to be in Shareholders' interests to request such irrevocable undertakings so early in the 2018 AGM process especially as it might have meant that Shareholders providing such irrevocable undertakings would be deemed to hold inside information relating to the Company under MAR and would, therefore, have been unable to deal in their Shares for a period of time.

 

Therefore, having taken into account recent Shareholder feedback, as summarised above, it is proposed that the Existing Articles be amended such that the 2018 Discontinuation Resolution is brought forward to be proposed at an earlier General Meeting (notice of which is contained at the back of this document) and that, in the event that the 2018 Discontinuation Resolution proposed at the General Meeting is not passed, a further such discontinuation resolution be proposed at a general meeting of the Company in December 2019. For so long as the Management Agreement has not been terminated neither the Manager nor any member of the Ireka Group nor any of their respective directors, officers, agents or employees (including for the avoidance of doubt, Legacy Essence Limited) shall exercise votes attached to the Shares held by any of them at the time of the discontinuation vote in December 2019.

 

The Existing Articles and the Amended Articles (together with a comparison document showing the changes between the two) are available for inspection on the Company's website at www.aseanaproperties.com and during normal business hours on any weekday (public holidays excepted) at the registered office of the Company at 12 Castle Street, St. Helier, Jersey JE2 3RT, and will also be available for inspection at the General Meeting and for at least 15 minutes prior to the General Meeting.

 

Resolution 1, proposing the amendment to the Existing Articles, will be proposed as a special resolution. The Directors are unanimously recommending that Shareholders vote FOR Resolution 1. Assuming Resolution 1 is passed, any consequential, non-material amendments required to the Divestment Investment Policy to reflect the change to the timing of the further discontinuation resolution to be proposed at a general meeting of the Company in December 2019 will be made.

 

3.2   2018 Discontinuation Resolution

Notwithstanding the obligation on the Board to propose the 2018 Discontinuation Resolution pursuant to the Existing Articles, the Board firmly believes that ceasing to trade and placing the Company into liquidation (which would be the result of passing the 2018 Discontinuation Resolution) would have a significant adverse impact on Shareholder value. The Company has been advised that, in the event that the 2018 Discontinuation Resolution is passed, an event of default under the lending covenants of certain of the Company's facility arrangements would be triggered. In addition, if the Company prepares the 2017 Financial Statements on a "break up" basis or it is not possible to obtain an unqualified, clean audit report should the 2017 Financial Statements be prepared on a "going concern" basis this could also trigger an event of default under certain of the Company's facility arrangements. If an event of default is triggered the loans will become immediately repayable and this would force the Company to enter into liquidation, due to having insufficient liquid assets to repay the facilities immediately, and could lead to the Company's remaining assets being disposed of at significantly depressed prices.

 

The proposal of the 2018 Discontinuation Resolution at the General Meeting (as Resolution 2) is conditional on the passing of Resolution 1. The Directors are unanimously recommending that Shareholders vote AGAINST the 2018 Discontinuation Resolution. This will allow the Company and the Manager to continue to pursue the Divestment Investment Policy, rather than placing the Company into liquidation or seeking a "fire sale" of the portfolio at potentially significantly depressed prices.

 

If the 2018 Discontinuation Resolution is rejected the Company will proceed with the realisation of the Company's remaining assets and the distribution of capital to Shareholders. The Manager intends to use the proceeds from the disposal of the Company's remaining assets to repay all external debt as quickly as possible, which would accelerate the recommencement of capital distributions to Shareholders.

 

Resolution 2, the 2018 Discontinuation Resolution, will be proposed as an ordinary resolution.

 

3.3   Changes to the Management Agreement to amend the fee structure between the Company and the Manager

Under the Management Agreement, the Manager is currently entitled to a management fee equal to 2 per cent. per annum of net asset value, calculated on the last business day of June and December in each calendar year and payable quarterly in advance. In addition, the Manager would be entitled to a performance fee based on net asset value per Share performance over a hurdle rate, being 10 per cent. per annum compounded annually, although no performance fee has been paid to the Manager since the Company's launch.

