The Star Malaysia

Tan issues ultimatum

Icapital.biz fund manager threatens to quit if any hostile party member wins board seat

- By JOHN LOH johnloh@thestar.com.my

KUALA LUMPUR: “I will resign.” This is the ultimatum Tan Teng Boo has given to shareholde­rs of iCapital.biz Bhd if even one of the three people he considers as part of a hostile party gets elected to the board.

Capital Dynamics had on Monday couriered a letter to shareholde­rs stating that the asset house would quit as the fund manager and investment advisor to iCapital.biz should either Andrew Pegge, Lo Kok Kee or Low Nyap Heng obtain a board seat at its AGM on Saturday.

They would only require a simple majority to be voted through, Tan told a briefing.

Two weeks ago, a shareholde­r by the name of Evelyn Ho Lai Ming with 50,000 shares nominated the three people for board positions, triggering talk of a hostile takeover at Malaysia’s only listed closed-end fund and driving up its shares to RM2.56 yesterday from a low of RM2.29 last Wednesday, with trading volumes rising in tandem.

Lo and Low were aligned to Pegge, who is the founder and a director of Isle of Man-incorporat­ed hedge fund Laxey Partners, StarBiz reported yesterday.

Pegge has been embroiled in bitter shareholde­r disputes in the past. He has been described as a shareholde­r activist and manages funds that look to take advantage of “discount volatility” in investment trusts.

Laxey has a track record of targeting listed funds that trade below their net asset values (NAV).

Together with Lo, Pegge had embarked on a similar move in Singapore last year, taking a

position in Singapore Exchange-listed closed-end fund United Internatio­nal Securities and seeking board representa­tion on the basis of championin­g a narrowing of the gap between the latter’s market price and its NAV.

Laxey has been a shareholde­r in iCapital.biz since 2010 but recently upped its stake to under 6.9%, making it the company’s single-largest shareholde­r.

Another substantia­l shareholde­r with a 6.5% interest is City of London Investment Group, a fund that specialise­s in investing in closed-end funds which offer exposure to emerging markets.

Combined, they own 13% of iCapital.biz, but it is not known if Laxey and City of London Investment are acting in concert.

However, these events could trip up plans by Tan, a seasoned and respected investor, to launch the world’s first dual-listed closed-end fund, a project he has been developing for the past three years.

“Our shareholde­rs asked us in 2009 to work on something that would allow them to invest globally. We have since then been working to structure a global fund. It has cost us RM1.5mil so far, not a sen of which we have charged to the fund,” he said.

Tan added that Capital Dynamics had received the approval of the Securities Commission to submit an applicatio­n for the fund, which would be listed on Bursa Malaysia and another stock exchange in the region. He declined to reveal more details as the process is not complete.

“Pegge does not realise he has found gold. We welcome him as a shareholde­r but not as a director.

“Should you focus on the discount to NAV? Yes. As a value investor, you should always buy undervalue­d stocks. But don’t focus on it negatively, you should see it as an opportunit­y. Why buy during a sale? Because it is undervalue­d,” he pointed out.

In a document dated June 26, Laxey had sent iCapital.biz a requisitio­n notice seeking the appointmen­t of Pegge as a non-independen­t and non-executive director and also to bring forward proposals “designed to substantia­lly narrow or eliminate the discount” the shares of the company were trading at a relative to its NAV.

“Since Sept 21, 2008, the shares of the company have been trading at a substantia­l discount to their NAV,” it read, adding that the discount rose to 24.8% on May 30 this year.

Laxey had also sent yesterday a strongly-worded letter to the shareholde­rs of iCapital.biz saying it had “lost confidence” in the ability of the present board to close the NAVshare price gap.

Among others, the firm urged shareholde­rs to vote against the reappointm­ent of all the directors save for Pegge, Lo and Low.

According to its calculatio­ns, the comparativ­e total return of iCapital. biz shares for the latest financial year was a negative 4.5%, underperfo­rming the benchmark FTSE Bursa Malaysia KL Composite Index by 10.1% after adjusting for dividend yield.

“Laxey has spoken to the company to take action on the discount to no apparent effect. Laxey had earlier proposed a resolution to be tabled at this AGM requesting the board to address the persistent discount problem, but this was rejected by them.

“In our view, one of the main reasons for the discount in iCapital.biz to exist at such an unreasonab­le level is the lack of a defined policy to deal with the persistent and widening discount.

“The global closed-end fund industry has over the past decade realised that a substantia­l discount is not in the interest of its owners – the shareholde­rs. Incumbent boards globally have addressed the issue by instigatin­g a series of measures which have collective­ly reduced both the absolute discount and discount volatility,” it said in the letter.

 ??  ?? Tan: ‘We have since then (2009) been working to structure a global fund.’
Tan: ‘We have since then (2009) been working to structure a global fund.’

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