Shares in Amedeo Air Four Plus (AA4 ) climbed 12% higher to a 29-month peak today after the high-yielding but debt-laden plane-leasing fund announced it would return £28m to shareholders and hike quarterly dividends by 17%. 

Robin Hallam, chair of the Guernsey investment company that owns a dozen jumbo jets leased to the Emirates and Thai airlines and carries $1.2bn in debt, said the return of capital via a compulsory purchase of one in eight of the ordinary shares, plus the increase in the dividend from 1.5p to 1.75p per share, was in direct response to the reopening of China’s economy.

‘The big news is the reopening of China,’ he told investors. ‘This is significant for two reasons. First, its closure was one of the main reasons for international travel remaining stubbornly at around 75% of pre-pandemic levels.

‘Second, and of more direct relevance to us, Chinese tourism is a big element of Thai Airways traffic and is vital if they are to remain a profitable airline.’

From a pandemic low of 23p, shares in Amedeo soared 56% last year as international travel resumed after worldwide lockdowns imposed to curb the spread of coronavirus were relaxed.  

Before today, the stock had advanced a further 19% this year, boosted by Thai Airways emerging from bankruptcy proceedings and reverting to paying its full monthly rent on the four wide-body Airbus A350s it leases from the closed-end fund. During the downturn, it had paid Amedeo by the hour for the use of the planes to save money.

The emergence of activist investors such as Metage Capital, Weiss, and Elliott last year, who own more than 18% of the shares, is also likely to have been behind today’s good news.

The 5.25p spike in the shares to 48.5p still leaves Amedeo a long way off its 2019 peak of 159p, and on a massive 63% discount to analysts’ estimate of net asset value per share of 116.3p. That reduces its market value to £150m, despite holding assets worth £404m net of debt.

Nevertheless, the gain reflected investor pleasure at the 64.5p that Amedeo, a self-managed fund since parting company with manager Nimrod two years ago, was paying to redeem the shares. 

‘Put another way, the return of capital is worth 8.06p per share, or 18.6% of the current price,’ said Gerald Khoo, analyst at Liberum, the company’s corporate broker.

Khoo said the new annualised dividend of 7p per share implied a dividend yield of 16%, up from the current 14%, with the payments underpinned by the income paid by the Emirates on the six Airbus A380s and two Boeing 777s leased from Amedeo. Before Covid-19 saw payouts interrupted and fall, Amedeo paid out just over 8p per share a year.

Setting a share price target of 50p, Khoo noted what the board called its ‘prudent approach’ to liquidity and cash resources. ‘We believe this implies increased confidence in the likelihood of Emirates and Thai Airways honouring their lease payments in full, and there being sufficient retained cash and aircraft residual value to cover debt repayments,’ the analyst said.

Stifel analyst Sachin Saggar, who had previously questioned the eight-year-old company’s ability to repay $35m-$40m of debt payments when each plane lease expires from 2026 onwards, was also impressed with the ‘very positive update’.

He predicted the dividend yield would rise close to 20% after the capital return on 1 March.

He added: ‘Our one gripe would be that the board should now consider providing greater transparency on some of their underlying assumptions so investors can better understand how much cash is being conserved to meet debt balloon payments.’

Shares in rivals Doric Nimrod Air Two (DNA2 ) and Air Three (DNA3 ), which have also rallied strongly in the past year, slipped slightly in the falling UK stock market.