CQS Natural Resources Growth and Income PLC

LEI: 549300ES8CNIK2CQR054

7 January 2025

Publication of Circular and Notice of Requisitioned General Meeting called by Saba Capital Management, L.P.

THE BOARD OF DIRECTORS URGE SHAREHOLDERS

TO VOTE AGAINST 

ALL THE REQUISITIONED RESOLUTIONS

The Board of CQS Natural Resources Growth and Income PLC (the "Company") announces that it has today published a circular (the "Circular") urging shareholders to protect their investments by voting AGAINST the self-interested and misleading plan put forward by Saba Capital Management L.P. ("Saba").

The Circular contains Notice of Requisitioned General Meeting to be held at 11 a.m. on 4 February 2025 at the offices of Dentons UK and Middle East LLP, One Fleet Place, London, EC4M 7RA.

Christopher Casey, independent non-executive Chairman of the Company said:

"Saba's proposals are without merit, introduce new and significant risk to your investment and are not in the best interests of ALL Shareholders. Their claims of the Company's underperformance are misleading, their proposals demonstrate a self-interested short-term focus, their track record is questionable and, if the Requisitioned Resolutions are passed, you may no longer be invested in a highly specialised natural resources investment trust with good governance and a clear strategy."

Reasons for voting AGAINST the Requisitioned Resolutions

As announced on 18 December 2024, the Company received a requisition notice from Barclays Capital Securities Client Nominee Limited, Saba's nominee. The Notice requires the Company to convene a general meeting of shareholders to consider resolutions to remove the current board of directors of the Company and appoint Paul Kazarian of Saba and Marc Loughlin as new directors (the "Requisitioned Resolutions").

Saba's proposals would give them control to pursue their own stated agenda including potentially to remove the manager, appoint themselves as manager and change the remit of the portfolio.

The resolutions therefore carry very significant risks for Shareholders and their investments, and the Board URGES SHAREHOLDERS TO REJECT SABA'S SELF-INTERESTED AND MISLEADING PROPOSALS.

The Board:

·    Has overseen strong performance, with 167.0% total return in NAV and 220.0% total return in share price since the current joint fund managers were appointed in October 2015.[1]

·    Believes Manulife | CQS and the joint fund managers, who are widely recognised as being leading investors in their field, are the team best placed to continue this strong performance in the natural resources sector Shareholders have chosen to invest in.

·    Is fully independent and has deep experience in investment trusts, natural resources, the UK investment management sector, finance and accounting, and as directors of quoted companies.

·    In line with the highest standards of corporate governance, maintains an annual continuation vote which facilitates 100% cash return should that be the wish of the majority of Shareholders voting.

·    Is committed to creating and preserving value for ALL Shareholders.

Saba:

·    Have failed to state how much cash they will return to Shareholders.

·    Are expected to appoint themselves as manager, as set out in their statement to Shareholders; we believe for their own economic gain.

·    Are expected to change the Company's investment policy from the strategy that Shareholders have selected, to an approach of investing in other trusts for which no track record has been provided.

·    Have failed to narrow the discounts of the funds that they have taken control of in the US, compared with their long-term averages, and Shareholders may become trapped at a long-term discount.

·    Have proposed directors who we do not believe to be independent of Saba, with no experience in natural resources and who, despite Saba's misleading claims, appear to have no experience of directing investment trusts.

The Board's action to date and what the Board is doing now

The Board has always been, and continues to be, committed to the interests of all Shareholders. A key area of attention is delivering Shareholder value and ensuring the strongest corporate governance and transparency.

·    Shareholders are given the opportunity to vote for or against the continuation of the Company every year;

·    the Management Engagement Committee of the Board annually reviews the performance and appropriateness of Manulife | CQS's ongoing appointment and reports on this in the annual report; and

·    the Board challenges the Company's strategy and reviews all opportunities to create value for Shareholders while considering wider issues facing the Company, the natural resources sector and the investment trust sector as a whole.

