Following the receipt of a requisition request from Saba Capital Management, L.P. (click here to see our original coverage of this) CQS Natural Resources Growth and Income (CYN) has published a notice for the requisitioned general meeting alongside a unanimous board recommendation to vote against all of the requisitioned resolutions, which CYN describes as being “self-interested and misleading”.

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.”

[QD comment – James Carthew: Saba’s cherry-picking of statistics to suit its narrative, vague promises and cynical attempt to force its agenda on ordinary shareholders must be rejected. CQS Natural Resources has demonstrated in the past that its share price can double or even triple when sentiment turns in favour of its remit. Why would investors want to cash in the portfolio at this point in the cycle and miss out on that potential?

We think that it would be completely nonsensical for shareholders of all of the trusts requisitioned by Saba – including CYN – to hand control to one dominant shareholder who can then act entirely in their own interests – we continue to urge all shareholders to get out and vote against this to protect their investment.].

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 removing the manager, appointing themselves as manager, and changing 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.
• Believes Manulife | CQS and the joint fund managers, who are widely recognised as 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:

• Has failed to state how much cash they will return to shareholders.
• Is expected to appoint themselves as manager, as set out in their statement to shareholders, which we believe is for their own economic gain.
• Is 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.
• Has failed to narrow the discounts of the funds they have taken control of in the US compared with their long-term averages, and shareholders may become trapped at a long-term discount.
• Has 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 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.
• 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. 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.
• If a suitable partner can be identified, negotiating 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 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 about 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 [email protected].

CYN: CQS Natural Resources – Saba’s proposals “without merit and misleading”