M&G Credit Income Investment Trust plc (MGCI)
Interim report
26-Sep-2019 / 08:00 CET/CEST
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LEI: 549300E9W63X1E5A3N24
M&G Credit Income Investment Trust plc
Interim Report and unaudited Condensed Financial Statements for the period
ended 30 June 2019 (covering the period from incorporation of the Company)
Copies of the Interim Report can be obtained from the following website:
www.mandg.co.uk/creditincomeinvestmenttrust [1]
Company Summary
M&G Credit Income Investment Trust plc was incorporated on 17 July 2018 as a
public company limited by shares. Admission to the stock exchange and
dealings in its Ordinary Shares commenced on 14 November 2018. M&G Credit
Income Investment Trust plc ("The Company") is an investment trust within
the meaning of section 1158 of the CTA 2010. The Company's investment
objective is to aim to generate a regular and attractive level of income
with low asset value volatility.
Key dates
Period end 30 June 2019
First interim dividend: Ex-dividend 25 July 2019
Share register close 26 July 2019
First pay date 23 August 2019
Annual General Meeting 30 March 2020
Future dividend timetable
Declaration date Ex-dividend date Payment date
Second interim January 2020 January 2020 February 2020
First interim April 2020 April 2020 May 2020
Second interim July 2020 July 2020 August 2020
Third interim October 2020 October 2020 November 2020
Fourth interim January 2021 January 2021 February 2021
Financial highlights
For the period[a] ended or as at 30 June 2019
Net asset value (NAV) per Ordinary Share 101.33p
Ordinary Share price (mid-market) 104.00p
Premium to NAV 2.63%
Net assets (GBP'000) 131,732
Capital return per Ordinary Share 1.55p
Revenue return per Ordinary Share 1.20p
First interim dividend per share 2.09p
Ongoing charges figure[b] 0.92%
[a] from the date of IPO,14 November 2018.
[b] Ongoing charges figure (as a percentage of shareholders' funds) is an
annualised rate calculated using average net assets over the period in
accordance with the Association of Investment Companies' (AIC) recommended
methodology.
Chairman's statement
I am pleased to present the first Interim Report for M&G Credit Income
Investment Trust plc (the "Company"). The Company, which was incorporated on
17 July 2018, raised GBP100 million pursuant to its Initial Public Offering
("IPO") and its Ordinary Shares commenced trading on the main market of the
London Stock Exchange on 14 November 2018.
Investment strategy overview
The Company aims to generate a regular and attractive level of income with
low asset value volatility by investing in a diversified portfolio of public
and private debt and debt-like instruments of which at least 70% will be
investment grade. The portfolio is diversified with respect to issuers and
sectors. The Company is targeting an annualised dividend yield of LIBOR plus
2.5% for the period from IPO to 31 December 2019 and LIBOR plus 4%
thereafter.
The Company intends, over time, to be invested mainly in private debt
instruments, which are those instruments not traded on a stock exchange and
are typically issued to a small group of institutional investors. This part
of the portfolio will include debt instruments which are nominally quoted
but are illiquid and rarely traded. Most of these will be floating rate
instruments, purchased at inception and with the intention to be held to
maturity; shareholders can expect their returns from these to come primarily
from the interest paid by the issuers. Our investment manager's size,
experience and reputation mean that it sees a high percentage of the
available market but it only invests in those instruments which it believes
are attractively priced: this takes time and depends upon market conditions.
The remainder of the Company's portfolio is invested in cash, cash
equivalents and quoted debt instruments, which are more readily available
and which can be sold when suitable private opportunities arise. These
instruments will also be traded to take advantage of market conditions.
Shareholders can expect their returns from this part of the portfolio to
come from a combination of interest income and capital movements.
Investment performance
The opening NAV per Ordinary Share, being the gross proceeds of the IPO less
the IPO expenses, was 98.38p.
Debt markets were volatile at the end of 2018, at the time of the Company's
IPO but recovered at the start of 2019. This period presented good
investment opportunities in public markets as the Company's investment
programme commenced. Our investment manager was able to take advantage of
investment grade corporate bonds performing strongly in the first quarter of
2019, with credit spreads tightening. High yield markets also made
significant gains. The improving market continued into the second quarter,
which put downward pressure on yields generally, amid falling expectations
for global economic growth. With investors maintaining confidence in the
major central banks to take action to prevent a slowdown, credit spreads
remained tight as investors chased yield.
In contrast, private market opportunities were fewer than our initial
projections and only 14.22% of the portfolio was invested in private
securities by the end of the period under review. The combination of reduced
spreads in the liquid public markets, and a higher proportion of the
portfolio than originally anticipated remaining invested in lower yielding
securities, resulted in a lower level of interest income than had originally
been expected.
Fortunately, as a consequence of the reduction in yields over the period,
higher than expected valuation growth has been achieved by the portfolio,
thereby compensating for the lower level of income. The NAV on 30 June 2019
was 101.33p per Ordinary Share: this represented a total return of 2.99%
since the Company's launch.
Share issuance and premium management
Your Directors believe that it is in the interests of shareholders for the
Company to increase its assets under management over time as this should
reduce its ongoing charges figure and provide greater market liquidity for
holders. The Company can do this by issuing additional Ordinary Shares or a
new class of C Shares. In each case, new shares will only be issued when our
investment manager has assured your Board of its confidence that suitable
investments can be made in a timely fashion using the proceeds of such share
issuance. The issue of new shares can also serve to manage the premium to
NAV per Ordinary Share at which the Company's shares trade by meeting excess
demand from investors that cannot be met by supply in the market. Ordinary
Shares will only be issued at a price which enhances the NAV of the existing
Ordinary Shares after all expenses.
On 31 January 2019, the Company announced that it had placed 25,000,000
additional Ordinary Shares in response to strong demand from the market, at
an issue price of 101p per Ordinary Share: this represented a premium to NAV
as at that date of 2.33%. The placing did not materially impact the
investment programme, which was still in its infancy.
By May 2019, the Ordinary Share price premium to NAV was again at levels
which your Directors considered high in light of the status of the
investment programme. Further issues of Ordinary Shares were undertaken in
May and June 2019 to satisfy market demand and to seek to manage the
premium. An additional 5,000,000 Ordinary Shares were issued at a premium to
the NAV of not less than 2%, thereby enhancing the NAV per Ordinary Share.
Our investment manager considered the aggregate proceeds raised through
these share issues manageable in executing the overall deployment programme
of the Company. Since mid-June 2019, the share issuance programme has been
paused until such time as our investment manager perceives there to be
better value to be found in adding to the portfolio.
The Company's Ordinary Share price traded at an average premium to NAV of
4.15% during the period from IPO to 30 June 2019. On 30 June 2019, the
Ordinary Share price was 104p, representing a 2.63% premium to NAV per
Ordinary Share as at that date.
Dividends
On 18 July 2019, the Company announced its first dividend of 2.09p per
Ordinary Share for the period from its IPO on 14 November 2018 to 30 June
2019, in line with the LIBOR plus 2.5% annualised dividend target. Your
Directors have chosen to apply the 'streaming' regime to that part of the
dividend payment which was covered by the Company's interest income, net of
expenses. Accordingly, the Company has designated 1.07p per Ordinary Share
as an interest distribution and 1.02p per Ordinary Share as a dividend. As a
result, the Company made use of capital reserves to support the dividend.
This reflected the investment performance of the Company's portfolio, where
capital growth was stronger than anticipated, but yields lower. The
Company's NAV per Ordinary Share as at 30 June 2019, adjusted for the
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