CC Japan notes subscription share failure as it suffers from weak yen

In the results published today (24 January), chair Harry Wells, said the scheme had “the best of intentions and if validated by better markets would have been a good way to grow the company”.

A subscription share allows a holder a right, but not an obligation, to buy ordinary shares at a pre-determined price at a given date or range of dates.

They had fallen out of favour in recent years, with few trusts using the tool, but several began offering them in 2020 and 2021.

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The scheme from CCJI issued the scheme as a one for five free bonus to ordinary shareholders in February 2021.

However, the shares expire at the end of February and look set to expire at an exercise price lower than the prevailing share price.

The trust sits on a 7.6% discount, according to Morningstar data.  

The scheme was designed by the board to potentially raise a further £40m, and the chair said if it had been “successfully executed would not only have increased our size and spread costs but also offered significant leverage into the ordinary shares so that holders could make some money as recompense from the depressed valuations during Covid-19”.

Performance and portfolio

The £267.2m trust saw its net asset value fall by 5.9% in the 12 months to the end of October and shareholders lost 7.1%. However, the TOPIX index lost 9.5%.

QuotedData’s James Carthew also noted the yen weakend by 9% over the year and without that the fund’s returns would have been positive.

“The picture since the year end has reversed somewhat and, over the past three months, CC Japan Income & Growth has extended its lead over competing Japanese funds and delivered a positive return,” Carthew wrote in a story on the QuotedData website.

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Richard Ashton, manager of the trust, said that given Japan is “no longer in sync with other major economies” because of its delayed recovery from the pandemic, it is set to offer “many interesting opportunities”.

“There are reasons to be optimistic about the expected economic rebound in Japan in 2023 given the experience of other economies as consumer behaviour returned to normal,” he wrote.

“The recent yen weakness that has accompanied these developments only adds to the attraction of Japanese equities over the medium term.”

During the 12 month period Ashton participated in his first IPO in a number of years. He purchased Socionext, which develops and delivers system-on-chip products.

Ashton noted that “in stark contrast to many companies listed in recent years, the company is debt free, has valuations that were attractive relative to its growth prospects besides a clear intention to pay dividends to its shareholders from the start”.