Regular and transparent communication, share buybacks, and a continuation vote provide Shareholders with the tools they need to make an informed investment decision and a voice for the future of their fund. The Board has repeatedly attempted to engage with Saba to ascertain their aims but they declined to provide their strategy, despite their misleading claims that they "prefer private engagement with the boards of the trusts we invest in".

The Circular outlines the Board's grave concerns with Saba's self-interested and misleading proposals which it believes could result in a long-term discount trap and the Board wishes to demonstrate the options available to preserve value for all Shareholders.  The Board is currently reviewing the following:

·    Maintaining the current investment policy and management arrangements, given the best practice annual continuation vote, together with providing liquidity to Shareholders by means of buybacks, tenders and other similar actions;

·    Introducing an increased dividend, to be funded in part by capital growth;

·    Pursuing further discount management mechanisms;

·    Providing a full cash exit at NAV for all Shareholders; and

·    If a suitable partner can be identified, to negotiate terms of a combination with another investment trust or open-ended investment company that would provide an ongoing investment opportunity with a natural resources and energy focus, together with the option of a full cash exit at NAV for all Shareholders.

The Board expects to announce the outcome of its current review during the course of the Company's current financial year i.e. by 30 June 2025 at the latest.

Importantly, the Board believes that implementing any one, or any combination, of these options will represent a much better outcome for Shareholders as a whole, rather than accepting Saba's proposals.

Recommendation

The Board strongly recommends that all Shareholders VOTE AGAINST the Requisitioned Resolutions at the Requisitioned General Meeting, as the Directors intend to vote in respect of their own shareholdings in the Company and to ensure that Shareholders protect their investments.

A copy of the Circular has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website at https://ncim.co.uk/cqs-natural-resources-growth-and-income-plc/  and microsite at https://cynprotectyourinvestment.com/.

All Shareholders are encouraged to VOTE AGAINST each of the Requisitioned Resolutions to be proposed at the Requisitioned General Meeting and, if Shareholders do not hold their Ordinary Shares directly, to arrange for their nominee to VOTE AGAINST each of the Requisitioned Resolutions on their behalf. Shareholders who hold their Ordinary Shares through an investment platform provider or nominee are encouraged to contact their investment platform provider or nominee as soon as possible to arrange for VOTES AGAINST each of the Requisitioned Resolutions to be lodged on their behalf. If Shareholders have any questions as to how they can arrange for their investment platform provider or nominee to VOTE AGAINST each of the Requisitioned Resolutions or would like guidance on this process, they should email eqproxy@equiniti.com.

Unless the context provides otherwise, words and expressions defined in the Circular shall have the same meanings in this announcement.

For further information, please contact:

About CQS Natural Resources Growth and Income PLC (LSE: CYN)

The Company actively invests in global energy and mining companies, with a focus on total return. It also pays a regular quarterly dividend. The flexible mandate allows the Company to shift its portfolio weighting between energy and mining, with the aim of maximising returns depending on the point in the cycle, whilst providing relative value opportunities.

The closed end structure is well suited to allowing the investment management team to focus on the best returns profile, rather than liquidity as is the case with Exchange Traded Funds ("ETFs"). The nature of this focus results in the Company holding a large proportion of its holdings in names that fall just below major index or ETF inclusion, adding additional upside potential should they become included. The portfolio is invested mostly in producers and developers across the natural resources sector, with strong earnings profiles and market caps typically in the region of £300m to £2bn, although also below and above this range.

The majority of holdings are listed in North America, Australia and/or the UK.

Further details of the Board's response to the Requisitioned Resolutions.

Saba's proposals for the Company

Saba are a hedge fund manager based in the United States. As previously announced to the market, Saba have a significant shareholding in the Company and, on 6 January 2025, had a disclosed interest in 29.07% of the outstanding share capital.

Saba have provided an explanatory statement in connection with their proposals, a copy of which is included in the Circular. They state that they have identified "a clear path forward" for the Company.

