M&G Credit Income Investment Trust plc (MGCI)
M&G Credit Income Investment Trust plc: Annual Financial Report
19-Feb-2020 / 07:00 GMT/BST
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M&G Credit Income Investment Trust plc
Annual Financial Report for the period from incorporation on 17 July 2018 to
31 December 2019
The full Annual Report and Accounts will shortly be available via the
Company's website at www.mandg.co.uk/creditincomeinvestmenttrust or by
contacting the Company Secretary on telephone number 020 7954 9529.
The Directors present the results of the Company for the period from
incorporation on 17 July 2018 to 31 December 2019.
Financial highlights
Key data as at
31 December 2019
Net assets (GBP'000) GBP132,232
Net asset value (NAV) per Ordinary Share 101.72p
Mid-market price per Ordinary Share 106.00p
Premium to NAV [a] 4.21%
Ongoing charges figure [a] [b] 0.93%
Return per Ordinary Share period [b] ended
31 December 2019
Capital return 2.7p
Revenue return 2.6p
NAV total return [a] 5.6%
Mid-market price total return [a] 8.2%
First interim dividend 2.09p
Second interim dividend 1.65p
Total dividends declared 3.74p
a) Alternative Performance Measure. Please see full Annual Report and
Accounts for further information.
b) From the date of Initial Public Offering (IPO) 14 November 2018.
Chairman's Statement
I am pleased to present the first annual report for M&G Credit Income
Investment Trust plc (the "Company"). The Company, which was incorporated on
17 July 2018, raised GBP100,000,000 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. An additional 25,000,000 Ordinary
Shares were placed on 31 January 2019, followed by further tap issues
totalling 5,000,000 Ordinary Shares in May and June 2019.
Investment strategy
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% is investment
grade. 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 small groups of institutional investors. This part of
the portfolio may include debt instruments which are nominally quoted but are
generally illiquid. Most of these will be floating rate instruments, purchased
at inception and with the intention to be held to maturity, or until prepaid
by issuers; shareholders can expect their returns from these instruments 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 is subject to 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
generally be sold at market prices when suitable opportunities arise. These
instruments may 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.
This annual report provides you with an array of information on your
investments. Your Board believes that it is not acceptable to invest without
reference to broader environmental, social and governance (ESG) factors. With
this in mind, please do look at the disclosures on our investment manager's
approach to ESG which appear below.
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 and
diversification 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
4.64% during the period from IPO to 31 December 2019. On 31 December 2019, the
Ordinary Share price was 106p, representing a 4.21% premium to NAV as at that
date.
Investment performance
The opening NAV per Ordinary Share, being the gross proceeds of the IPO less
the IPO expenses, was 98.38p. The opening NAV on 1 January 2019 was 97.94p per
Ordinary Share and the NAV on 31 December 2019 was 101.72p per Ordinary Share:
taken with the interim dividend of 2.09p announced on 18 July 2019, these show
NAV total returns of 5.6% since the Company's launch and 6.0% for calendar
year 2019.
The start of 2019 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 scarcer than anticipated in the first half of 2019.
During the second half of 2019, bond yields fell to new lows, credit spreads
tightened further and unusual yield curves developed in an environment of high
levels of political uncertainty.
Throughout the year, the flow of attractive opportunities to invest in private
debt instruments was disappointing. We ended 2019 with only 16.6% of the
portfolio in direct investments in this segment although these were
supplemented by our holding in the M&G European Loan Fund, thereby giving us a
total of 27.41% in higher yielding assets. Fortunately, the portfolio enjoyed
significant capital gains over the period as a result of the market's yield
compression. This more than made up for the lack of income in the short term
and resulted in your Company's strong total return performance.
Dividends
Your Company announced a second dividend for 2019 of 1.65p, payable on 28
February 2020. This payment, in combination with the Company's first dividend
of 2.09p per Ordinary Share (paid on 23 August 2019 for the period from its
IPO on 14 November 2018 to 30 June 2019), is equivalent to the annualised rate
of LIBOR plus 2.5% which was initially targeted: the total return for 2019, as
detailed above, was comfortably in excess of this.
Your Directors have chosen to apply the 'streaming' regime to that part of the
second dividend which was covered by the Company's interest income, net of
expenses. Accordingly, the Company has designated 1.33p per Ordinary Share as
an interest distribution and 0.32p per Ordinary Share as a dividend. The
Company made use of reserves derived from capital gains to support the
dividend, reflecting 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 31 December 2019, adjusted for the
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