25th Nov 2008 15:29
25 November 2008
Close High Income Properties PLC
Notice of Extraordinary General Meeting and Separate Class Meetings
Close High Income Properties PLC (the "Company") announces that it has today issued a circular (the "Circular") to Shareholders convening an extraordinary general meeting and separate class meetings of the holders of Ordinary Shares and 'D' Ordinary Shares, to be held on 19 December 2008.
The purpose of the Circular is to provide Shareholders with details of, including the background to and reasons for, a change in the Company's investment policy regarding borrowing limits and an amendment to the Articles of Association of the Company.
Terms and definitions used in this statement, unless otherwise stated, shall have the same meaning as ascribed to them in the Circular.
Background to and reasons for the proposed change to the Company's investment policy regarding borrowing limits and amendment to the Articles of Association
1. Regulatory
As a property-focused closed-ended investment company listed on the London Stock Exchange, the Company has been required to adhere to various investment restrictions and risk diversification policies set out in Chapter 15 of the Listing Rules. To comply with the Listing Rules, at the time the Company's shares were admitted to the Official List of the London Stock Exchange, the Company was required to limit its borrowing powers under the Articles to 65 per cent. of the Company's gross assets. This borrowing restriction forms part of the Company's investment policy. As a result of certain changes to the Listing Rules, which came into effect on 28 September 2007, a number of rules that previously applied to property-focused closed-ended listed investment companies have been deleted. As a consequence of these changes, the Company is no longer required to adhere to the investment restrictions and risk diversification policies previously set out in Chapter 15 of the Listing Rules but wishes to notify Shareholders of the change in the policy regarding borrowing limits.
2. Special Resolution
The Company's borrowing limits are contained in the Articles, therefore the change also requires Shareholder approval to amend the Articles. This will be sought by way of the Special Resolution. The amendment to the Articles additionally requires separate approval of Ordinary Shareholders and 'D' Shareholders. This will be sought at the relevant Separate Class Meetings.
3. Markets
The global financial crisis, which started in 2007, has continued to have a major effect on investor sentiment and the consequential lack of liquidity has affected transaction activity. The reduction in availability of debt finance, combined with an increase in its cost, has seen the investment property market stall, whilst the slowdown in the UK economy has reduced demand for commercial property across all sectors and consequently expectations for future rental growth. These market conditions have adversely affected the valuation of the Company's property portfolio, which has not been immune from the downward revaluations being experienced more generally in the UK commercial property sector. The Property Investment Adviser, Close Investments Limited, believes that the future value of the Company's property portfolio is likely to be adversely impacted by a continuation of this market movement.
In declining market conditions, such as those described above, debt has a disproportionately negative impact when asset values fall, and, as a consequence, the debt to gross assets ratio of the Company has increased, although no new borrowings have been drawn down since January 2008. At present, the Company complies with the financial covenants imposed by its lending banks and the borrowing limit set out in the Articles. However, in view of the likelihood of further decreases in property values, to ensure that the Company's borrowing limits (under the Articles) are not inadvertently exceeded, your Board believes that it would now be appropriate for the Company to adopt a new borrowing policy utilising the relaxation in the Listing Rules.
The total debt in the Company has decreased by £24.5million since the Company's year end of 31 December 2007 as assets have been disposed of and debt has been repaid from the proceeds of these disposals. The Board is not intending to increase the Company's total amount of borrowings prior to the 2010 Annual General Meeting when Shareholders will vote on the continuation of the Company. The Property Investment Adviser is continuing discussions with the Company's lending banks to review the financial covenants currently in place with the aim of providing the Company with greater flexibility to negotiate the timing and price of asset disposals.
Without the change to the investment policy the Company may need to sell assets more quickly than would otherwise be the case in order to ensure continued compliance with its current borrowing restrictions. The Board is of the view that this could be to the detriment of Shareholders' interests as the investments selected for sale, and the price and other terms of disposal, could be adversely affected if the Company was effectively regarded as a forced seller.
4. Investment Policy
For the reasons set out above, the Company is now proposing to modify its investment policy in relation to borrowing as follows:
Current Policy - "The Group has the power to borrow, under its Articles, an amount equal to up to 65% of the Group's gross assets. It is the present intention of the Directors that such borrowings will be limited to a maximum of 50% of the Group's gross assets."
New policy - "It is the intention of the Directors that overall borrowings for the Group will be limited to a maximum of 70% of the Group's gross assets. The Board will not sanction new investments if the purchase would require borrowings of more than 50% of the gross value of those investments."
The new policy requires an amendment to the Articles by deleting Article 111.2 (Limitations on Borrowings Powers) which states that:
"The Board shall restrict the borrowings of the Company and exercise all voting and other rights and powers of control exercisable by the Company in respect of its subsidiaries to as to secure (and as regards its subsidiaries in so far as it can secure by such exercise) that the aggregate principal amount at any one time outstanding in respect of moneys borrowed by the Group (exclusive of moneys borrowed by one Group Company from another and after deducting cash deposited) shall not at any time following admission of the Ordinary Shares to the Official List exceed 65 per cent. of the Gross Assets of the Group."
In connection with the proposed deletion of Article 111.2, it is also proposed that consequential deletions to Articles 111.3 to 111.7 (which contain interpretative and other provisions incidental to Article 111.2) be made.
A consequence of the proposed amendment is that if there are further declines in the value of the property held by the Company, there may be an increase in the overall debt to gross assets ratio of the Company. This could have an adverse impact on the Company's share price.
The new policy is not intended to be used to increase the total debt in the Company and the Property Investment Adviser will continue to monitor the gearing position in the Company and compliance with financial covenants.
The Board has unanimously recommended Shareholders to vote in favour of the resolution to be proposed at the Extraordinary General Meeting and Separate Class Meetings.
Further information regarding the Company, including performance since launch and the most recent annual and interim reports can be found at www.closeinvestments.com
For further information please contact:
Peter Roscrow
Close Investments Limited
0845 600 1213
Related Shares:
IMPT.L