El Oro Ltd - Publication of Circular
Publication of Circular
On 30 November 2018, the Company announced that it had agreed heads of terms with the board of JPMorgan Elect plc (JPMorgan Elect) for JPMorgan Elect to provide a "rollover" option for the Company's shareholders (Shareholders). The Board of the Company (Board) is pleased to announce that a circular in connection with the Proposals and containing a notice of the Extraordinary General Meeting of the Company (the Circular) has been published today.
The Board is now putting forward proposals to Shareholders for the voluntary winding-up and reconstruction of the Company by way of a scheme of reconstruction (Scheme), whereby Eligible Shareholders will be given the opportunity to elect to rollover their Shares in the Company into one or more classes of JPMorgan Elect Securities and/or to receive cash pursuant to the Cash Option.
Shareholder approval is required under the provisions of the Companies Law and the articles of incorporation of the Company to implement parts of the Proposals which will involve reclassification of the Company's existing Shares to give effect to the Elections made or deemed to have been made by each Shareholder under the Scheme, the voluntary winding up of the Company and the appointment of the Liquidators.
Certain Shareholders (being members of the Parish family and connected persons) which, together, represent 55.8 per cent. of the Company's voting share capital, have undertaken to vote in favour of the Resolutions and have also undertaken to elect for the JPMorgan Elect Options under the Scheme in respect of 27,560,643 Shares in aggregate, representing 43.9 per cent. of the Company's issued share capital as at the Latest Practicable Date. These undertakings are conditional upon the Scheme not lapsing.
Under the Proposals, the Company will be wound up on 20 June 2019 by means of a members' voluntary liquidation pursuant to a scheme of reconstruction and Eligible Shareholders can choose to receive any combination of the following in respect of all or part of their holding of Shares in the Company:
· Managed Income Shares; and/or
· Managed Growth Shares; and/or
· Managed Cash Shares; and/or
All Eligible Shareholders are encouraged to make a valid Election. Eligible Shareholders who do not make valid Elections for the purposes of the Proposals will be deemed to have elected for the Managed Income Shares.
Restricted Shareholders will receive cash in respect of their entire holding of Shares unless they have satisfied the Directors and the JPMorgan Elect Directors that is it is lawful for JPMorgan Elect to issue JPMorgan Elect Securities to them under any relevant overseas laws and regulations.
Benefits of the Proposals
The Directors consider that the Proposals provide Eligible Shareholders with a greater choice than if the Company were simply to be wound up, since the Proposals enable Shareholders to (i) continue their investment exposure through a rollover into JPMorgan Elect Securities; (ii) receive cash; or (iii) receive a combination of cash and JPMorgan Elect Securities.
The Directors consider that the Proposals should also have the following benefits for Eligible Shareholders who chose to rollover their investment in the Company into JPMorgan Elect Securities:
· they will enable such Shareholders to retain market exposure through up to three classes of shares, the investment objectives of which the Board considers to be comparable to the Company's overall investment objective, and to continue to receive investment returns without triggering an immediate liability to capital gains tax; and
· they will enable such Shareholders to avoid dealing and other costs associated with a share purchase in the secondary market.
Conditions to the Scheme
The Scheme is conditional upon:
(i) the passing of all the Resolutions to be proposed at the Extraordinary General Meeting and all conditions to such Resolutions (excluding any condition relating to the passing of any other Resolution) being fulfilled;
(ii) the FCA having agreed to admit the JPMorgan Elect Securities which are to be issued under the Scheme to the premium segment of the Official List and the London Stock Exchange having agreed to admit such JPMorgan Elect Securities to trading on the London Stock Exchange's Main Market; and
(iii) the Directors not resolving to abandon the Scheme.
The Rollover Vehicle - JPMorgan Elect plc
JPMorgan Elect is an investment trust company whose shares are admitted to the premium segment of the Official List and to trading on the London Stock Exchange's Main Market. JPMorgan Elect has three share classes, Managed Income Shares, Managed Growth Shares and Managed Cash Shares, each with distinct investment policies, objectives and underlying investment portfolios. Each share class is listed separately and traded on the London Stock Exchange.
Shareholders in JPMorgan Elect may convert between each class of JPMorgan Elect Securities in February, May, August and November in each year without incurring a liability for capital gains tax. In addition, Managed Cash Shareholders may also elect to have their shares repurchased by JPMorgan Elect on each quarterly conversion date at a price close to the NAV at that time.
