27th Jan 2010 11:01
The Ottoman Fund Limited
27 January 2010
The Ottoman Fund Limited
EGM to Approve Restructuring Proposals
The Ottoman Fund Limited the ("Company") has today published a circular setting out restructuring proposals whereby the Company will terminate the manager, internalize Company management, and retain a new investment advisor. The Board's objectives in seeking shareholder approval for these proposals are to reduce operating costs and ultimately increase shareholder value.
Summary of the Proposals
The Company will internalize the management of Company assets by terminating the existing management agreement and assuming responsibility at the Board level for Company management. This new structure once approved will result in immediate and substantial savings through the elimination of "management" fees and the implementation of incentive based compensation;
The Company will adopt a new investment policy emphasizing a managed realization of asset value with shareholder returns delivered through returns of capital and any new investment expenditures restricted to existing assets and only where there is a clear prospect of increasing shareholder value;
The Company will retain Civitas as an advisor to the Board with a mandate and incentive structure that focus on returning value to shareholders by way of a return of capital through asset realizations. The Board selected Civitas after an extensive search and believes that Civitas's personnel are best placed to advise the Board in connection with the disposal of Company assets and other matters. Civitas' compensation will primarily be based on realizations, rather than as a percentage of assets under management or other compensation structure irrelevant to shareholder returns;
The Company's Articles of Association will be amended where necessary to facilitate these proposals;
The Company will be reclassified as a Listed Fund under Jersey law;
When implemented, these proposals will result in a significant financial saving for the Company
The proposals are conditional on shareholder approval at an extraordinary general meeting. A circular setting out the details of the proposals and incorporating a notice convening an extraordinary general meeting will be posted to shareholders today. The circular and form of proxy will also be available on the Company's website.
John D. Chapman, Chairman of the Ottoman Fund commented: "After a lengthy process involving changes to our Board, regulatory approvals, and the selection of a new advisor, we have completed the structural changes at the Board level and regulatory approvals prerequisite to internalizing Company management. We now have in place a Board that includes representatives of several major shareholders and an advisor with the requisite expertise and incentive structure to create shareholder value. Our objective is the monetization of the Company's portfolio, and we have consequently announced the distribution of a substantial portion of the Company's excess cash. Notwithstanding this distribution, our capital structure remains robust with no debt and no foreseeable need to raise cash. We hope and expect that the implementation of the proposals outlined above will result in an efficient and cost effective structure for the realization of shareholder value though assets sales - but only at prices that reflect the full and fair value of our assets."
Enquiries:
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Singer Capital Markets Limited Roger Clarke Jos Trusted |
+44 (0)20 3205 7500 |
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Herald Fund Services Michael Capraro |
+44 (0)1534 610 610 |
The following information has been extracted without material adjustment from the Circular.
1. Background
The Board announced on 1 November 2007, that the Company intended to realise its assets in a managed way over the following 18 to 24 months, returning proceeds to Shareholders. The Board instructed the Manager to proceed with this realisation strategy and on 2 July 2008, the Company announced that the Company had given notice to the Manager to terminate the Management Agreement with effect from 31 December 2008. The Management Agreement has been extended since then on a month to month basis at a reduced fee.
Whilst units in the Alanya development have been sold since 31 December 2008, the bulk of the Company's assets are unsold.
Following the Manager's termination, the Board considered a number of alternatives and interviewed numerous companies and individuals. Following the completion of this search, the Board chose to appoint Civitas to advise the board in connection with the NIAA Assets (Company assets other than Kazikili) of the Company.
The Board has experience in Turkish assets and property investments. To the extent additional expertise is required, the Board will rely on Civitas in relation to the NIAA Assets.
The Company entered into a New Investment Advisory Agreement with the New Investment Adviser on 2 December 2009. The Manager is not a party to the New Investment Advisory Agreement.
The New Investment Adviser was appointed by the Company initially to work with the Board to conduct a review of the NIAA Assets. The New Investment Adviser has not been engaged by the Company to work with the Board to conduct a review of Kazikli. If the Internalisation is implemented, the New Investment Adviser will have a larger role as described in paragraph 4 of Part III of this Circular.
