ABRDN Latin American Income Fund (ALAI) delisting and liquidation

[gadgetmind]

I bought into this IT both unwrapped and in my ISA in the hope that 1) the unsustainable dividends might be sustained, 2) there was a chance of a liquidation given that I bought in at a decent discount and it was a real tiddler.

I'm about break even on capital on small unwrapped holdings and up 20% (ignoring) inflation in ISA, plus we've had dividends.

Estimated NAV is 64p and they are trading at about 60p. I'm pretty sure delisting will happen as City of London (from memory) are largest shareholder and they clearly want the cash.

I will have to sell in my ISA when they delist so I'm tempted to sell there straight away.

The unwrapped holdings could be held in the hope of another 4% as assets are flogged but my gut instinct is to flog those anyway. ISA holding is fairly large but unwrapped sub £20k and not exactly life changing given other holdings.

All thoughts and musings welcome.

[Seasider]

If you want to sell in the market I think you have to do that by 8 June. Not sure who would be buying them though.

If you hold on for the liquidation you will get two pay outs with a small final one a year later. Working out the CGT on those two payments would put me off holding the shares which aren't in the ISA until liquidation. Do you apportion the base cost and if so how? Or is the final payment just 100% gain?

I assume they are not going to pay any more dividends? So that is not a reason to hold.

They have been planning this for a while so presumably have been selling the portfolio off already so the NAV should be fairly accurate as to what you might get in the liquidation (as opposed to the position where they are a "forced" seller). Is the extra 4p a share worth hanging on for? Who knows what unexpected liabilities may emerge?

I was going to hang on but I may have talked myself out of it.

[gadgetmind]

Yes, you're right. Keep it simple and flog ASAP is much much neater.

[gadgetmind]

Sold, so now I just need ideas for what to reinvest in, particularly for the unwrapped stuff.

Might shove into Scottish Mortgage as now much in the way of dividends to worry about there!

[Seasider]

Having little imagination I went for BRLA. Now someone is going to decide that is too small as well.
It has not performed as well as ALAI over the last year so hopefully it is due a bounce.

[stacker512]

Being a novice of ITs (and holding a few ITs myself, just not ALAI specifically), could someone please explain why the managers might delist and liquidate, and why BRLA might be in danger if it's too small?

[Itsallaguess]

Being a novice of ITs (and holding a few ITs myself, just not ALAI specifically), could someone please explain why the managers might delist and liquidate, and why BRLA might be in danger if it's too small?

I don't know too much about ALAI, but they released an RNS just over a week ago that explained their case for a de-listing -

Background to the [de-listing] Proposals -

It was stated in the Chairman's Statement in the 2022 Annual Report that the preceding financial year had been volatile for investors in a period during which the Company's equity investments underperformed, predominantly due to a shift in market focus from growth to value stocks. The political and economic challenges facing the Latin American economies have also adversely impacted the performance of the Company. Furthermore, wider global events, including extreme weather and the war in Ukraine, have resulted in higher commodity prices and put pressure on the global supply chain. While some businesses have seen a positive impact from higher energy prices, higher food and fuel prices added to the inflationary environment that led central banks to start raising policy rates.

While the Board believes that the Company's strategy remains attractive in the longer term, it is aware that the Company's small size makes it difficult to attract significant demand for its shares and that the discount at which the shares trade to net asset value is likely to persist.

As announced on 15 March 2023, the Board has considered the views of its largest Shareholder and its professional advisers and, taking into account the composition of the share register as a whole, believes that the summary winding-up of the Company with the net cash proceeds of the liquidation being returned to Shareholders is in the best interests of Shareholders generally.

https://www.investegate.co.uk/announcement/7531829

We can take a look at the AIC 'Overview' page for ALAI, to get a feel for it as things currently stand -



Source - https://www.theaic.co.uk/companydata/abrdn-latin-american-income

From the above, a £34m market-cap is on the small side, but if ALAI are seen as a niche or specialist Latin America growth-investment outfit, then I suppose a 'from small acorns' view might be taken. I don't know if that could be warranted in this case, but it's a potential view even with such small-cap IT's...

