LIC Dividend Stocktake

In the September 2021 edition of the IIR LMI Monthly, we review some of the key news events and do a dividend stocktake post the FY21 reporting seasons. As a whole, LICs have good dividend coverage with an average dividend coverage ratio of 6.2x. Whilst not included in this report, we note that the pool of franking credits is also important with LICs seeking to provide fully franked dividends. Many LICs will only pay dividends to the extent they can be fully franked to provide the maximum tax benefits to its shareholders. 96.4% of LIC dividends declared for FY21 were fully franked.

Some of the key news items are:

• MLT Shareholders Approve Merger with SOL & MLT Ceases Trading -  On 13 September 2021, MLT shareholders voted in favour of the  merger with Washington H. Soul Pattinson and Company Limited (ASX: SOL). During the month, the merger received the requisite court approvals with the Scheme becoming legally effective on 21 September 2021. MLT ceased trading on the ASX on 21 September 2021.
• The Fight is On for PM Capital Asian Opportunities Fund Limited (ASX: PAF) - WAM Capital (ASX: WAM) have submitted an off-market takeover bid for PAF rivalling PM Capital Global Opportunities Fund's (ASX: PGF) merger proposal. PAF is engaging with both parties to see whether either of the parties are prepared to improve their offers.
• FSI to Issue Convertible Notes - On 31 August 2021, Flagship Investments Limited (ASX:FSI)
  announced the Company is seeking raise $20m through the issue of listed, redeemable, unsecured convertible notes (Notes). The Notes will have a face value of $2.70 (in line with the pre-tax NTA) and will pay an interest rate of 5.50%p.a, paid quarterly, until the first step-up date of 30 September 2024 at which point the interest rate will increase to 6.50%p.a if the 2-year BBSW is above 1.2832%. If the BBSW is not above this rate, the interest payment will remain at 5.50% until maturity. The Notes will have a maturity date of 1 October 2026, if not converted or redeemed prior.
• Cadence Capital (ASX: CDM) Proposes Global Demerger - CDM’s $6m investment in DeepGreen (an unlisted company that was preparing for IPO) is currently valued at approximately $85m, ~14x the initial investment. The uplift in value comes after DeepGreen merged with Sustainable Opportunities Acquisition Corporation to create The Metals Company, which has subsequently listed on the NASDAQ with the ticker TMC. The uplift in valuation has seen the position become a substantial position in the portfolio at approximately 20% of the portfolio. With a position of this size, any movement in the value of the position will cause significant volatility in the portfolio value. Given the significant potential value that exists in the TMC position CDM are proposing a demerger of the position from the CDM portfolio into a separate LIC. The new LIC would invest only in global securities and would initially comprise solely of the TMC position and $15m cash. The demerger would eliminate the stock concentration risk in CDM and allow shareholders to choose the level of exposure to the TMC position. 

See all the details in the attached report.