On 22 January 2010, the Company received JFSC approval to internalise its management and reclassify as a Listed Fund, subject to the approval of the Shareholders.
2. The Proposed Restructuring
It is proposed that the Company internalises its management by terminating the Management Agreement and taking over the majority of the day to day management of the Company. The remainder of the management role (essentially, a duty to monitor the investment management activities of the Directors) will be undertaken by the Administrator.
The internalisation will result in consequential savings on operating costs for the Company, but the implementation of the restructuring is driven, in part, by compliance with the Listed Funds Guide and the requirements of the JFSC. The Company will need to reclassify from being an unclassified collective investment fund pursuant to the CIF Law, to a "Listed Fund", which is an unclassified collective investment fund in accordance with the Listed Fund Guide. The Internalisation is conditional upon Shareholder approval and the issue to the Company by the JFSC of a certificate in accordance with the Listed Fund Guide and the CIF Law.
If the Internalisation is approved by Shareholders, the Company will terminate the Management Agreement. The Manager will cease to provide a management function to the Company and, in particular, the following will occur:-
Changes to investment management and advisory function
The general duty to manage the Company's Assets and supervision of the Administrator and the secretary will not be carried out by the Manager. These functions will be undertaken by the Board.
The duty to provide investment advisory services to the Company and management of the investment and reinvestment of the Assets of the Company will not be carried out by the Manager. This includes the duty to acquire, oversee, arrange financing for and manage the Company's investment properties. The termination of the management function means that the Manager will not report to the Board concerning the status of the property portfolio and will not be responsible for organising contracts in respect of maintenance, cleaning, landscaping or service installations for the underlying properties. Instead, these activities will be carried out by the New Investment Adviser in relation to the NIAA Assets, in conjunction with the Board who will carry out these functions in relation to all the Assets of the Company.
At the same time, the Company proposes to terminate the appointment of the Custodian. The Company does not intend to appoint a new custodian as these functions are limited. The Company's real property assets are held through its Turkish Subsidiaries, and it is proposed that the Administrator will hold the share certificates to the Turkish Subsidiaries on behalf of the Company. Title documents to the Company's real property will remain with the legal advisers to the Company in Turkey with certified copies being held by the Administrator for reconciliation purposes.
New functions carried out by the Administrator
In accordance with the requirements of the Listed Fund Guide, the Administrator will monitor the investment decisions of the Board to ensure that its decisions are consistent with the investment policy of the Company as amended from time to time.
Retirement of the Manager and Termination of Management Agreement
The Management Agreement will be terminated and cease to be of any further effect, save that the Manager pursuant to a contract entered into between the Company and the Manager may be entitled to certain fees in relation to sales of Assets to persons introduced to the Company by the Manager.
New functions carried out by the New Investment Adviser
If the Internalisation becomes effective, the New Investment Adviser will provide services to the Company that will include advisory, management, marketing, accounting and legal services in connection with the NIAA Assets of the Company. If the Internalisation becomes effective, the New Investment Manager will not be engaged to provide services to the Company in relation to Kazikli. Further details of the New Investment Adviser and its contract with the Company and details regarding Kazikli are set out in Part III.
Copies of the New Investment Advisory Agreement and the Administration Agreement are on display during normal office hours on Business Days at the offices of the Administrator at 8 Hill Street, St Helier, Jersey, JE4 9XB and will remain on display until the date of the EGM.
3. Proposed Changes to the Investment Policy
The initial investment strategy of the Company was written in connection with its admission to AIM in the Company's admission document and no longer reflects the phase in the investment-divestment cycle in which the Company is operating. The Board does not currently intend to make any further acquisitions.
The initially stated investment policy and criteria of the Company were generally only to be varied by way of ordinary resolution of the Shareholders.