 

The Directors do not believe that the current fee arrangements under the Management Agreement operate to the benefit of the Company whilst it continues to pursue its Divestment Investment Policy. Accordingly, the Company has agreed with the Manager that the Management Agreement be amended to remove the current fee structure in its entirety and replace it with the following revised fee arrangements, with effect from 1 May 2018, and conditional on (i) Resolution 1 being passed and (ii) Resolution 2 failing, at the General Meeting:

 

·      a base fee payable to the Manager equal to US$75,000 per month, payable in advance, in respect of the period to 30 April 2019, following which the base fee payable to the Manager shall reduce to US$50,000 per month, again payable in advance;

·      a realisation fee equal to 1 per cent. of the Net Disposal Proceeds of each of the Company's remaining assets (or any part thereof, whether that be an individual unit or a part share only of the Company's interest in a property) provided that the Company has entered into a legally binding sale agreement within 3 months of the end of the relevant quarter specified in the disposal schedule set out at section 4 below. The realisation fee would only be payable by the Company upon receipt of the full sale proceeds pursuant to the sale agreement.

·      If a legally binding sale agreement is not entered into in respect of an asset (or any part thereof) within 3 months of the end of the quarter specified in the disposal schedule at section 4 below, the Manager shall receive no realisation fee in respect of that asset (or part asset). However, if the proposed buyer fails to complete in respect of a sale agreement, in respect of which the Manager would otherwise be entitled to a realisation fee, and the proposed buyer has paid a non-refundable deposit on entry into such sale agreement, the Manager would be entitled to a realisation fee equal to 1 per cent. of such non-refundable deposit; and

·      an incentive fee payable upon receipt of all sale proceeds from the disposal of the Company's remaining assets. Any incentive fee shall be based upon a comparison of:

·      Aggregate Net Disposal Proceeds (meaning the aggregate of all Net Disposal Proceeds from the sale of all remaining assets of the Company less any realisation fees paid to the Manager); and

·      the Aggregate RNAV (meaning the aggregate of the RNAVs of all remaining assets of the Company as at 31 December 2017, being US$176,774,331).

 

Aggregate Net Disposal Proceeds as a proportion of Aggregate RNAV	Incentive fee payable to the Manager
Less than 90%	No incentive fee payable
Between 90% and 100%	1% of Aggregate Net Disposal Proceeds
Greater than 100%	a)    1% of Aggregate Net Disposal Proceeds up to 100% of Aggregate RNAV; plus b)    20% of any Aggregate Net Disposal Proceeds in excess of 100% of Aggregate RNAV.

 

The Directors believe that the revised fee structure will align the Manager's interests with those of Shareholders by incentivising the Manager to maximise sales proceeds and achieve the current disposal schedule regarding the realisation of the Company's remaining assets.

 

As required pursuant to the Company's related party transaction policy adopted at IPO, the amendments to the Management Agreement have been approved by a majority of the independent Directors, with the independent directors unanimously approving the amendments (with only Ms Mahomed abstaining from voting as she is a representative of Legacy Essence Limited and so is a non-independent, non-executive director of the Company) and N+1 Singer has provided a fairness opinion addressed to the Board in respect of the proposed changes.

 

The revised fee structure described above will only be adopted conditional on Shareholders approving Resolution 1 and voting against the 2018 Discontinuation Resolution.

 

4.     Realisation of the Company's remaining assets

On 24 January 2018 the Company announced the publication of a Shareholder consultation presentation in which the Company set out the Manager's expected disposal schedule for the Company's remaining assets. That schedule is copied below. There have been no material changes to the expected disposal dates since the announcement made on 24 January 2018.

 

Name of asset	Expected disposal date
SENI Mont' Kiara	Q2 2018
City International Hospital	Q2 2018
Seafront Resort and Residential Development, Kota Kinabalu, Sabah	Q2 2018
Harbour Mall Sandakan	Q4 2018
International Healthcare Park	Q2 2019
The RuMa Hotel and Residences	Q4 2019
Four Points by Sheraton Sandakan Hotel	Q1 2020

Assuming that the Proposals are approved by Shareholders at the General Meeting, the Manager will seek to achieve realisation of the Company's remaining assets in accordance with this schedule.

 

5.     Changes to the Board of Directors

In light of the feedback received from the Shareholder consultation process, the Board has reviewed its composition and it is proposed that David Harris, John Lynton Jones and Christopher Henry Lovell will step down from the Board at the 2018 AGM so as to reduce the Company's ongoing costs and bring the size of the Board in line with the objectives of the realisation process.

