BOUSSARD & GAVAUDAN HOLDING LIMITED

Transcription

1 BOUSSARD & GAVAUDAN HOLDING LIMITED a closed-ended investment company incorporated with limited liability under the laws of Guernsey with registration number AUGUST 2014 STATEMENT Total value of the investments of BGHL based on the final NAV for the Euro & Sterling ordinary shares * 623 million as of 31 August 2014 NAV per share Euro ordinary share Sterling ordinary share BGHL s portfolio The proceeds of the initial and secondary public offerings have been invested into the Sark Fund (net of a certain amount retained by BGHL for working capital requirements and other requirements). Since 1 November 2010, BGHL is invested into the BG Fund (formerly known as Boussard & Gavaudan Fund). In addition to having substantially 100% of its assets under management invested into the BG Fund, BGHL has other investments. Euro Shares Sterling Shares Shares issued 35,077, ,946 Shares held in treasury 592,817 - Shares outstanding 34,484, ,946 A. BG FUND Note that trade examples detailed in each strategy below are among the best and worst performances of the month. COMMENTARY AND HIGHLIGHTS The Eurostoxx 50 ended August up 1.8% and stock market volatility decreased: the VDAX finished at 15.8%, down from 16.6% and the VStoxx at 17.2%, down from 19.1%. The Crossover Series 21 finished at 241bps (22bps of widening). Volatility Strategies Convertible Bond Arbitrage Convertible bonds (excl. mandatories) contributed negatively to the performance of the fund. With most of the market players off, there was no new issue and secondary trading was limited this month. Valuations were stable in August, the performance of this month was due exclusively to GFI Informatique convertible bond as the stock fell almost 8%. Mandatory Convertible Bond Arbitrage * The total value of the investments of BGHL is based on the final NAV for the euro and sterling shares and the currency exchange rate for the Sterling vs. Euro. 1

2 Mandatory convertible bonds contributed positively this month. We sold our position on Telefonica / Telecom Italia exchangeable bond and favoured the Telecom Italia 6.125% 2016 mandatory bond. As mentioned in previous newsletters, the Telefonica / Telecom Italia structure has no pledge and no clause of acceleration in case of credit downgrade as for Caixa / Repsol. This implied a full credit risk on the mandatory valuation compared to a credit risk limited to the net present value (NPV) of coupons (for usual mandatory bond) or a credit risk limited to a portion of the nominal and the NPV of coupons (as for Caixa / Repsol case). As a consequence, our return on equity for Telefonica / Telecom Italia exchangeable bond was limited. The Telecom Italia 6.125% 2016 mandatory bond offered better opportunities in terms of structure due to a potential change of capital structure. Vivendi could become a major shareholder of Telecom Italia if the sale of GVT to Telefonica were partially paid in cash and in Telecom Italia shares. Gamma Trading Gamma trading contributed negatively this month. As previously stated, the book was kept to a minimum as most of the theta was spent in equity strategies. Although the market fell during the first two weeks of the month (-3.5% as of 12 August), close-to-close realised volatility did not pick up as the market drifted down consistently. We continued to believe that most of the market participants were long gamma and were buying shares in a falling market, thus dampening market moves. Fixed strike volatility did not move. This pattern reinforced our conviction to use options in equity strategies to express our directional views rather than in the gamma strategy. Equity Strategies Despite the seesaw market, the equity portfolio returned positively in August. After falling in the first weeks of the month due to geopolitical tensions and worries about Eurozone growth, the Eurostoxx 50 index finished the month up 2%. This was due to hope of a resolution of the Ukrainian crisis and supportive comments from Mario Draghi at Jackson Hole. Mr Draghi vowed to use all the available instruments needed to ensure price stability over the medium term. As well as helping the market, this weighed on the euro, which continued on its downtrend against the dollar. The 2% drop of the euro/dollar helped European exporters. We benefited from our dollar exposed investments: Safran finished the month up 13.6% and Airbus up 8%. At the end of July, these two stocks had reached their lows of the past 12 months following the very significant de-risking witnessed in June and July. They rallied in August on the back of the euro weakness, and positive earnings outlook post Q2 results. Our investment in Vivendi performed well: its Brazilian entity GVT attracted interest from two different bidders, Telefonica and Telecom Italia. This led to a bidding war and a sale of the assets to Telefonica at an attractive 7.45bn. We took profit on our position following a 14% rally from the lows of mid-july. Our investments in the Telecom sector returned positively, mainly driven by the rally of Vodafone and KPN shares: they performed well following reassuring earnings releases at the end of July. Our financials book also performed well, mainly due to our investments in insurance companies. Zurich Insurance outperformed Munich Re by 10% on the back of strong execution on its turnaround plan and a positive outlook. We benefited from our position in AXA, as they delivered good earnings growth and a positive message on its dividend policy. Credit Strategies Credit Long / Short Credit long/short strategies contributed negatively this month. In line with other risky types of assets, European credits saw some volatility in August: weaker at the beginning of the month, mainly driven by geopolitical tensions, finally recovering all lost ground by month end. Credit markets started anticipating further accommodative policy by the ECB as European dataflow continued to disappoint. The crossover index Series 21 tightened -22bps in August to close at +241bps after widening above +300bps on 8 August. Interestingly, the cash credit market underperformed while yields on European government bonds reached their record lows in August. Some outflows in the high yield 2