However, by sharing only scant details of what they have in mind, the path forward is anything but clear. The lack of information in Saba's explanatory statement lays bare the self-interested nature of their approach and the very significant risks for Shareholders.

No clear plan and misleading statements

Saba first disclosed a stake in the Company in September 2023. Since that time, despite repeated requests from the Board, they declined to engage and articulate their "clear path" until now. 

Saba's misleading claims are as follows: 

·    Saba selectively, misleadingly, and incorrectly quote just one performance figure on which to hang their case of underperformance. As shown below, the Company's long-term performance has been strong and Shareholders have benefited from the investment approach adopted by the specialist portfolio managers.

·    Their materials state that Paul Kazarian, a Saba employee, has extensive experience as a director of investment trusts. However, according to Companies House records, he has never acted as a director of a UK investment trust, nor even a UK company of any sort.

·    They state they have a clear path but have not adequately explained it, nor how all Shareholders (other than Saba) will benefit.

·    Saba state that their interests are aligned with those of other Shareholders, but if they intend to become manager and Directors of the Company this would put them in a direct conflict which they have not attempted to resolve.

·    Saba are expected to change the Company's investment policy away from natural resources to investing in other investment trusts, likely investing outside the sector Shareholders have chosen. They have not given the specific detail required to allow Shareholders or the Board to assess this change, what their track record is, or how their proposed strategy will protect and create value for all Shareholders.

·    Saba state that without their actions there is a risk of the discount widening again; but this is exactly what has happened with their two US closed ended funds - since taking control, the discounts of those funds have widened again to near their long-term averages.

The proposals they are making now are self-interested and misleading and therefore present a heightened level of risk to Shareholders.

No detail on cash exit

Saba state that they will offer "substantial liquidity near NAV" to Shareholders who do not wish to remain invested. They have not stated what percentage of their holdings Shareholders would be able to exit, nor what discount they mean by "near NAV".

In the US, where Saba have taken control of two fund boards and appointed themselves as manager, the first fund tendered for 15% and then a further 30% of the shares in issue, and the second fund tendered for 45% of the shares in issue. In the context of a wholesale change in policy and approach, and the appointment of unproven new directors and a prospective manager which has provided no track record information, the Board considers that any cash exit option offered would need to be for the whole of Shareholders' investments.

Saba's potential proposals mean that, after an initial provision of liquidity, the majority of shareholdings could be locked in what might become a highly illiquid fund.

No detail on changes to investment management arrangements

Saba state that they may replace Manulife | CQS as investment manager and may select Saba as the new investment manager while the new proposed Board will be Saba nominees. If Saba are selected, we note that any Shareholders remaining invested in the Company would then be paying fees to Saba.

This illustrates the potential conflict of interest for Saba and their nominee directors, particularly in determining the extent of the liquidity provision. They will be incentivised to offer a smaller liquidity event and retain a larger fee income for themselves.

The Board notes that Saba Capital Management, L.P. are not subject to UK financial services regulation, nor the relevant UK law and regulation on conflicts of interest. A hedge fund manager is surely predisposed to maximise its own returns.

Saba's materials do not give the information Shareholders deserve, and do not address the fundamental question of conflicts.

Inexperienced directors and questionable corporate governance

Saba are proposing their own employee Paul Kazarian as director, alongside Marc Loughlin. With Saba's proposed board for your Company being constructed initially of two Saba nominees only, this raises immediate corporate governance concerns regarding conflicts of interest, with Saba being a significant Shareholder in the Company.

In addition, Saba's materials state that Paul Kazarian has extensive experience as an investment trust director. In fact, according to Companies House records, it appears he has never acted as a director of a UK investment trust, nor even a UK company of any sort. This misinformation demonstrates to us that Saba do not understand the accepted ethical standards expected of directors of public companies, nor their fiduciary duties to fellow Shareholders.

Mr Kazarian's experience elsewhere has not been explicitly stated in the materials.

