Notice of GM and Posting of Circular
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.
13 December 2019
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 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, 30 December 2019 at 10.00 a.m. GMT.
The Circular will shortly be made available on the Company's website: http://www.aseanaproperties.com/ and submitted to the National Storage Mechanism to be made 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: 020 7920 3150
Tel: 020 3100 2000
Gillian Martin / Owen Matthews
Tel: 020 7920 3150
Jeremy Carey / James Verstringhe
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:
RECOMMENDED 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 shareholder meetings held in 2015 and 2018, in accordance with the Articles, the Board put forward a resolution to Shareholders to determine if the Company should continue in existence.
At the 2015 AGM Shareholders voted for the Company to continue in existence and, at the same time, approved 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").
At a general meeting held on 23 April 2018, inter alia, Shareholders again voted for the Company to continue in existence and approved certain amendments to the Articles requiring a further resolution for Shareholders to determine whether the Company should continue to be proposed at a general meeting of the Company to be held in December 2019 (the "2019 Discontinuation Resolution").
The notice of general meeting appended to this circular convenes that general meeting and this letter seeks to provide you with some further updates and information in relation to the Company to help inform your decision on how to vote on the Resolutions to be proposed at the General Meeting.
2 Company update
Restructuring of the management of the Company and changes to the Board
As you will be aware, the Management Agreement between Ireka Development Management Sdn Bhd ("IDM") and the Company was terminated with effect from 30 June 2019. IDM is a wholly owned subsidiary of Ireka Corporation Berhad ("Ireka") which holds 23.07 per cent. of the Company's total voting share capital and Legacy Essence Limited, an affiliate of Ireka, together with its related parties ("Legacy Essence") owns in aggregate 18.43 per cent. of the Company's total voting share capital, which together total 41.50 per cent. of the Company's total voting share capital. IDM decided not to continue acting as the development manager so as to avoid any perception of conflict between IDM's role as development manager and Ireka's position as a shareholder of the Company; IDM had become aware through discussions with a significant shareholder of the Company that some shareholders may have perceived there to have been a misalignment between Ireka's interests in the divestment of the Company's portfolio and that of other Shareholders.
After careful consideration, in particular noting that the Company is in divestment mode, the Board decided that the most practical and expeditious next step in the best interests of Shareholders and the Company as a whole was to internalise the management of the Company.
As part of this process, the Board identified and appointed Mr Chan Say Yeong as the Chief Executive Officer of the Company with effect from 3 June 2019. It also sought to strengthen the capability and capacity of the Board to achieve the Divestment Investment Policy and enhance governance oversight through the re-appointments of Mr Christopher Lovell and Mr Nicholas Paris to the Board and the appointments of Ms Monica Lai, who is the Group Deputy Managing Director of Ireka, and Ms Helen Siu Ming Wong, who was named as the Divestment Director with a specific focus on selling the Company's remaining assets.
With regards the day-to-day administration of the Company's assets, a number of IDM employees have been seconded to assist with the operation of the assets and this arrangement has enabled the Company to avoid the need to hire alternative, additional employees to fulfil these roles at short notice. This arrangement also gives the Company the flexibility to reduce the number of employees as assets are sold. The Company pays IDM a monthly fee, calculated at cost, in respect of this secondment arrangement.
Divestment Investment Policy
The Company has realised gross proceeds of US$250 million since June 2015 but there are still six assets yet to be sold. The disposal of the remaining assets in the portfolio has been slower than anticipated, reflecting increasingly competitive market conditions in the locations and market sectors in which the Company has assets.
To date, net sale proceeds from disposals have largely been used to pay down project debts across the portfolio, to fund the Company's working capital requirements and to finance the construction of The RuMa Hotel and Residences, which is the Company's final asset to have been developed. As a result of the previous asset disposals, approximately US$10 million was also returned to Shareholders via a share buyback conducted in January 2017.