3 asset class were reported at the beginning of the month in a defensive move towards money markets and high grade. These reversed towards the end of the month. As usual in August, the primary market was quiet. The main positive contributor came in the form of senior unsecured debt of Banco Espirito Santo ( BES ): we had initiated this long position during its weakness in July. The position benefited from the Bank of Portugal s rescue plan, announced on 4 August, splitting the group into a new clean bank (Novo Banco), to which the senior liabilities are being transferred to, and the legacy entity, now a bad bank, retaining the problem assets funded by the equity and sub-debt holders on the liability side. While this rescue plan is only the first step to a full recovery of the BES situation, it clearly avoided any burden-sharing scenario for depositors and senior unsecured creditors. Our long position in BAWAG s Lower Tier 2 underperformed in sympathy with negative newsflow on Austrian banks. Erste Bank issued a major profit warning regarding its CEE activities, RBI was under continued pressure due to its Russian and Ukrainian exposures and there was speculation of a possible bail-in at OEVAG. However, BAWAG s interim results reiterated its best-in-class capital ratios (11.2% fully loaded CET1), profitability (16.2% ROE), and negligible CEE exposure (1.6% of assets): we continue to believe that the PE owners will eventually seek a listing for the bank. Capital Structure Arbitrage Capital structure arbitrage posted positively. The beginning of the month started on a negative note and the book suffered from disappointing earnings on some of our investments leading to significant discrepancies between equity, which underperformed considerably and credit (especially on ArcelorMittal). Moreover, tensions between Ukraine and Russia generated dislocations in an illiquid market which were magnified by poor European PMI numbers. In the second half of the month, the market stabilised somewhat and we ended the month slightly up thanks to active trading of our positions during the whole month. The book remained well balanced between long equity / short credit and long credit / short equity trades. Trading Trading contributed positively. B. DIRECT INVESTMENTS OTHER THAN BG FUND On top of its investment in BG Fund, BGHL has other investments. As of 29 August 2014, the net asset value of these investments represents approximately 8% of the net asset value of BGHL. Rasaland BGHL entered into RLI in June 2008 for $10 million. RLI is a Maltese company structured as a private equity fund in terms of fees and organisation, dedicated to investing in land, hotels and high-end resort developments in Mexico. The value of RLI reported by its administrator has remained almost unchanged, slightly above cost, since BGHL made its investment. RLI s initial business was, soon after launch, affected by several adverse events which have changed the exit solution and the time schedule considered initially. RLI has mitigated the risk of running out of cash by selling a stake in one of its land projects to a large Mexican institutional Pension Fund. The Company also acquired the Four Seasons hotel in Mexico in May 2013 and is close to acquiring a second flagship operating hotel, which complements the land portfolio with cash generating assets. The listing of RLI s hotel subsidiary on Mexico s exchange is the more likely exit option currently envisaged by RLI. The listing of the subsidiary could be followed by the listing of RLI. The EUR/USD exposure is hedged by an FX forward which is rolled on a three-month basis. GFI Informatique On 7 June 2013 BGHL signed a shareholders agreement in order to act in concert with the two main shareholders of GFI Informatique. GFI Informatique is one of the leading IT services firms in France and Southern Europe, employing 10,000 people at the end of In compliance with applicable regulations, the concert through Infofin Participations (an entity created for this purpose, hereafter Infofin ), filed a mandatory public tender offer with the French Autorité des Marchés Financiers (AMF) for all of the outstanding shares and bonds giving access to GFI s share capital or voting rights not yet held by the concert. Under the shareholders agreement BGHL agreed to invest - after completion of the public offer - in bonds to be issued by Infofin and exchangeable into GFI shares. BGHL completed on 29 August 2013 its subscription of 3