Accordingly, Shareholders are being asked to approve by ordinary resolution at the EGM a change in the Investment Policy such that the new policy is as follows:
"The Company shall only make investments in Turkey with a view to enabling a future sale of the Assets in whole or in part. To the extent investments have been or are made, the Company will actively manage those investments and seek to realise its assets in a managed way at an appropriate time, returning proceeds to Shareholders as and when it does.
Save as set out above, there are no restrictions on the investments which the Company may make or the leverage it may employ (up to a value of no more than 100% of the net asset value of the Company in relation to leverage) save as provided by the Listed Fund Guide and the Offering Document.
Shareholder returns are expected to be delivered by way of return of capital on their Shares, whether by dividend, repurchase or otherwise."
The Board is of the view that the New Investment Policy is in the best interests of the Shareholders, particularly in light of the current market conditions in Turkey and globally.
4. Proposed Reclassification of the Company to "Listed Fund" Status
When the Company was incorporated in 2005, it was established as an "unclassified" fund in accordance with the CIF Law. The authorization process for the Company required the JFSC to review and approve the offering document, constitutional documents and material contracts of the Company. The regulatory requirements for the structure of the Company (as a closed ended unclassified collective investment fund pursuant to the CIF Law) were such that a Jersey based manager be appointed by the Company to perform an investment management role and carry out the administration of the Company (although this function was delegated to the Administrator). This provides the background to the appointment of the Manager and the nature of its current duties under the Management Agreement.
In January 2007, the JFSC issued the "Jersey Listed Funds Guide" which was re-issued in April 2008 and subsequently updated in January 2009. The purpose of the Listed Fund Guide was to enable a streamlined authorisation process for the establishment or reclassification of unclassified collective investment listed closed ended funds, provided that the fund complies with the requirements of the Listed Fund Guide.
The regulatory approach to a Listed Fund differs from the approach in relation to unclassified funds, because it relies on certification by a Jersey based functionary that the relevant fund complies with the requirements of the Listed Fund Guide. In this case, the Administrator has provided the relevant confirmation to the JFSC in respect of the Company.
In certain cases, the Listed Fund Guide enables collective investment funds to be established without a manager, provided that a Jersey based administrator is appointed. There is more flexibility regarding investment policy and borrowing powers, providing adequate disclosure is made with the offering document of the Company. There is a requirement for a majority of the directors of the investment fund to be independent of the manager or investment manager (if appointed).
In summary, the reclassification of the Company to Listed Fund status provides a suitable regulatory framework within which the proposed Internalisation may be effected. The reclassification amounts to a change in the regulatory treatment of the Company and, other than as set out in the Proposals, the general characteristics of the Company (including the investment policy and objectives) will remain the same in all material respects. It is worth noting that the Company would probably not have been established as an ordinary unclassified collective investment fund today but either as a listed fund or an unregulated exchange traded fund. Unfortunately, it is not possible, for legal and regulatory reasons to convert an existing unclassified collective investment fund to an unregulated exchange traded fund.
Further information in relation to the regulatory treatment of Listed Funds domiciled in Jersey may be found on the website of the JFSC at www.jerseyfsc.org
5. Financial Impact of the Internalisation
The Directors are of the view, that the financial saving on implementation of the Internalisation will be significant.
The following is a high-level analysis of the Jersey and Turkish tax implications of the proposed restructuring for the Company and its subsidiary undertakings and is provided by the auditors of the Company. It is not intended to advise individual investors of their tax position, and individual investors should seek advice as to the impact on their affairs of the proposed restructuring. The information given below is based on current law and practice, and may be subject to change.
Turkish tax position
A change in the Company's regulatory status will not affect the liability of its Turkish subsidiaries to Turkish tax. Steps will be taken to ensure that the Company cannot be considered to be trading in Turkey through a permanent establishment, and therefore liable to Turkish tax. To minimise the risk of the Company attracting Turkish tax, the Board will ensure that, following the proposed reorganisation, decisions regarding the investment activities of the Company are made in Jersey, and sufficient records are kept to document this.
