Overlooked Longbow leaps 16% on surprise move to wind up 7%-yielding loan fund

While the world worried about the US election, property debt fund ICG-Longbow achieved its best shareholder returns in seven years with an unexpected decision to return investors' money.

While the world was worrying about the US election, property debt fund ICG-Longbow (LBOW ) has achieved its best shareholder returns in seven years with the unexpected decision to wind down and return money to investors.

The announcement yesterday that the £91m Guernsey investment company would ask shareholders permission to gradually sell its portfolio of secured loans saw the shares jump nearly 12% or 8.75p to 82.75p.

Today they added another 3.9% to 86p, giving a total share price rise of 16% over two days, a spike that has nearly halved their discount to net asset value (NAV) to 13%.

The move surprised analysts as ICG-Longbow Senior Secured UK Property Debt Investments, to use its full name, had performed well during the coronavirus crisis, maintaining covered quarterly dividends behind a 7% yield and avoiding impairments on its 11 loans that were worth £121m at 31 July.

Nevertheless, the board, chaired by Jack Perry, a former accountant who also chairs European Assets (EAT ) and serves as a non-exec at Witan (WTAN ), saw this was a good time to pull up stumps as share prices recovered and sentiment improved. It recognised that LBOW lacked scale and investor appeal, a view it said was supported by fund manager ICG Real Estate, part of the Intermediate Capital Group (ICP).

‘The board’s focus is, however, on continuing to maximise shareholder value and it therefore believes that given the current economic backdrop and re-rating of the sector, an orderly realisation is the most prudent option,’ it said.

The board said it had taken into account the ‘prevailing discount’, the market capitalisation of the fund, and liquidity of the shares in making its decision.

A winding down of the fund would not result in immediate liquidation or require assets to be disposed of in a specific timeframe.

‘The proposed new strategy, if approved, would be implemented in such a manner that would seek to maximise value to shareholders,’ said the board.

Iain Scouller, analyst at Stifel, said: ‘We were not expecting the decision to wind down the fund especially as the fund has been actively deploying capital over the past few months.’

‘However, it is unlikely the fund would be able to grow in the foreseeable future given the environment we are now in,’ he added.

Although this year’s performance has been resilient, Liberum analyst Conor Finn said the company had had to flex its loan terms and defer interest repayments to some borrowers that struggled through the lockdown. Its largest loan, Quattro, secured on three properties in Kingston, Surrey, and accounting for 8% of assets, had fallen into arrears although there were plans to rectify this over the next six months.

Finn said the dividend target was expected to remain unchanged at 6p. Dividends had been fully covered for the last three quarters, following a 2.5 year period in which dividends had been partly funded from capital, he added.  

Longer-term share price performance of the alternative income fund had been lacklustre, however. Despite a total 31.2% return on net assets over five years, the shares had delivered a total return with dividends of just 8.4%, even with yesterday’s jump included.

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