Liquidation of Listed Investment Companies ("LICs")

There are currently over 60 LICs on the Australian Stock Exchange.  Dissolve has recently conducted a review of the sector.  We examined 43 well known LICs to compare their share price to their stated Net Tangible Assets.   This is a common analysis designed to determine if the LIC is trading at a premium or discount to its NTA.

The results were somewhat surprising.  As at the end of September 2008, only two of the LICs we examined were trading at a premium to their Net Tangible Assets ("NTA") with the remaining 41 trading at a discount to their NTA.  The average discount to NTA was 24% with the highest being 64%. 

This creates the very frustrating situation for shareholders in the LIC.  By way of example, for an average LIC, a shareholder can sell their shares on market at 76 cents while the LIC sits on assets worth $1.00. 

There is an easy solution.  The LIC can sell its assets and return the capital to shareholders by way of a members voluntary liquidation.  In the example above, this would lead to an immediate improvement in the shareholders position of around 40%.  Some value would be lost in the sale and liquidation process that may reduce the 40% slightly.  

The counter argument from the LIC may be that they expect the next year or two to be a great time to buy shares and so the shareholders should leave their money in the LIC.  For us, that doesn't make sense as the LIC will be starting from a position where they must get a 40% return, and for that to be fully reflected in the LIC's share price, before they get to the starting position for a shareholder in the liquidation scenario.  

Our analysis is that for a large number of shareholders in LICs they would be significantly better off if the LIC would liquidate its assets and distribute the funds. 

If you are a shareholder in an LIC you may wish to discuss the position of your LIC with one of our Registered Liquidators.  Why not CONTACT US NOW for CONFIDENTIAL, FREE ADVICE.