Jersey tax position
A change in the Company's regulatory status will not affect its liability to Jersey tax. The Company is liable to tax in Jersey at the standard rate of 0% on the basis that it is not a "financial services company" as defined in the Income Tax (Jersey) Law 1961, as amended. It is the understanding of the auditors of the Company that the changes in the regulatory position and the activities of the Company will not bring it within the scope of a higher tax rate, and therefore the Company will be unaffected by the proposed restructuring. In addition, the auditors of the Company do not anticipate that the change in the Company's advisers will have an impact on its Jersey tax position.
The directors of the Company intend to conduct the affairs of the Company in such a way that central management and control remains in Jersey and such that the Company will not be carrying out any trading activity that could cause a taxable permanent establishment to arise outside of Jersey.
Recent concern, albeit unspecified, has reportedly been expressed by some members of the ECOFIN Code of Conduct group as to whether the current "Zero/Ten" income tax regimes in Jersey and the other crown dependencies are compliant with the spirit of the EU Code of Conduct for Business Taxation. Pending a review by the crown dependencies of their corporate tax regimes no formal objection has been raised by ECOFIN at this time. The outcome of these reviews cannot be pre-judged, however, Jersey's Minister for Treasury and Resources has announced plans to propose legislation to exempt companies, such as the Company, which are collective investment schemes from taxation in Jersey with effect from 1 January 2010.
7. Amendments to the Articles
It is proposed that the Existing Articles are replaced in their entirety in order to remove:
the requirement for the Company to appoint a manager to manage the Company's funds;
a provision requiring the Company to be wound up in the absence of a manager being appointed for a period of six months or more; and
other non material amendments reflecting the absence of a manager.
A copy of the New Articles and a black lined version showing the changes from the Existing Articles will be available on the Company's website, www.theottomanfund.com
8. Consequential Amendments to the Admission Document
The Directors have resolved not to add to the expense of the Proposals by issuing a revised admission document. As such, assuming that the Proposals are approved, Shareholders should treat the Admission Document as having been amended in accordance with the detail and information provided in this Circular, taken together with the New Articles.
The consequential amendments to the Admission Document are set out in Part III of this Circular.
9. Extraordinary General Meeting
A notice convening the EGM to be held at 8 Hill Street, St Helier, Jersey, JE4 9XB at 11 a.m. on 22 February 2010 to consider and, if thought fit, pass the Resolutions described below.
All Shareholders are entitled to vote on the Resolutions to be proposed at the EGM. Resolutions 1 and 2 will be proposed as ordinary resolutions (which require votes in favour representing more than 50 per cent. of the votes cast) and Resolution 3 will be proposed as a composite special resolution (which require votes in favour representing at least two thirds of the votes cast).
The quorum for the EGM is two members present in person or voting by proxy. Any Shareholder may appoint a proxy to attend and, on a poll, vote on the Resolutions on his behalf.
The Resolutions which Shareholders are being asked to pass at the EGM provide for the following:
Resolution 1 (Ordinary Resolution) seeks Shareholder approval to adopt the New Investment Policy.
Resolution 2 (Ordinary Resolution) seeks Shareholder approval to the appointment of Eitan Milgram as a Director of the Company.
Resolution 3 (Special Resolution) seeks Shareholder approval that:-
(a) the proposals described in this Circular and the reclassification of the regulatory status of the Company to "Listed Fund" status in accordance with the Listed Fund Guide be approved;
(b) the termination of the Manager and the Management Agreement be approved for all purposes under the Articles;
(c) any one director of the Company (or any two such directors, if required) be authorised to execute the required documentation in connection with the Proposals, together with all amendments as may be approved by such director or directors so authorised and executing such documents; and
(d) with effect from, and conditional upon, the issue to the Company by the JFSC of a certificate in accordance with the CIF Law, the Articles be replaced in their entirety by new articles of association in the form submitted to the meeting, and signed by the Chairman for the purposes of identification.
10. Recommendation
The Directors consider the Proposals to be in the best interests of the Company and its Shareholders as a whole and, accordingly, unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the EGM.
Related Shares:
Ottoman Fund