The Board is aware that Shareholders are eager for a more expeditious disposal programme and it is this which prompted the restructuring of the Board and the Company's management arrangements in recent months. With these new arrangements in place, a new sales strategy has been adopted and the Board has prioritised the divestment of the Company's assets as soon as possible to ensure further capital can be returned to Shareholders.
Since internalising the management and disposal process for the remaining assets, the Board has revised all of the sale due diligence processes and marketing documentation for each of the Company's remaining assets, the result being that there is now extensive information available in virtual data rooms for qualified buyers interested in the assets in the portfolio. The Board has also identified those assets which it deems to be of highest priority to sell, on the basis of those properties being more readily saleable and that the proceeds of those sales should be capable of paying down the Company's most significant debt facilities. The early settlement of those debt facilities would then enable the Company to use the disposal proceeds of further asset sales thereafter to return cash to Shareholders.
The new sales strategy for the Company's assets commenced externally in mid-September and to date approximately 150 prospective investors have been approached and approximately 55 non-disclosure agreements have been signed with interested buyers in respect of two of the Company's principal assets and active sale discussions continue on them.
The Board is working to complete the next asset sales from Q1 2020 onwards and will be pragmatic in its approach. However, there can be no guarantee that these sales will successfully conclude within this timeframe. As a result, the Board is not currently able to provide Shareholders with any indication as to when further capital distributions can be expected from the Company, but re-iterates that this is the Board's key objective.
The Board is keen to ensure that RNAV valuations of the Company's assets are reflective of the current market environment and a review of the value of all of the assets within the portfolio is ongoing. The portfolio revaluation will be conducted using a number of external valuers (each a specialist in the relevant market of the relevant asset) and the Board may bring in certain new valuation firms as part of that process. The review is expected to be completed during the audit of the 2019 Accounts, which themselves are expected to be completed when the accounts are published in late April 2020.
The Group currently has, in aggregate, approximately US$88 million of outstanding bank loans from seven different banks. Each loan provides the relevant bank with security over certain of the Group's assets and the Company has granted corporate guarantees in respect of certain loans of its subsidiaries.
The Board is currently seeking to re-negotiate certain of the Group's loan facilities in order to amend their scheduled repayment dates to make them coincide with the expected sale dates of the assets that they have financed. This process is ongoing.
3 2019 Discontinuation Resolution
Notwithstanding the obligation on the Board to propose the 2019 Discontinuation Resolution pursuant to the Existing Articles, the Board firmly believes that placing the Company into liquidation (which could be the result of passing the 2019 Discontinuation Resolution) would have a significant adverse impact on Shareholder value for the reasons set out below.
Possible breach of banking covenants
The Company believes that, in the event that the 2019 Discontinuation Resolution is passed, an event of default under the lending covenants of certain of the Company's facility arrangements could be triggered. If an event of default is triggered the relevant loans would become immediately repayable and this could result in security given to secure those loans being enforced. This could lead to the banks foreclosing on the Group's loan facilities and the Group's remaining assets being disposed of on behalf of the banks rather than Shareholders at significantly lower prices than anticipated. Further, this could force the Company to enter into liquidation due to having insufficient liquid assets to repay the facilities if proceeds from the security that has been enforced are insufficient. The Group does not currently have sufficient available cash to be able to repay the entirety of its loans in the event they are accelerated.
The Company no longer being a "going concern"
If the 2019 Discontinuation Resolution is passed the Directors may not be able conclude that the Company is a "going concern" and accordingly be unable to prepare the 2019 Accounts other than on a "break up" basis. This could lead certain of the Company's lenders to consider that an event of default has occurred under the terms of the Company's existing facilities and the banks could seek immediate repayment of those loans.
It is also for this reason that the Board has determined that the next discontinuation vote should take place in May 2021 in order for the Board to conclude, at the date of the 2019 Accounts to be published in April 2020, that the Company is a going concern. For this purpose, the next discontinuation vote should be scheduled for a date beyond 12 months from the date of the audit report. Whilst the auditors are still expected to refer to the discontinuation vote in the audit report, notwithstanding this, the Board do expect the 2019 Accounts to be prepared on a going concern basis. An earlier scheduled discontinuation vote would prevent this going concern determination and could lead to an event of default under the Company's banking arrangements.