JPMorgan Elect employs JPMorgan Funds Limited (JPMF) as its Alternative Investment Fund Manager, which, in turn, delegates portfolio management to JPMorgan Asset Management (UK) Limited (JPMAM) to manage its assets actively. Both JPMF and JPMAM perform the same functions for the Company.
Details of each class of JPMorgan Elect Securities which are being offered under the Scheme are set out below (and further details are set in the Circular and the JPMorgan Elect Prospectus):
The objective of the Managed Income Shares portfolio is to achieve a growing income return with potential for long term capital growth by investing primarily in UK equities.
As at 22 May 2019 (being the latest practicable date prior to the publication of the JPMorgan Elect Prospectus), the unaudited value of the Managed Income Shares portfolio was approximately £74.1 million, the NAV per Managed Income Share (unaudited) was 109.7p and the market capitalisation of the Managed Income Shares was approximately £72.6 million.
Over the 12 months to 30 April 2019, the Managed Income Shares have traded between a discount of 1.02 per cent. and 2.85 per cent. (on a month end to month end basis).
There is no management fee on assets invested in JPMorgan managed funds. The management fee is 0.6 per cent per annum on assets invested in non-JPMorgan managed funds and direct investments. Investments in JPMorgan's retail open-ended pooled funds qualify for a partial rebate of the underlying fee. As at 28 February 2019 (being JPMorgan Elect's half year end), the ongoing charges for the Managed Income Shares class were 0.83 per cent. calculated in accordance with guidance issued by the Association of Investment Companies.
The objective of the Managed Growth Shares portfolio is to achieve long term capital growth from investing in a range of investment trusts and open-ended funds managed principally by JPMAM.
As at 22 May 2019 (being the latest practicable date prior to the publication of the JPMorgan Elect Prospectus), the unaudited value of the Managed Growth Shares portfolio was approximately £267.2 million, the NAV per Managed Growth Share (unaudited) was 854.9p and the market capitalisation of the Managed Growth Shares was approximately £258.6 million.
Over the 12 months to 30 April 2019, the Managed Growth Shares have traded between a discount of 1.95 per cent. and 3.74 per cent. (on a month end to month end basis).
The management fee is 0.3 per cent per annum on assets invested in JPMorgan managed funds and 0.6 per cent per annum on assets invested in non- JPMorgan managed funds and direct investments. Investments in JPMorgan's retail open-ended pooled funds qualify for a partial rebate of the underlying fee which is paid back to JPMorgan Elect. As at 28 February 2019 (being JPMorgan Elect's half year end), the ongoing charges for the Managed Growth Shares class were 0.58 per cent. calculated in accordance with guidance issued by the Association of Investment Companies.
The objective of the Managed Cash Shares portfolio is to achieve a return in excess of sterling money markets by investing primarily in GBP denominated short-term debt securities. Exposure is obtained via an investment in the JPMorgan Funds - Sterling Managed Reserves Fund (JSMRF), an existing UCITS fund launched on 22 August 2016.
As at 22 May 2019 (being the latest practicable date prior to the publication of the JPMorgan Elect Prospectus), the unaudited value of the Managed Cash Shares portfolio was approximately £7.0 million, the NAV per Managed Cash Share (unaudited) was 102.8p and the market capitalisation of the Managed Cash Shares was approximately £6.9 million.
Since 15 February 2019 to 30 April 2019, the Managed Cash Shares have traded between a discount of 1.37 per cent. and 1.66 per cent. (on a month end to end basis).
No management fee is charged for the management of the Managed Cash Share portfolio. As at 28 February 2019 (being JPMorgan Elect's half year end), the ongoing charges for the Managed Cash Shares class were 0.02 per cent. calculated in accordance with guidance issued by the Association of Investment Companies.
Costs of the Proposals
The costs of the Proposals (including all advisers' fees, printing and other ancillary costs of the Proposals but excluding stamp duty incurred on the in specie transfer of any assets from the Company to JPMorgan Elect pursuant to the Transfer Agreement) are expected to be approximately £500,000. The stamp duty will be paid by the enlarged JPMorgan Elect and spread across the existing shareholders of JPMorgan Elect and the Company's Shareholders electing to roll over.