One of the problems with small market-cap IT's can be their charging structure though, and looking at the above ongoing charge of 2%, which is nose-bleed territory for me personally, the high charging-structure perhaps starts to add to the case as to why it might be struggling to attract 'significant demand for it's shares', as per their RNS release above...

I currently hold 14 globally-diverse income-related IT's, and I would normally look for a market-cap of at least a couple of hundred million. After a quick check, I see that my two lowest (JAGI and HINT) are slightly below £400m.

In the above RNS news release, ALAI discuss their discount to NAV being an issue, but from the above table it only shows a 4.8% discount, which isn't unusual for specialist-market IT's, so I'm not sure why they focus on that in their reasoning, but one thing I'd be interested in as they sell down their assets is how close they get to that 64p NAV when they actually return the de-listing proceeds.

If we take a quick look at BRLA on the AIC site, we can see the following headline details -



Source - https://www.theaic.co.uk/companydata/blackrock-latin-american

At a £112m market-cap, it's around 3 times the size of ALAI, and with an ongoing charge of just over 1%, is around half as costly to invest in from a charging point of view. That can make a big difference on investment-returns over long periods...

BRLA's 12.5% discount might seem a little concerning, but if we take a look at the long-term discount history below, from the TrustNet site, we can see that it's actually trading at a relatively lower discount than it has for many years, so that's not something that would necessarily concern me too much if this is a market sector I was particularly keen on -



Source (from 'Performance' tab) - https://www.trustnet.com/factsheets/t/fj26/blackrock-latin-american-it-gbp

Given the above BRLA details, I'm not sure it warrants putting in the same 'risk-class' as ALAI, due to ALAI having such a relatively tiny market-cap and, frankly, nose-bleed-territory charges, it's much easier to make the higher-risk-case for ALAI in my view.

On top of that, in terms of any additional defence for BRLA, it's interesting to note that on the AIC site, there's only two 'Latin America' sector IT's listed - ALAI and BRLA - and so if ALAI is winding up, there might even be an additional positive case for BRLA in terms of it then being the only remaining Latin America sector representative on the AIC site, as shown from the AIC 'Latin America sector' link below, but that's a side-detail rather than any sort of recommendation, of course...

AIC site Latin America sector IT listing - https://www.theaic.co.uk/aic/find-compare-investment-companies?sec=LAM&sortid=Name&desc=false

Anyway - the above has been an interesting exercise regarding an IT sector that I've not got any experience with at all, so I hope it's useful for you in terms of process, if nothing else...

Cheers,

Itsallaguess

[gadgetmind]

I don't do much tracking in my ISA, but this is a 5% bit of my portfolio marked as "themes" in my spreadsheet, though I do joke it should have been called "It seemed like a good idea at the time"!

I sold Blackrock World Mining at 648p in Jan 2022 and put the proceeds into ALAI at 49.5p. I just sold out of ALAI at 60p with Blackrock now being at around 600p. This pleases me.

The money has just gone into Scottish Mortgage at 653.5p ish.

Wake me up in five years!

[JohnW]

Nice overview above, thanks. Nose bleed is right on the money.

‘While the Board believes that the Company's strategy remains attractive in the longer term,’

How long did they need? Their experienced investment team has lost 50% of investor value over the last decade if the unit price really was about 118p in 2013, and almost as much over 13 years. It’s alright to be ‘benchmark agnostic’ and a ‘conviction manager’, but not if you don’t have much skill; better to hug an index.
They can all move on to new funds now with all the promise that ALAI had, and hope luck does for them what skill couldn’t.

[stacker512]

Anyway - the above has been an interesting exercise regarding an IT sector that I've not got any experience with at all, so I hope it's useful for you in terms of process, if nothing else...

Cheers,

Itsallaguess

Thank you so much for this.
I have to admit, I've not looked at the asset under management size when selecting my ITs, but will keep that in mind from now on.