If Saba are successful in their campaigns against all seven of the UK investment trusts they are targeting, Mr Kazarian will be on six UK quoted company boards as well as upholding his US commitments. The Board considers that membership of six UK quoted company boards is a case of "over-boarding" which most voting advisory bodies would consider to be a breach of the usual standards of corporate governance. Those standards also require a majority of directors to be independent. Mr Kazarian is not independent from Saba and cannot be expected to hold Saba to account if they become manager.

Like Mr Kazarian, Marc Loughlin appears to have no experience of directing a UK company and the 13 years he spent in London were completed in 2007. Since then much has changed in financial markets and the investment trust sector. As a Saba nominee, who has not made any of his own statements about how he would propose to discharge his responsibilities as a director, the Board has concerns that he too will lack independence from Saba and will fail to hold them to account.

In contrast with Saba, the Board is fully independent, diverse and committed to the highest standards of corporate governance. The Board has deep experience in investment trusts, natural resources, the UK investment management sector, finance and accounting, and as directors of quoted companies. The Board has collectively served as directors to seven UK investment trusts for a total of over 54 years.

No guarantee the discount will narrow, yet further risks are significant

Saba have stated that they may refocus the Company's "investment mandate on purchasing discounted trusts and/or combining with other investment trusts, where appropriate, to realize scale benefits and synergies".

In assessing this strategy, the Board has considered whether Saba can attract sufficient demand to provide Shareholders with an ongoing ability to sell the Shares that they will have remaining, after Saba's initial provision of liquidity, at a price near NAV. We note that funds of investment trusts have a niche in the UK investment landscape but cannot be described as having mass appeal. The Board has grave concerns that there will not be sufficient buyers at an attractive price for the retained Shares to be easily sold.

To fully appreciate this risk, consider that the seven investment trusts who are the target of Saba's present campaign have an aggregate market capitalisation of approximately £3.9 billion, of which we calculate Saba's interest to be approximately £905 million. This leaves approximately £3.0 billion owned by regular investors. Let us assume, in the absence of any indication from Saba, that the initial round of liquidity offered by Saba's nominee directors is 50%. This leaves approximately £1.5 billion of market capitalisation belonging to regular investors.

If the owners of this £1.5 billion of shares wish to sell their holdings at a price near NAV over time, it is clear that a very considerable buying interest must be found elsewhere to complete the trades. The Board does not believe that there is a realistic prospect of this demand emerging.

The Board believes that there is a significant further risk should Saba's nominees be appointed. If the shares in the Company, and the other investment trusts under Saba's management, trade to a wide discount, as they have in the US, there is one investor who may well remain well-placed to buy Shares from regular Shareholders in the future, and that is Saba themselves. The Board does not rule out the possibility that Saba will become the buyer of last resort for the Shares they do not already own, and if this does come about, they can be expected to pay as little for the Shares as they can get away with.

The Board believes Saba's proposals will not be the panacea they claim.

Evidence of wide discounts from Saba's US-quoted funds

Saba are manager to two closed end funds that are quoted on the New York Stock Exchange. As with UK investment trusts, US closed end funds can often trade at discounts to NAV. In the absence of clear proposals for the Company from Saba, the two funds they manage in the US may provide a strong indication of how things may turn out for Shareholders.

Saba Capital Income & Opportunities Fund

Voya Prime Rate Trust was a US closed end fund with a policy of investing in bonds and related securities.

Saba's nominee directors were appointed to the board of the now-renamed Saba Capital Income & Opportunities Fund (SIOF) in July 2020, after a campaign like Saba's current campaign against the Company and the six others in the UK.

SIOF made tender offers for 15% and 30% of the share capital respectively in December 2020 and June 2021. Since the second tender closed, a period of approximately three and a half years, SIOF's shares have traded at an average discount of -8.1%^[2]. This is close to SIOF's 10-year average discount of -9.0%^[3], including the period of the previous manager's tenure, demonstrating that Saba's actions have had no material effect in achieving a sustained narrow discount.

