Concerning questions about the Merger Proposal Update details
Summary: Just a week after releasing the secret Merger Proposal, E&P flagged major changes after furious feedback from CD1/2/3 investors seeing they were going to be trapped for several years. On 26 Oct, the details arrived in the form of a Supplementary Explanatory Memorandum and PDS.
In a subsequent more detailed post, I will conduct a full examination of the actual purpose of the Merger Proposal. For now, I will simply list a few pertinent questions CD1/2/3 shareholders should consider before voting.
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| Savvy investors can now see the real motivations of the Merger Proposal |
Details:
Key Excerpts with Questions below:
"A key purpose of the Proposal is to improve the ability of investors to withdraw from their investment, should they wish to do so, at a fair price. Taking into account investors’ feedback, the RE has decided to adjust its strategy for the Fund, to potentially increase the size of the regular six-monthly withdrawal offers from the Merged Fund that was described in the EM."
Q1. If E&P can't even commit to substantially increasing the size of the withdrawals (especially initial ones) that were targeted at only 5% maximum of units, only every 6 months (at most), and only starting Dec 2023 (at the earliest), why should investors trust E&P has any genuine interest in letting them exit at NAV in the near term?
"Under the revised strategy, where unitholders’ requests to withdraw have not been fully satisfied in a withdrawal offer, the RE will allocate cash received from sales of underlying assets during the following six months to fund the next withdrawal offer in priority to using that cash to make new investments. Depending on the demand for withdrawals and the available cash from asset sales, the size of withdrawal offers may be more than the 5% target (but could be less in certain market conditions)."
Q2. If genuine, E&P could simply say they will ensure the maximum amount of cash available will be dedicated to withdrawals (with no cap) from May 2023 and there will be no other use of cash till withdrawal requests are fully satisfied in an offer window. So why the continuing use of conditions such as only cash received during subsequent periods, only cash surplus to what E&P chooses it requires for "working and operating capital", only cash in excess of the cash reserve E&P decides on?
"This revised strategy only affects whether cash from asset sales is recycled into new investments. It does not prevent other cash in the Fund (which is not from asset sales during the prior six months) and cash from new applications being invested in new investments. Any such cash is separate from the Excess Capital, and the RE may decide to apply it to a particular withdrawal offer to meet the 5% target or any unmet demand for redemptions or, if it is in the best interests of members, to acquire new investments."
Q3. Why is E&P so reliably opaque about CD Fund cash levels and, despite now claiming to prioritize withdrawals, always ring fences the cash available for withdrawals with needlessly narrow conditions like "asset sales during the prior six months"?
"As stated in the EM, in the period of approximately 6 months while the Merged Fund remains listed, no capital will be allocated to new investments. Rather, all Excess Capital will be applied to on-market buy-backs and/or allocated towards the initial withdrawal offer in December 2023. During the period of approximately 6 months from delisting until the first withdrawal offer in December 2023, the RE’s intention is to allocate all cash from sales of underlying assets, less any amount required for the operating and working capital needs of the Merged Fund, to the first withdrawal offer."
Q4. Why has Excess Capital been trickily defined only as cash from underlying asset sales during the prior six months, less the Merged Fund’s operating and working capital needs? In the current structure, in wind-down phase (applies to CD1 and CD2 and soon CD3), isn't all existing cash from prior realisations and all future cash realisations excess and required to be returned to shareholders with minimum unnecessary delays via distributions or buybacks?
Of course, these are rhetorical questions. Savvy investors know the answers already and don't think E&P has suddenly changed its spots and can be trusted!
Remember, any OPEN votes, where the Chair is appointed the proxy, will be directed in favour of the Merger Proposal. If you don't want this, you should choose to vote them NO or at least change from OPEN to ABSTAIN. You can change your vote at any time till the deadline. The deadline is 9am Nov 5th so see the guide below and vote now. (Note deadlines often close a few days earlier if using a managed account or SMSF platform.)
