CQS Natural Resources handsomely defeats Saba’s attack

In what is the fifth successive defeat for Saba Capital Management in its bid to take control of seven London listed investment companies, shareholders in CQS Natural Resources Growth and Income (CYN) have voted down Saba’s proposals to remove all of the existing board and replace them with just two of its own representatives, very convincingly. CYN shareholders voted by 59% to 41% against Saba’s proposals, with a turnout of over 68%.

Your analyst was fortunate enough to be permitted to observe proceedings. Many shareholders turned up in person to put their questions to both CYN’s board and Saba and, in the case of the latter, a lawyer working for Saba’s made it known that she was acting as their representative at the meeting, but then said she was not actually authorised to answer any questions. Not surprisingly, shareholders expressed their displeasure at there not being somebody available from Saba to answer their questions on such a pivotal vote for the trust, arguing that little has been said about their plans in the event that they had won. One shareholder even exclaimed stating that “the silence [from Saba] is deafening”.

In what echoes the experience of the other meetings so far, shareholders once again seemed genuinely angry at the attack on their trust. Prior to the start of formal proceedings, one shareholder commented that she had bought CYN for its commodities exposure and did not want the sort of strategy and structure that Saba was offering – it just wasn’t suitable for her needs.

Another shareholder took aim at the poor governance structure being proposed – laughing at the idea that one person, with no previous experience of UK investment companies, could be on seven of their boards all at once.

As the voting closed, one shareholder commented how CYN is very important in the natural resources space, effectively providing a counterbalance to the might of BlackRock World Mining [we have often commented that we see holdings in CYN and BRWM as complementary].

[QD comment: We think the result at CYN’s general meeting today is another resounding victory for shareholder engagement and protecting the rights of all shareholders. Shareholders in the room expressed their frustrations with the voting platforms but were quick to acknowledge that much has been done to improve this process, although they clearly want to see the remaining obstacles removed and existing processes streamlined to make voting at meetings easier.

CYN clearly has a loyal following, with a number of shareholders highlighting that they have been with the trust for a long time. It is clear that CYN’s board and manager have repeatedly attempted to engage with Saba but were given zero indication of its plans prior to 18 December when the simultaneous attack on seven trusts was launched. CYN’s board made it clear that it was ready to engage with Saba once the result of the general meeting was known, but the result would determine what sort of engagement was required. Regardless, CYN’s board reminded shareholders that it is reviewing all of CYN’s arrangements and will report back by the end of June.

From our perspective, we agree with the shareholder that thinks CYN plays an important role in the sector. Now that Saba has been flatly rejected, we think that CYN, along with the other trusts Saba has requisitioned, does not need any further distractions and needs to be allowed to get back to the job of focusing on its portfolio and delivering value for shareholders. With the underlying asset class cyclically depressed but with the prospect of strong term growth in commodity prices, we think some shareholders who understand the trust will be taking the opportunity to add to their positions”.

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