Impact on asset sale values
The Company may not be able to achieve full value for the Company's remaining assets if the 2019 Discontinuation Resolution is passed as prospective buyers may seek a reduction to the prices at which they are willing to acquire the assets in the knowledge that (a) the Board would be under pressure to take steps to wind up the Company as soon as practicable; and/or (b) if the passing of the 2019 Discontinuation Resolution results in an event of default under, and acceleration of, a loan secured by the Group's assets, such security may be enforced and the assets may be realised at a value lower than that which could be expected to be obtained if the assets were sold/offered to the market in the Group's ordinary course of business.
In light of the severity of the possible consequences for Shareholder value, the Directors are unanimously recommending that you vote AGAINST the 2019 Discontinuation Resolution.
Instead, the Board recommends that Shareholders allow the Company to continue in order to give the new divestment strategy time to deliver results and to enable the Board and the Company's auditors to conclude that the Company is a going concern for at least 12 months from the date on which the 2019 Accounts are due to be finalised, and thereby avoid the consequences described in paragraph 3 above. The Board therefore proposes that the next discontinuation vote take place at a general meeting to be held in May 2021.
The Board is clear that enabling the Company to continue to pursue the new divestment strategy, rather than placing the Company into liquidation or seeking a "fire sale" of the Company's portfolio at potentially significantly depressed prices, is in the best interests of the Company and Shareholders as a whole.
In order to implement this proposal, the Existing Articles will need to be amended. A blacklined version of the proposed amendment to the Existing Articles is set out in the Appendix to this circular. 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.
The Directors are unanimously recommending that you vote FOR the resolution to amend the Existing Articles which will allow the Company to continue until May 2021, which will be proposed as a special resolution.
5 Additional considerations for Shareholders
In connection with 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; and
● 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 declaration(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.
6 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 10.00 a.m. on 30 December 2019, is set out at the end of this document.
At the General Meeting, Resolution 1 (the 2019 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 1, to be validly passed. The Directors are unanimously recommending that you vote AGAINST Resolution 1.
Resolution 2 (the proposed amendment to the Existing Articles to allow the Company to continue until May 2021) will be proposed, conditional on the failure of Resolution 1 (the 2019 Discontinuation Resolution), 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. The Directors are unanimously recommending that you vote FOR Resolution 2.
Action to be taken by Shareholders
Whether or not you intend to be present at the General Meeting, Shareholders are requested to complete and return the accompanying Form of Proxy in accordance with the instructions printed thereon, so as to be received as soon as possible, and in any event no later than 10.00 a.m. on 27 December 2019. The completion and return of the Form of Proxy will not preclude you from attending the General Meeting and voting in person should you so wish.
7 Irrevocable voting undertakings from certain Shareholders
Ireka has been unable to vote its Shares on previous discontinuation resolutions proposed at general meetings of the Company because of commitments it had made to the Company not to undertake any activities which would result in the Company ceasing to be able to carry on its business independently of Ireka.
Now that Ireka has resigned its position as manager, those commitments have ended and the Directors have concluded that votes cast by Ireka in respect of its Shares on the Resolutions to be proposed at the General Meeting will be accepted. Each of Ireka and Legacy Essence, which in aggregate hold 41.50 per cent. of the total voting rights of the Company as at the date of this circular, has given its irrevocable undertaking to vote the Shares held in its name at the time of the General Meeting against Resolution 1 and in favour of Resolution 2.
8 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 you vote (1) AGAINST Resolution 1 (the 2019 Discontinuation Resolution) to be proposed at the General Meeting and (2) FOR Resolution 2 (to amend the Existing Articles).
Each of Gerald Ong Chong Keng and Christopher Lovell, the two Directors who are also beneficial holders of Shares amounting to 1.08 per cent. of the total voting rights of the Company in aggregate, has given an irrevocable undertaking to vote the Shares held in his name at the time of the General Meeting accordingly.
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