JPMF has agreed that it will meet the additional costs to be incurred by the Company, above those of a simple liquidation, as a result of the carrying out of the Scheme. JPMF has agreed to contribute towards the excess costs pro rata to the amount rolling over into JPMorgan Elect. Therefore, the costs to be borne by the Company will be the amount which would have been incurred had the Company simply been placed into liquidation plus additional costs associated with Shareholders that elect (or are deemed to elect) for the Cash Option rather than any of the JPMorgan Elect Options.
Those Shareholders who chose to receive JPMorgan Elect Securities for some or all of their investment will also incur costs equal to the issue premium (the Issue Premium) applicable to the relevant JPMorgan Elect Securities. This Issue Premium is intended to defray the costs which will be incurred by JPMorgan Elect in respect of its participation in the Scheme.
The level of the Issue Premium will depend on the value of the assets to be transferred to JPMorgan Elect under the Scheme. If the value of these assets is less than £40 million then the Issue Premium will be set at 1.0 per cent. However, if their value exceeds £40 million, the Issue Premium will reduce on a straight line basis such that if their value equals £50 million (or more) then the Issue Premium will be set at 0.65 per cent.
Liquidation of the UK Subsidiaries
In anticipation of the Company's voluntary winding-up, whether in connection with the implementation of the Scheme or otherwise, the Company is in the process of liquidating El Oro and Exploration Company Limited (ELEX) and Investigations & Management Limited (I&ML), its two active UK subsidiaries; I&ML is a direct subsidiary of ELEX which in turn is a direct subsidiary of the Company.
Whilst it is expected that all or substantially all of the assets of the UK Subsidiaries will have been realised and distributed to the Company prior to the Scheme Effective Date, the statutory notice period in which creditors can inform the UK Liquidators of any claims which they may have against either of the UK Subsidiaries will only expire shortly before the Scheme Effective Date. Accordingly, if any creditor claims are received by the UK Liquidators in connection with the liquidation of the UK Subsidiaries prior to the Scheme Effective Date, an appropriate retention will need to be made by the UK Liquidators to settle such claims. This may reduce the assets distributed by the UK Subsidiaries to the Company and/or increase the amount that will be allocated to the Liquidation Fund which would reduce the Company's Residual Value for the purposes of the Scheme.
Furthermore, Shareholders should note the Liquidators of the Company will not be able to close the liquidation of the Company until the liquidations of both the UK Subsidiaries have been completed and this may delay any final distribution to Shareholders made by the Liquidators from the Liquidation Fund referred to below. If there are any unforeseen delays in closing the liquidations of the UK Subsidiaries that are outside the control of the UK Liquidators (for example, tax clearances from HMRC taking more time to receive than expected), this may also impact on the costs incurred by both the UK Liquidators in respect of the UK Subsidiaries and by the Liquidators in respect of the Company.
In addition to liquidating the UK Subsidiaries, applications are being made to strike-off each of the Company's dormant subsidiaries (being El Oro Mining and Exploration Company Limited, Group Traders Limited and General Explorations Limited).
Before any assets are transferred to JPMorgan Elect under the Scheme or set aside to pay Shareholders who have elected for cash, the Liquidators will retain cash and other assets in a liquidation fund (the Liquidation Fund) in an amount which they consider sufficient to provide for all liabilities of the Company (including tax and contingent liabilities and an amount for unknown and unascertained liabilities of the Company), as well as contingent liabilities for the UK Subsidiaries that are not fully provided for by the UK Liquidators. The retention in respect of unknown and unascertained liabilities is currently expected to be £1,000,000. However, if contracts for the sale of 41 Cheval Place have not been exchanged prior to the commencement of the liquidation of ELEX, the amount of the retention is likely to be higher and will be determined at the Calculation Date.
The Company's investment portfolio includes a number of illiquid and impaired assets, principally comprising shares and other securities in approximately 5 illiquid quoted and 27 unquoted private companies, which are not suitable for transfer to JPMorgan Elect pursuant to the Scheme and which it is not expected will be capable of being fully realised by the Company prior to the Scheme Effective Date (the Illiquid Assets). As at the Latest Practicable Date, the aggregate value attributed by the Company to the Illiquid Assets was approximately £2.6 million.