 

6.     Additional considerations

As a result of the Proposals, Shareholders should be aware of the following additional considerations:

 

·      There can be no guarantee that the result of implementing the Proposals will provide the returns or realise the capital sought by Shareholders. The Company's investments are illiquid. Accordingly, they may be disposed of at a discount to their current valuations. The eventual disposal price of the Company's remaining assets is unknown and it is possible that the Company may not be able to realise some investments at any value.

·      Returns of cash will be made at the Directors' sole discretion, as and when they deem that the Company has sufficient assets available to return cash to Shareholders, subject to applicable Jersey law. Shareholders will therefore have little certainty as to when their capital will be returned. Distributions pursuant to the orderly realisation programme are subject, amongst other things, to the Board being able to give the necessary certificate(s) of solvency required by Jersey law. Distributions under the orderly realisation programme are subject to the Board continuing to be satisfied, on reasonable grounds, that the Company will, at the time of distribution and for a period of 12 months thereafter, in respect of each distribution, continue to satisfy the statutory solvency test. Returns of cash may also in certain circumstances be subject, amongst other things, to the Company obtaining the consent of one or more lenders to the Group.

·      In the event that Resolution 1 is not passed, the Company will continue to operate in accordance with the Divestment Investment Policy, no changes to the fee structure between the Company and the Manager will be implemented and the 2018 Discontinuation Resolution will be proposed at the 2018 AGM (and at every third annual general meeting thereafter, in the event that the resolution is not passed). This may mean that the Company may decide to prepare the 2017 Financial Statements on a "break up" basis or that it may not be possible to obtain an unqualified, clean audit report should the 2017 Financial Statements be prepared on a "going concern" basis which could trigger an event of default on the existing facilities.

 

7.     General Meeting

The implementation of the Proposals is conditional on the outcome of the votes cast by Shareholders in connection with the Resolutions to be proposed at the General Meeting. A notice convening the General Meeting, which is to be held at 10.30 a.m. on 23 April 2018, is set out at the end of this document. The Directors are unanimously recommending that Shareholders vote FOR Resolution 1.

 

At the General Meeting, Resolution 1 (proposing the amendments to the Existing Articles) will be proposed as a special resolution and will require a vote in favour by Shareholders holding not less than two thirds of votes cast in order to be validly passed. Conditional upon the passing of Resolution 1, Resolution 2 (the 2018 Discontinuation Resolution) will be proposed as an ordinary resolution and will require a vote in favour by Shareholders holding a majority of the Shares represented at the General Meeting, either in person or by proxy, and voting on Resolution 2, to be validly passed. The Directors are unanimously recommending that Shareholders vote AGAINST Resolution 2.

 

8.     Irrevocable undertakings

Shareholders holding, in aggregate, 153,692,216 Shares as at the date of this document (representing 77.4 per cent. of the total voting rights of the Company and including Ireka Corporation Berhad and Legacy Essence Limited) have given their irrevocable undertaking to vote the Shares held in their name at the time of the General Meeting in favour of Resolution 1.

 

Shareholders holding, in aggregate, 69,259,954 Shares as at the date of this document (representing 60.6 per cent. of Shares held by persons entitled to vote on the 2018 Discontinuation Resolution and excluding Ireka Corporation Berhad and Legacy Essence Limited, who may not vote the Shares held in their names in respect of the 2018 Discontinuation Resolution) have given their irrevocable undertaking to vote the Shares held in their name at the time of the General Meeting against the 2018 Discontinuation Resolution to be proposed at the General Meeting.

 

9.     Directors' voting intentions and recommendation

The Directors consider that the Proposals are in the best interests of the Company and Shareholders as a whole. Accordingly, the Directors unanimously recommend that Shareholders vote (1) FOR Resolution 1 to be proposed at the General Meeting and (2) AGAINST Resolution 2 to be proposed at the General Meeting, as they intend to do in respect of their own beneficial holdings which amount, in aggregate, to 2,328,994 Shares representing 1.2 per cent. of the total voting rights of the Company.

 

The Directors have each given an irrevocable undertaking to vote the Shares held in their name at the time of the General Meeting in favour of Resolution 1 and against the 2018 Discontinuation Resolution (Resolution 2).