In December 2021, SIOF announced that it would increase its distribution plan such that 12% of average NAV is distributed each year. SIOF stated that this action was "intended to narrow the discount between the market price and the NAV of the fund's common shares" but there is no evidence that this further action has been successful in generating net demand for shares in SIOF and the discount range that the shares trade within has not evidenced the narrowing that SIOF had intended.

Saba Capital Income & Opportunities Fund II

Templeton Global Income Fund was a US closed end fund with a policy of investing in income-producing securities.

Saba's nominee directors were appointed to the board of the now- renamed Saba Capital Income & Opportunities Fund II (SIOF-II) in February 2023. SIOF-II made a tender offer for 45% of the share capital at a discount of -1% to NAV which closed in November 2023. Since that tender closed, a period of approximately one year and two months, SIOF-II's shares have traded at an average discount of -10.7%^[4]. This is wider than SIOF-II's 10-year average discount of -8.7%^[5], including the period of the previous manager's tenure.

It is clear that Saba's proposals in the US have not led to a long-term narrowing of the discount. The liquidity offered through the tenders and net demand for the shares afterwards were inadequate to prevent the discounts reverting to the average.

Shareholders should not be fooled by Saba's claims that they can close the discount.

A strong record of performance under Manulife | CQS: the facts

Despite Saba's claims of underperformance, the Company has performed strongly over the long term:

Bloomberg as at 31 December 2024. Past returns are no guide to future performance.

Saba have highlighted one performance measure in their materials but, in another attempt to mislead, the index Saba have used (MSCI World Energy Sector index) is not the Company's benchmark.

Since the prior EMIX mining benchmark was discontinued in August 2023, the MSCI World Energy and MSCI World Metals and Mining indices are both used by the Company and are provided on the fact sheet for comparative reference.

Saba's use of the MSCI World Energy index is flawed because the Company has so little invested in the energy sector (19.5% as at 29 November 2024) and ignores its much more significant exposure to metals and mining.

In addition, using a three-year reference period does not show the Company's notable out performance over five years or indeed since inception. The Company remains actively managed and can materially shift asset allocation dependent on fundamentals and valuations. On this basis, it has outperformed both the MSCI World Energy and MSCI World Metals and Mining indices by approximately 35% and 39% in NAV total return and 103% and 108% in share price total return respectively over five years^[8].

Using the wrong benchmark and an arbitrary three-year period, during a period of geo-political instability, significantly and selectively misstates the Company's shareholder value generation. 

As shown by the performance information above, the Company benefits from the resources and commitment of Manulife | CQS as investment manager and the expertise of the joint fund managers, for whom brief biographies are shown below. Not only does Manulife | CQS provide investment expertise to drive performance, but it also has considerable experience in the corporate management of investment trusts, to the benefit of all Shareholders, that would not be replicated by Saba if they were to be appointed as manager.

Ian "Franco" Francis

Franco is CIO of New City Investment Managers and also the Senior Fund Manager for CQS New City High Yield Fund Limited. He is also co-fund manager for the Company. Franco joined CQS in 2007 as part of CQS' acquisition of New City and has more than twenty-five years' experience in trading and portfolio management. Prior to joining New City in 2007, Ian worked in a variety of roles in convertible bond trading and sales at firms including Collins Stewart Limited, where he was Head of Trading and Convertibles; West LB Panmure as Head of Convertibles, James Capel & Co. and Hoare Govett & Co. He began his career in fund management at Baring Bros. and Phillips & Drew.

Keith Watson

Keith Watson is a co-fund manager for the Company, Geiger Counter and Golden Prospect Precious Metals. Keith joined CQS in July 2013 from Mirabaud Securities where he was a Senior Natural Resource Analyst. Prior to Mirabaud, Keith was Director of Mining Research at Evolution Securities. Previous to this, he was a top-ranked business services analyst at Dresdner Kleinwort Wasserstein, Commerzbank and Credit Suisse/BZW. Keith began his career in 1992 as a portfolio manager and research analyst at Scottish Amicable Investment Managers. Keith holds a BSc (Hons) in Applied Physics from Durham University.