4 Infofin exchangeable bonds for an amount of 20,364, The Investment Manager of BGHL is not aware of any material adverse development and has not identified any significant event since August GFI has been performing in line with expectations. In addition BGHL has a direct equity investment in GFI Informatique (FR ) representing approximately 10.6 million as of 29 August C. BOUSSARD & GAVAUDAN ASSET MANAGEMENT UPDATE TRANSACTION IN THE COMPANY S SECURITIES Please note that transactions in the Company's securities that have been performed by officers, directors and persons referred to in the section 5:60 of the Financial Supervision Act ("Wft") are reported: directly on the AFM website: (professionals > registers > notifications > insidertransactions 5:60 wft); on the Company s website through a link to the AFM notification: (Investment Manager > Regulatory information). Transactions in the Company s own securities are also reported on: the AFM website: (professionals > registers > notifications > price-sensitive press releases); the Company s website: (Investor Relations > Financial announcements). BGAM S AUM As of 1 September 2014, BGIM assets under management are at 1.75bn. Sincerely, E. Boussard & E. Gavaudan Contact information Boussard & Gavaudan Investment Management, LLP 1 Vine Street, London W1J 0AH - United Kingdom 4

5 Disclaimer The Company is established as a closed-ended investment company domiciled in Guernsey. The Company has received the necessary approval of the Guernsey Financial Services Commission and the States of Guernsey Policy Council. The Company is registered with the Dutch Authority for the Financial Markets as a collective investment scheme pursuant to article 2:73 in conjunction with 2:66 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). The shares of the Company (the "Shares") are listed on Euronext Amsterdam. The Shares are also listed on the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange plc's main market for listed securities. This is not an offer to sell or a solicitation of any offer to buy any securities in the United States or in any other jurisdiction. This announcement is not intended to and does not constitute, or form part of, any offer or invitation to purchase any securities or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law. Neither the Company nor BG Fund has been, and neither will be, registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act"). In addition the securities referenced in this announcement have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"). Consequently any such securities may not be offered, sold or otherwise transferred within the United States or to, or for the account or benefit of, US persons except in accordance with the Securities Act or an exemption therefrom and under circumstances which will not require the issuer of such securities to register under the Investment Company Act. No public offering of any securities will be made in the United States. You should always bear in mind that: - all investment is subject to risk; - results in the past are no guarantee of future results; - the investment performance of BGHL may go down as well as up. You may not get back all of your original investment; and - if you are in any doubt about the contents of this communication or if you consider making an investment decision, you are advised to seek expert financial advice. This communication is for information purposes only and the information contained in this communication should not be relied upon as a substitute for financial or other professional advice. VC