In accordance with the Scheme, to the extent that the Illiquid Assets have not been realised prior to the Calculation Date, the Illiquid Assets will be retained in the Liquidation Fund and will not be taken into account for the purposes of calculating the Residual Value and the Residual Value per Share for the purposes of the Scheme. To the extent the Illiquid Assets are subsequently realised by the Liquidators, the net proceeds from the sale of such assets (if any), after all liabilities of the Company have been satisfied, shall be paid in cash to Reclassified Shareholders who are on the Company's register of members at the close of business on the Scheme Effective Date on a pari passu basis pro rata to their respective holdings of the Shares, prior to the reclassification of the Shares, provided that if any such amount otherwise payable to a Shareholder is less than £5.00, it will not be paid to such Shareholder but will be transferred by the Liquidators to the Nominated Charity.
In the event that the Liquidators have been unable to realise all or any of the Illiquid Assets within 12 months from the date of their appointment or, if sooner, once the remaining Illiquid Assets are valued at less than £100,000, the Liquidators intend to offer any remaining Illiquid Assets for sale by way of auction. There can be no assurance the value realised from such sale will reflect the aggregate value attributed to such Illiquid Assets as set out above, or such sale will result in any, or any further, distributions to Reclassified Shareholders from the Liquidation Fund.
In addition to the Illiquid Assets described above, ELEX currently owns the freehold property 41 Cheval Place, London SW7 1EW. Contracts for the sale of 41 Cheval Place for £2.3 million were signed on 16 May 2019. It is intended that the net proceeds of the expected sale of 41 Cheval Place will be distributed to the Company upon receipt and will be taken into account when calculating the Company's Residual Value and the Residual Value per Share for the purposes of the Scheme. In the event that the net proceeds of the sale of 41 Cheval Place are not received by ELEX and distributed to the Company prior 5.00 p.m. on 18 June 2019 (being the expected Calculation Date), the Company may postpone the Calculation Date to such later date and time as it may determine falling as soon as reasonably practicable following such receipt so as to ensure that the Residual Value and the Residual Value per Share takes into account the net proceeds realised from the sale of 41 Cheval Place, provided, however, that the Company will not postpone the Calculation Date beyond 5 July 2019. If the proceeds from the expected sale have not been received on or prior to 5 July 2019 they will not be taken into account for the purposes of calculating the Residual Value and the Residual Value per Share for the purposes of the Scheme, and instead would, after all liabilities of the Company have been satisfied, be paid in cash to Reclassified Shareholders who are on the Company's register of members at the close of business on the Scheme Effective Date on a pari passu basis pro rata to their respective holdings of the Shares, prior to the reclassification of the Shares, provided that if any such amount otherwise payable to a Shareholder is less than £5.00, it will not be paid to such Shareholder but will be transferred by the Liquidators to the Nominated Charity.
Extraordinary General Meeting
As described above, the Proposals are conditional, inter alia, on the approval of Shareholders which is being sought at the Extraordinary General Meeting.
At the Extraordinary General Meeting resolutions will be proposed which, if passed, will:
· reclassify the Shares to reflect the Elections made or deemed to have been made under the Scheme;
· authorise the implementation of the Scheme by the Liquidators;
· amend the Articles of Incorporation the Company for the purposes of implementing the Scheme; and
· appoint the Liquidators and place the Company into liquidation.
Resolutions 1, 2 and 3 will be proposed as special resolutions and Resolution 4 will be proposed as an extraordinary resolution.
* In the event that the proceeds from the expected sale of 41 Cheval Place have not been received by 5.00 p.m. on 18 June 2019, the Calculation Date shall be such later time and date as shall be determined by the Company falling as soon as reasonably practicable following such receipt (but not later than 5.00 p.m. on 5 July 2019) and in such circumstances the Scheme Effective Date and the Transfer Date would be expected to occur on the third Business Day following the postponed Calculation Date and the date of Admission would be expected to fall on the fourth Business Day following the Calculation Date.
Without limiting the note set out above, each of the times and dates in the expected timetable may (where permitted by law) be extended or brought forward without further notice. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notified to Shareholders through a Regulatory Information Service.
In this announcement, where the context requires, references to 20 May 2019 should be treated as being references to the latest practicable date prior to the publication of this document (the Latest Practicable Date).