Rob Crayfourd

Rob is a co-fund manager for the Company, Geiger Counter and Golden Prospect Precious Metals. Prior to joining CQS in 2011, Rob was an analyst at the Universities Superannuation Scheme and HSBC Global Asset Management where he focused on the resource sector. Rob is a CFA charterholder and holds a BSc in Geological Sciences from the University of Leeds.

The Company's performance is directly related to the expertise of the investment managers who have long and deep natural resources knowledge, networks, and experience. The Board believes the Company is uniquely exposed to the global trends of the energy transition, digital and economic growth, and energy security; trends the investment managers understand deeply.

The blend of skills that are available through the present management arrangements are very hard to find and Saba certainly do not appear to have this expertise.

The Board's action to date and what we are doing now

The Board has always been, and continues to be, committed to the interests of all Shareholders. A key area of attention is delivering Shareholder value and ensuring the strongest corporate governance and transparency.

ü Shareholders are given the opportunity to vote for or against the continuation of the Company every year;

ü the Management Engagement Committee of the Board annually reviews the performance and appropriateness of Manulife | CQS's ongoing appointment and reports on this in the annual report; and

ü the Board challenges the Company's strategy and reviews all opportunities to create value for Shareholders while considering wider issues facing the Company, the natural resources sector and the investment trust sector as a whole.

Regular and transparent communication, share buybacks, and a continuation vote provide Shareholders with the tools they need to make an informed investment decision and a voice for the future of their fund. The Board has repeatedly attempted to engage with Saba to ascertain their aims but they declined to provide their strategy, despite their misleading claims that they "prefer private engagement with the boards of the trusts we invest in".

The Circular outlines the Board's grave concerns with Saba's self-interested and misleading proposals which it believes could result in a long-term discount trap and the Board wishes to demonstrate the options available to preserve value for all Shareholders.  The Board is currently reviewing the following:

·    Maintaining the current investment policy and management arrangements, given the best practice annual continuation vote, together with providing liquidity to Shareholders by means of buybacks, tenders and other similar actions;

·    Introducing an increased dividend, to be funded in part by capital growth;

·    Pursuing further discount management mechanisms;

·    Providing a full cash exit at NAV for all Shareholders; and

·    If a suitable partner can be identified, to negotiate terms of a combination with another investment trust or open-ended investment company that would provide an ongoing investment opportunity with a natural resources and energy focus, together with the option of a full cash exit at NAV for all Shareholders.

 The Board expects to announce the outcome of its current review during the course of the Company's current financial year i.e. by 30 June 2025 at the latest.

Importantly, the Board believes that implementing any one, or any combination, of these options will represent a much better outcome for Shareholders as a whole, rather than accepting Saba's proposals.

Why Shareholders need to vote, and VOTE AGAINST: to protect their investments 

The Board believes that the Company was selected for attack by Saba because of the low voting turnout at most annual general meetings; at the AGM four weeks ago, just 10.2% of the Shares were voted. If Shareholders don't VOTE AGAINST the Saba proposals, their 29.07% position is likely to bulldoze the vote in their favour and against what we believe to be best for ALL Shareholders.

Had Saba really been concerned about all Shareholders benefiting from a cash exit at close to NAV then they could have voted against continuation at the AGM. Instead, they waited 8 more days to launch a scatter-gun campaign against seven trusts, with the apparent aim of becoming the Company's manager, earning fees into the future and trapping Shareholders' investments at a discount.

Shareholders are strongly encouraged to vote to ensure that Saba's Requisitioned Resolutions are not carried as a result of Shareholder inaction.

By voting Shareholders exercise their rights and protect their investments.

Recommendation

The Board strongly recommends that all Shareholders VOTE AGAINST the Requisitioned Resolutions at the Requisitioned General Meeting, as the Directors intend to vote in respect of their own shareholdings in the Company and to ensure that Shareholders protect their investments.

For further information, please contact: