- Dated 01/02/19 – Valuation of Molopo Energy Limited Update
Aurora Funds Management Limited (“Aurora”) provides the following valuation update in respect of the Aurora Fortitude Absolute Return Fund (“AFARF”).
Valuation of Molopo Energy Limited shares
As at 31 December 2018, AFARF held an investment in the ordinary shares of Molopo Energy Limited (ASX: MPO), which was suspended from trading on the Australian Stock Exchange on 27 July 2017 and remains suspended as at the date of this update.
On 27 September 2018, Aurora announced that the fair value of the holding in Molopo had been reduced from 3.6 cents per share to 2.6 cents per share, based on material information which had come to light between 31 August 2018 and 27 September 2018.
On 31 January 2019, Molopo released its Quarterly Cash Flow Statement for the quarter ended 31 December 2018. Based on the information contained in this Quarterly Cash Flow Statement, Aurora has reassessed the carrying value of its investment in Molopo and has decided to write the value of its investment down from 2.6 cents to 1.9 cents. The rationale for this decision is summarised below:
▪ Today, Molopo’s primary assets comprise its cash reserves and its investment in Drawbridge. Molopo has advised that the cash reserves at 31 December 2018 amounted to $13.3 million, however no guidance has been provided as to the carrying value of the Drawbridge Investment. Based on the structure of the Drawbridge investment, whereby Molopo has a 30% holding in a foreign private company with no voting rights and only a limited ability to appoint a director, it is difficult to ascribe any value to this investment – based on the information that has been released to date. As such, for the purpose of valuing its investment in Molopo, Aurora continues to placed nil value on the Drawbridge investment;
▪ Molopo’s primary liability relates to a long-standing legal action in Canada concerning the Company and Molopo Energy Canada Ltd (“MECL”), a wholly owned subsidiary of the Company. As the financial statements for the half-year ended 30 June 2018 have not yet been released by Molopo, the annual audited financial statements for the year ended 31 December 2017 remain the most recent financial statements released by Molopo, which were released by Molopo on 8 May 2018. In those financial statements, there was no change to the long standing provision of A$8.6 million, with the following commentary being provided:
In March 2011, MECL was served with a statement of claim by a former joint venture partner (3105682 Nova Scotia ULC) “310 ULC”) claiming MECL breached various agreements relating to the relevant joint venture, including breach of fiduciary duties, trust and good faith. 310 ULC has sought declarations, accountings, damages of 25% revenue, C$35.0 (A$35.9) million general damages, C$1.0 (A$1.0) million punitive and aggravated damages, interest, GST and indemnity costs. Subsequent to the filing of the statement of defence, the Company undertook an extensive examination of the transactions that gave rise to the amounts in dispute. This examination resulted in the Company applying a provision in the accounts in 2012 of a net C$5.0 (A$5.1) million. In early 2013, the JV Partner settled a counterclaim by making a payment of C$3.4 (A$3.5) million to the Company, at which time the Company increased the provision to C$8.4 (A$8.6) million.
The matter is continuing in the ordinary course with the Court. No court date has yet been set and the standard preparatory litigation processes are being undertaken.
The movement in the past two years in the provision for legal claim arises solely from fluctuations in foreign exchange rates in the period. The Board is satisfied that the progress of the litigation process has not provided evidence to suggest the C$8.4 (A$8.6) million provision is inappropriate. The Board therefore considers the provision to be appropriate.
▪ Molopo currently has 249,040,648 ordinary shares on issue;
▪ Based on the above, Aurora considers the appropriate carrying value of its investment in Molopo to be 1.9 cents, calculated as follows:
o cash reserves of $13.3 million; less
o litigation provision of $8.6 million;
o divided by 249,040,648 ordinary shares on issue; which
o equates to a value of 1.9 cents per share.
▪ As more information is released by Molopo on the Drawbridge investment as well as the Canadian litigation, it may be appropriate for Aurora to revisit the carrying value of its Molopo investment.
The fair value of the Molopo Investment is based on significant estimates and judgements adopted by the Board of Aurora based on all available information about Molopo as at the current date.
The Aurora Board considered the range of possible values and determined that the fair value of the Molopo investment held by the Fund should now be valued at 1.9 cents.
Aurora continues to pursue avenues to recover value that has been lost by the former directors of Molopo.
- Dated 14/08/18 – Valuation of Molopo Energy Limited & Off-market Redemptions Update
Aurora Funds Management Limited (“Aurora”) provides the following update in respect of the Aurora Fortitude Absolute Return Fund (“AFARF”).
Valuation of Molopo Energy Limited shares
As at 30 June 2018, AFARF held an investment in the ordinary shares of Molopo Energy Limited (ASX: MPO), which was suspended from trading on the Australian Stock Exchange on 27 July 2017 and remains suspended as at the date of this update.
On 12 September 2017, AFARF announced an off-market takeover bid for 100% of the shares in Molopo at a price of $0.135 (13.5 cents) per share through a combination of cash (capped at $5 million) and units in AFARF.
On 8 May 2018, Molopo disclosed a number of transactions which were in excess of the ‘no material transaction or series of transactions of more than $2 million’ defeating condition of AFARF’s bid, specifically:
▪ “On 30 January 2018, Orient redeemed all of the JV Partner’s shares in Orient for a redemption amount of USD$7 million (Orient Redemption), resulting in the shares of the JV Partner in Orient being cancelled and Orient becoming a wholly-owned subsidiary of Molopo”;
▪ “Following completion of the Orient Redemption, Molopo has sole funded the remaining amounts required by the Orient Project, in accordance with its current budget for the project, in an aggregate amount of USD$21 million (Orient Funding)”;
▪ “On 21 February 2018, Orient entered into a contribution agreement with Drawbridge Energy Holdings Ltd (Drawbridge) pursuant to which it agreed to (i) transfer its 100% interest in Orient FRC (US) LLC (Orient US), a wholly owned subsidiary of Orient; and (ii) assign Orient’s interest in the Orient Project to Orient US at completion, in consideration for a 30% interest in Drawbridge (Combination Transaction)”; and
▪ USD$21 million was funded by way of intercompany loan from Orient to Orient US. Following completion of the Combination Transaction on or about 7 March 2018, the loan from Orient to Orient US was extinguished.
Following completion of the Combination Transaction, Molopo reported that it had $16.904 million of cash as at 31 March 2018.
On 11 May 2018, Aurora submitted an application to the Takeovers Panel in relation to the affairs of Molopo seeking a Declaration of Unacceptable Circumstances in relation to the Orient / Drawbridge Transactions. Amongst other things, Aurora submitted:
(a) the transactions and events described in the 8 May 2018 ASX announcement constituted frustrating actions and should have been subject to shareholder approval;
(b) there were disclosure deficiencies in Molopo’s Target Statement and Supplementary Target Statements;
(c) Molopo failed to comply with its continuous disclosure obligations; and
(d) the conduct of Molopo’s (now former) directors in relation to, and the nature of, the transactions, and other circumstances, gave rise to serious concerns regarding the transactions.
2. the cumulative effect of the transactions and events was to inhibit the acquisition of control over voting shares in Molopo taking place in an efficient, competitive and informed market.
3. it appeared that Molopo had misled the Takeovers Panel in prior Takeover Panel proceedings regarding the urgency and use of the US$4.5 million shareholder loan to Orient.
4. in relation to the Orient / Drawbridge Transactions, that certain circumstances “point to the transaction being a sham”, including the uncommercial structure of the transaction, the speed at which and the secrecy with which it had been consummated, the lack of oil and gas experience of the Former Directors and the disregard for the ASX Listing Rules.
5. it sought an order that all transactions that are capable of being unwound be unwound. If that order was not made (or complied with) and Aurora withdrew its bid due to the frustrating actions, it sought an order for costs associated with its bid.
On 8 June 2018, the Takeovers Panel made a Declaration of Unacceptable Circumstances in relation to the Orient / Drawbridge Transactions and subsequently ordered Molopo to pay a portion of the costs necessarily, properly and reasonably incurred by Aurora, however did not order that the Drawbridge /Orient transaction be unwound.
On 1 August 2018, the new Molopo Board, who were elected at the Company’s Annual General Meeting on 31 May 2018, made the following comments in the recent Quarterly Activities Report released by Molopo:
“Following a detailed review of the Orient/Drawbridge Transactions, the current Directors of Molopo cannot see any logical or commercial reason for entering into these transactions.
The Transactions resulted in the Company’s cash reserves being depleted from A$66.2 million at 30 June 2017 to A$15 million as at 30 June 2018.
The Former Directors proceeded with these transactions without seeking shareholder approval, resulting in a breach of ASX Listing Rules, as well as breaching ASX continuous disclosure obligations and the Corporations Act.”
On 10 August 2018, Aurora made an ASX Announcement advising of its decision to not declare AFARF’s takeover bid free from its defeating conditions and therefore to withdraw the AFARF takeover bid.
In light of the above, Aurora considers that the actions of the former Molopo directors have substantially and adversely affected the value of Molopo’s assets. As such, Aurora has considered the carrying value of its investment in Molopo and has decided to write the value of its investment down from 13.5 cents to 3.6 cents. The rationale for this decision is summarised below:
▪ Today, Molopo’s primary assets comprise its cash reserves (A$15 million as at 30 June 2018) and its shareholding in Drawbridge. Molopo’s shareholding in Drawbridge, being a 30% shareholding with no voting rights and limited rights to appoint a representative director, was reported to have gross cash of US$14.07 million, investment and other assets of US$4.41 million, current liabilities of US$0.29 million and net assets of US$18.2 million (A$24.06 million) as at 31 March 2018; against which the projected cash outflows for the 6 month period between April and September 2018 was estimated to be US$6.61 million (gross) or US$1.1 million (A$1.46 million) per month. Molopo’s 30% share of the net balance equates to A$5.235 million.
▪ Given the uncertainty around the recoverability of the money invested in Drawbridge, coupled with the lack of available audited information at this time, Aurora has taken 50% of A$5.235 million for the purpose of ascribing a value for Molopo’s shareholding in Drawbridge, being A$2.62 million. This estimate may change as more information regarding Drawbridge’s financial position is made available over the coming months.
▪ Molopo’s primary liability relates to a long-standing legal action in Canada concerning the Company and Molopo Energy Canada Ltd (“MECL”), a wholly owned subsidiary of the Company. According to the most recent financial statements released by Molopo, being the annual audited financial statements for the year ended 31 December 2017, which were released by Molopo on 8 May 2018, there was no change to the long standing provision of A$8.6 million, with the following commentary being provided:
In March 2011, MECL was served with a statement of claim by a former joint venture partner (3105682 Nova Scotia ULC) “310 ULC”) claiming MECL breached various agreements relating to the relevant joint venture, including breach of fiduciary duties, trust and good faith. 310 ULC has sought declarations, accountings, damages of 25% revenue, C$35.0 (A$35.9) million general damages, C$1.0 (A$1.0) million punitive and aggravated damages, interest, GST and indemnity costs.
Subsequent to the filing of the statement of defence, the Company undertook an extensive examination of the transactions that gave rise to the amounts in dispute. This examination resulted in the Company applying a provision in the accounts in 2012 of a net C$5.0 (A$5.1) million. In early 2013, the JV Partner settled a counterclaim by making a payment of C$3.4 (A$3.5) million to the Company, at which time the Company increased the provision to C$8.4 (A$8.6) million.
The matter is continuing in the ordinary course with the Court. No court date has yet been set and the standard preparatory litigation processes are being undertaken.
The movement in the past two years in the provision for legal claim arises solely from fluctuations in foreign exchange rates in the period. The Board is satisfied that the progress of the litigation process has not provided evidence to suggest the C$8.4 (A$8.6) million provision is inappropriate. The Board therefore considers the provision to be appropriate. ▪
Molopo currently has 249,040,648 ordinary shares on issue;
▪ Based on the above, Aurora considers the appropriate carrying value of its investment in Molopo to be calculated as follows:
- cash reserves of $15 million; plus
- 50% of Molopo’s 30% of Drawbridge estimated value $2.62 million; less
- litigation provision of $8.6 million;
- divided by 249,040,648 ordinary shares on issue;
- the total estimated value equates to a value of 3.6 cents per share
▪ As more information is released by Molopo on the Drawbridge shareholding as well as the Canadian litigation, it may be appropriate for Aurora to revisit the carrying value of its Molopo investment.
The fair value of Aurora’s investment in Molopo is based on significant estimates and judgements adopted by management of Aurora based on all available information about Molopo as at the date of the 30 June 2018 financial report.
In addition to the application made by Aurora to the Takeovers Panel, Aurora is pursuing other avenues to recover value that has been lost by the former directors of Molopo.
Update on Redemption Requests
In light of the decision to write down the value of the Molopo investment to 3.6 cents, all investors that had previously lodged Redemption Requests will now have the option of withdrawing their Redemption Request. This option remains open until 31 August 2018. If no withdrawal request is received by 31 August 2018, Aurora will process those Redemption Requests in line with previous announcements.
For all Redemption Requests received by Aurora after the 31 August 2018, Aurora will process those Redemption Requests pursuant to its Constitution, Product Disclosure Statement and any Fund updates.
- Dated 01/06/18 – Distribution Update
Aurora Funds Management Limited (“Aurora”) as responsible entity of Aurora Absolute Return Fund (“ABW”) and Aurora Fortitude Absolute Return Fund (“AFARF” or “Master Fund”) would like to provide the following update regarding the relation to the AFARF’s Distribution Policy.
AFARF currently pays a quarterly distribution to unitholders of 1% of Net Asset Value (NAV), or, 4% per annum. Effective 30 June 2018, the quarterly distribution rate for the Fund will be adjusted to the greater of 0.5% of NAV (2% per annum) or distributable taxable income.
- Dated 9/5/18 Takeover bid update
Aurora Funds Management Limited ACN 092 626 885 (Aurora), in its capacity as responsible entity for the Aurora Fortitude Absolute Return Fund (AFARF), notes the disclosures made by Molopo Energy Limited (Molopo) in its annual financial statements, Progress Report and Quarterly Cashflow Report, released on the ASX on 8 May 2018. In particular, Aurora notes the transfer of the majority of Molopo’s assets into a newly incorporated company in the British Virgin Islands in exchange for a minority 30% non-voting interest, with limited rights. These transfers have occurred without shareholder approval, and appears to be in contravention of Listing Rule 11.1, and in breach of the conditions imposed by the AFARF Takeover Bid. Aurora is very concerned by the nature, timing and disclosures of these activities undertaken by Molopo, in circumstances that are contrary to the defeating conditions in the AFARF Takeover Bid. Aurora has communicated its significant concerns to the ASX and the Australian Securities and Investments Commission. Aurora is considering the impact to the AFARF Takeover Bid and will provide an update in due course.
- Dated 22/3/18 – Liquidity Management Update
Aurora Funds Management Limited (“Aurora”), as responsible entity of the Aurora Fortitude Absolute Return Fund (“Fund”), provides an important update in relation to the redemption facility, effective with respect to redemption requests made for processing during the quarter ending 31 March 2018.
Read more here.
- Dated 02/03/2018 – Director Appointment
Aurora Funds Management Limited (“Aurora”) is an Australian-based alternative asset manager specialising in absolute-return investment strategies.
Aurora’s current ownership group purchased the business on 30 June 2016. At the time of purchase, Aurora’s business was in distress, primarily due to a significant investment made by the former managers in an ASX-listed convertible note that had run into financial difficulty, which had ultimately caused it to freeze certain fund liquidity. Having inherited this illiquid position, the incoming Group worked diligently to restore liquidity for the funds, allowing circa $50 million of redemptions to be processed shortly after its purchase.
The incoming Group was led by John Patton. John had been a partner with Ernst and Young and prior to that, was Chief Financial Officer of a gas transmission business owned by the Hastings Diversified Utilities Fund.
The Group has sought to keep Aurora’s business independent. However, an impression has apparently been formed in some parts of the market that the business is associated with, in particular, its former owner Keybridge. Despite Keybridge retaining the management rights of one of Aurora’s funds (HHY Fund), and Aurora complying with its obligations under that arrangement, that impression is not correct.
This unfortunate impression was entrenched by recent findings in the Takeovers Panel where share acquisitions in an ASX company, Molopo Energy Limited, by each of Aurora and Keybridge had to be unwound. That position has been vigorously denied by Aurora, with the legality of the decision currently subject to judicial review in the Federal Court (NSW).
The Group has also had to deal with challenges associated with a financial theft, that resulted in the immediate termination of its long standing Chief Financial Officer (Ms Betty Poon), replacement of its auditor (Deloitte) and a review of its share registry service provider (Registry Direct).
The Group has continued its focus on rebuilding Aurora and becoming a sustainable funds management business. The key areas of focus for the Group include improving investor returns and correcting public perception, particularly around corporate governance. Aurora management recognises that it needs increased focus in these areas if it is to be seen by investors and the wider market, as what it believes it is – a truly independent, professional and proficient funds management business.
An important step in this direction is to appoint a new independent director to the Aurora Board. Mr Tony Hartnell AM has accepted our invitation to join the Board and to participate in working on the development of transparency, professionalism and independence.
Mr Tony Hartnell AM, who was previously the inaugural Chairman of what is today known as the Australian Securities and Investment Commission (ASIC), is a very welcome addition to the Aurora Board.
A copy of Mr Hartnell’s CV is below.
ANTHONY GEOFFREY HARTNELL, AM
- A Founding Partner – Atanaskovic Hartnell, January 1994 to date
- Formerly a Partner of Allen Allen & Hemsley, July 1980 – June 1990 & January 1993 – December 1993
- Deputy Secretary, Department of Business & Consumer Affairs 1976-1979
- Senior Assistant Secretary, Australian Attorney-Generals Department, 1974-1975
- Chairman, Australian Securities Commission 1989-1992 (Inaugural)
- Chairman, National Companies & Securities Commission 1990-1991
- Member, Companies & Securities Advisory Committee 1990-1992
- Member, Trade Development Council 1987-89
- Director, Australian Film Finance Corporation Pty Ltd 1988-1990
- Special Legal Adviser, Australian Government Inquiry into Telecommunications 1985
- Member, Trade Practices Act Review Committee 1976 (Swanson Committee)
- Visiting Professor of Law, University of Newcastle
- Visiting lecturer, Sydney University Law School, LLM course
- Chief Legal Counsel – Bankers Trust Australia Group 1997
- Member, Australian Law Reform Commission Advisory Committee on the Adversarial System of Litigation
- Contributor to Butterworths Corporations Law Service
- Chairman NSW Thoroughbred Racing Board 2000-2004
Current Public Directorships
- Allegra Orthopaedics Limited
Major Areas of Specialisation
Corporate and Commercial Law, particularly, regulatory issues, corporate financing, takeovers, trade practices and collective investments, with more recent emphasis on investigations and enforcement actions.
B Ec (ANU), LLB (Hons)(ANU), LLM (Highest Hons) (Geo. Washington Uni)
- Order of Australia (AM)
- Centenary Medal 2003
Proprietor of Meringo Stud, Moruya NSW
- Dated 02/02/2018 – Notification of change in scheme and compliance plan auditor
The directors of Aurora Funds Management Limited (Responsible Entity) have resolved to appoint Grant Thornton Audit Pty Ltd as auditor of Aurora Fortitude Absolute Return Fund.
Deloitte Touche Tohmatsu have applied for, and received, ASIC consent to resign as the auditor of AFARF.
- Dated 15/01/2018 – Liquidity Update
Aurora Funds Management Limited (“Aurora”) as responsible entity of Aurora Absolute Return Fund (“ABW”) and Aurora Fortitude Absolute Return Fund (“AFARF” or “Master Fund”) would like to provide the following update regarding the December 2017 quarter off-market redemptions.
On 17 October 2017, Aurora provided an update regarding the Master Fund’s off-market redemption facility whereby Aurora stated that it intended to increase the redemption ceiling applying to redemptions to 10% (from 5%) of the total FUM for the quarter ending 31 December 2017.
Aurora is pleased to announce it expects Master Fund unitholders will receive approximately 27% of their outstanding redemption monies based on total redemptions as at 31 December 2017.
Aurora notes that redemption payments will be finalised once the audited half year accounts have been approved by Directors. The half year accounts will be signed no later than 28 February 2018.
- Dated 12/01/2018 – Notice of variation of Aurora’s takeover bid for Molopo to extend offer period and announcement of conditional increase in bid consideration
This notice relates to the off-market takeover bid (Bid) made by Aurora Funds Management Limited ABN 69 092 626 885 (Aurora) as responsible entity of the Aurora Fortitude Absolute Return Fund ARSN 145 894 800 (AFARF) to acquire the ordinary shares (Molopo Shares) in Molopo Energy Limited ABN 79 003 152 154 (Molopo) under the bidder’s statement (Bidder’s Statement) dated 26 October 2017. Unless the context otherwise requires, a defined term in the Bidder’s Statement has the same meaning in this document.
Read more here.
- Dated 11/12/2017 – Notice
Aurora recently became aware of the misappropriation of approximately $1 million of funds from the Aurora Property Buy-Write Income Trust (AUP). This matter has been reported to ASIC and the Victorian Police and is currently being investigated. Aurora confirms that it has appropriate insurance cover in place and is taking recovery action against the alleged perpetrator. The former Chief Financial Officer of Aurora was terminated effectively immediately. Aurora is currently investigating whether the alleged perpetrator’s actions have impacted any other Funds, however it currently understands that the misappropriation is largely limited to AUP.
There is an indirect impact of this event on AFARF, as AFARF holds approximately 21% of the units in AUP. Given the insurance and recovery actions, this is not currently expected to impact financially on AFARF. Current and potential AFARF unitholders should however consider this event when making their investment decisions.
- Dated 26/10/17 – Change to registry service provider for the Aurora Fortitude Absolute Return Fund
Aurora Funds Management Limited (Aurora) advises that the registry service provider for the Aurora Fortitude Absolute Return Fund has changed to Registry Direct Limited.
After this change, Registry Direct Limited will be registry service provider for all funds managed by Aurora.
Registry Direct Limited can be contacted on 1300 556 635 or firstname.lastname@example.org
- Dated 17/10/17 – Liquidity Management & Enhanced Redemption Guidelines – Update – December 2017 quarter
Aurora Funds Management Limited (“Aurora”), as responsible entity of the Aurora Fortitude Absolute Return Fund (“Fund”), provides an important update in relation to the off-market redemption facility, effective with respect to redemption requests to be processed during the quarter ending 31 December 2017.
As disclosed in the fund update of 17 February 2017, redemption requests received since 1 January 2017 have exceeded the provisions contained in the Fund’s Constitution (“Announcement”). In that Announcement, Aurora advised that redemption requests submitted by AFARF unit holders will be subject to redemption guidelines (“Redemption Guidelines”) including the application of a redemption ceiling of 5% of the total funds under management (“FUM”) to requests for redemptions in any given quarter.
In accordance with Aurora’s duties under Corporations Act 2001 (Cth) (“Act”), Aurora continues to actively manage the liquidity requirements of the Fund to ensure satisfaction of the Fund’s investment mandates and objectives, whilst also ensuring that Aurora is able to manage the redemption process in an orderly manner.
This requires Aurora to achieve an outcome that is fair to unit holders as a whole, including balancing the interests of those unit holders that wish to redeem their investment in the Fund with those unit holders who wish to remain invested in the Fund.
Redemptions during the quarter ending 31 December 2017 (to be paid in January 2018)
Based on information currently available to it, Aurora intends to increase the redemption ceiling applying to redemptions to 10% of the total FUM for the quarter ending 31 December 2017.
Based on the currently level of unsatisfied redemption requests, this would result in a payment in excess of 25% of each unitholders’ outstanding redemption request during that quarter. The final amount payable to each unitholder will however depend on any additional redemption requests received or withdrawn during the quarter which is uncertain.
This increase will apply to the 31 December 2017 quarter only, however Aurora will continue to monitor the available liquidity in the Fund and is targeting improvements above the 5% redemption ceiling to apply in the 31 March 2018 and subsequent quarters.
Redemptions during the quarter ending 30 September 2017 (to be paid in October 2017)
Redemptions for the quarter ended 30 September 2017 are subject to the existing 5% of FUM ceiling and are currently being calculated for payment.
This amendment to the Redemption Guidelines, as detailed above, is based on information presently available to Aurora and Aurora will continue to provide fund updates with respect to the Fund’s redemption facility, including the Redemption Guidelines, should they be the subject of further updates as the relevant circumstances and factors change.
Unit holders are recommended to regularly monitor the Fund’s updates to ensure they are aware of all relevant information prior to making a decision with respect to their investment in the Fund.
- Dated 11/09/17 – Appeal of Takeovers Panel Orders
On 10 July 2017 Aurora Funds Management Limited (Aurora) as responsible entity for AFARF and AIB made an announcement in relation to the Orders made by the Australian Government Takeovers Panel (Takeovers Panel). Reasons for the orders were subsequently provided by the Takeovers Panel on 22 August 2017 (Reasons). Aurora has carefully considered the Reasons for the orders, and on 8 September 2017 Aurora applied to the Federal Court for a judicial review of the Takeovers Panel decision.
Aurora has consistently denied that it has acted in concert with Keybridge Capital Limited, or anyone else, in relation to the affairs of Molopo.
ABW is solely invested in AFARF so is also impacted by this application.
- Dated 03/08/17 – Liquidity Management
In the announcement by Aurora Funds Management Limited (Aurora) as responsible entity of the Aurora Fortitude Absolute Return Fund (AFARF) made on 27 July 2017 about AFARF’s proposed takeover bid for Molopo Energy Limited (Molopo), AFARF stated that Molopo shareholders who accept the takeover offer and elect to receive AFARF units will be able to request redemption of the units off-market at the prevailing net asset value based redemption price in accordance with AFARF’s constitution and fund updates.
In that regard, Aurora notes that redemption guidelines are currently in place to manage the liquidity requirements of AFARF. In summary, redemption requests are considered and processed on a quarterly basis and, as a general principle, AFARF will provide unit holders with access to liquidity by redemptions of up to 5% of the total funds under management in any given quarter (with applications being scaled back proportionately if aggregate redemption requests for a quarter exceed that threshold). Full details of the redemption guidelines are set out in the ‘Liquidity Management’ fund update dated 17 February 2017 available from Aurora’s website (http://www.aurorafunds.com.au/investment-funds/afarf-unlisted-managed-fund/fundupdates/).
The liquidity management of AFARF and redemption guidelines are subject to change, and the board of Aurora intends to review the guidelines in the course of finalising AFARF’s bidder’s statement for its proposed takeover of Molopo. Any updates in relation to this matter will be uploaded to Aurora’s website, and the bidder’s statement will include an explanation of any applicable redemption guidelines.
- Dated 31/07/17 – Takeover Bid for Molopo Energy Limited Correction
Further to the announcement made by Aurora Funds Management Limited (“Aurora”) on 27 July 2017 in relation to the Aurora Fortitude Absolute Return Fund (“AFARF”) announcing a cash and/or scrip takeover bid for Molopo Energy Limited, Aurora advises of a correction as follows:
The statement that identified: “Those who elect to receive AFARF units will become part of an enlarged listed management investment scheme” should read: “those who elect to receive AFARF units will become part of an enlarged unlisted managed investment scheme”.
- Dated 27/07/17 – Strategic Investment by Molopo Enery Limited
Following the proposed takeover bid announced this morning by Aurora Funds Management Limited (Aurora), as responsible entity of the Aurora Fortitude Absolute Return Fund (AFARF), for Molopo Energy Limited (Molopo), Molopo announced it had completed a ‘strategic investment’ and requested a suspension of trading in its shares until 31 July 2017 while it finalises its ‘technical announcement’.
AFARF and the Aurora Global Income Trust both have investments in Molopo. Molopo has been a ‘cashbox’ for more than 4 years, and since November 2015 has made repeated public statements that it would obtain shareholder approval before making a material investment. Further, under chapter 11 of the ASX Listing Rules, Molopo is required to obtain shareholder approval for any proposed transaction that would result in a significant change to the nature or scale of its activities.
Entering into a ‘strategic’ investment without shareholder approval may trigger a defeating condition under Aurora’s proposed takeover bid, potentially denying Molopo shareholders the opportunity to participate in the significant premium to Molopo’s recent market price afforded by the takeover bid.
Aurora looks forward to Molopo’s ‘technical’ announcement and will carefully consider all of its options if the Board of Molopo proceeds with the investment without shareholder approval.
- Dated 27/07/17 – Takeover Proposal for Molopo Energy Limited
Aurora Funds Management Limited (Aurora) as responsible entity of the Aurora Fortitude Absolute Return Fund ARSN 145 894 800 (AFARF) is intending to make an off-market takeover bid under chapter 6 of the Corporations Act 2001 (Cth) for all the issued fully paid ordinary shares in Molopo at a bid price of $0.18 each.
The bid price is 33.8% above the 30 day volume weighted average price (VWAP), 27.5% above the 60 day VWAP and 14.9% above the 90 day VWAP, of Molopo shares ending on 26 July 2017, as well as a 28.6% premium to the closing sale price of Molopo shares on that day. The directors of Aurora believe that the proposed bid will provide an attractive alternative to the current uncertainty and lack of strategic direction at Molopo.
If Aurora is able to gain control of Molopo, it intends to seek to return a material amount of capital to Molopo shareholders, subject to a careful review of the company’s liabilities. Remaining cash assets would then be prudently invested until the resolution of Molopo’s litigation, at which point further capital returns would be considered.
Payment of the bid consideration to those accepting Molopo shareholders who elect to receive AFARF units1 would be satisfied by the issue of the units with a unit value equal to the bid consideration. Unit value would be determined in accordance with the constitution of AFARF, which provides for an objective valuation methodology as required by section 601GA(1)(a) of the Corporations Act. Payment of the bid consideration in cash would be subject to a cap of $5 million in total. Acceptances for cash consideration that in aggregate exceed $5 million would be scaled back, with the balance of the bid consideration satisfied by the issue of AFARF units.
Read the full announcement here.
- Dated 07/07/17 – Molopo Energy Limited
Further to the Fund Update made by Aurora Funds Management Limited (Aurora) on 3 July 2017 in relation to the declaration published by the Takeovers Panel (Panel) regarding the applications made by Keybridge Capital Limited (Keybridge) and Molopo Energy Limited (Molopo) for a review of the findings of the initial Panel, the review Panel has now made orders.
In summary, the Panel’s orders include the following:
- 39,540,910 Molopo shares held by Aurora (being the number of Molopo shares acquired by Aurora since 10 August 2016) are to be vested in ASIC to sell (using an investment bank or stock broker) over a period of six months and return the proceeds of sale (net of costs) to Aurora;
- Aurora and its associates may not acquire any further Molopo shares during the next six months; and
- Aurora must make disclosure to ASX of its relevant interests in Molopo shares and its association with Keybridge (as declared by the Panel).
As previously announced, the board is currently considering the review Panel’s declaration (and now these orders) and any action it may take in response.
Unitholders should note the 3 July 2017 Fund Update explaining the inherent uncertainty in the calculation of the NAV of the Fund due to the inability of Aurora to calculate accurately the value of Molopo exposure as we are unable to determine the outcome of the sale process under the Panel’s orders.
- Dated 03/07/17 – Molopo Energy Limited
Further to the Fund Update made by Aurora Funds Management Limited (Aurora) on 20 May 2017 in relation to the proceedings before the Takeovers Panel (Panel) concerning the acquisition of shares in Molopo Energy Limited (Molopo) by Keybridge Capital Limited (Keybridge) and Aurora and the applications to review of the findings of the initial Panel, the review Panel has now published a declaration.
The review Panel has agreed with the initial Panel that certain actions in relation to Keybridge and Aurora gave rise to unacceptable circumstances in relation to the affairs of Molopo. The review Panel also considered Keybridge and Aurora were associates in relation to Molopo and have contravened section 606 of the Corporations Act 2001 and the substantial holder notice provisions.
The Panel states in its declaration that it considered the board of directors of Aurora was aware of a strategy orchestrated by Mr Nicholas Bolton to control Molopo and agreed to or acquiesced in that strategy.
The review Panel’s reasons for making its declaration have not been published, and without the benefit of those reasons, Aurora is not yet able to respond fully to the declaration.
Based upon the sworn evidence and the submissions which were provided to the Panel, members of the Aurora board fundamentally disagree with the finding of association between the company and Keybridge.
Managing Director of Aurora Funds Management, Mr John Patton, also provided sworn evidence to the Panel. The Board and Mr Patton are currently considering the declaration and any action they may take in response.
Separately, the review Panel is now considering the question of orders to make, and Aurora will make a further announcement in due course. A copy of the declaration has been published by the review Panel.
Aurora currently owns approximately 12.8% of Molopo on behalf of Aurora Fortitude Absolute Return Fund (and approximately 5.1% on behalf of Aurora Global Income Trust).Unitholders should note there is currently an inherent uncertainty in the calculation of the NAV of the Fund, due to the inability of Aurora to calculate accurately the value of Molopo exposure until proceedings before the Panel are resolved.
- Dated 20/05/17 – Molopo Energy Limited
Aurora Fortitude Absolute Return Fund (“the Fund”) has an exposure to Molopo Energy Limited (MPO). MPO has been in a trading halt since 29 May 2017 pending the announcement of a strategic investment, and as a result its securities are currently suspended from quotation. The Fund has valued its exposure to MPO at its last trading price of $0.145 in accordance with the Fund’s Valuation and Unit Pricing policy. At that valuation it currently represents approximately 32% of the value of the assets of the Fund.
Additionally, unit holders should note that the Takeovers Panel (Panel) made orders on 14 June 2017 for the MPO shares held by the Fund to be vested in the Commonwealth and sold by a broker appointed by the Australian Securities and Investments Commission within 6 months. These orders are currently stayed due to applications to review the underlying decision of the Panel on which the orders are based. In addition, Aurora Funds Management Limited (Aurora) applied on 14 June 2017 for a review of the orders.
The Panel has announced on 16 June 2017 that it received Aurora’s application, but that a review Panel is yet to be appointed and no decision about whether to conduct proceedings has been made at this stage.
Unit holders should note these facts and understand there is currently an inherent uncertainty in the calculation of the NAV of the Fund, due to the inability of Aurora to accurately calculate the value of the MPO exposure until such time as MPO’s securities are once again quoted on the ASX, and the proceedings before the Panel are resolved.
- Dated 26/04/17 – Appointment of Chief Operating Officer
Aurora Funds Management Limited is pleased to announce it has expanded its management team with the appointment of Mr Ben Norman to the role of Chief Operating Officer, effective 26 April 2017.
Ben is a qualified Chartered Accountant, with over 16 years of professional and industry experience. Prior to joining Aurora, Ben was a Director in Ernst & Young’s Transaction Advisory Services division, where he spent over 9 years working on numerous due diligence, performance improvement, restructuring, turnaround, financial modelling and transaction integration engagements with clients in all industry sectors. While working with Ernst & Young, Ben also performed extended secondments with global financier GE Capital in a senior risk and compliance role and with ASX listed Origin Energy Limited as a finance manager in Origin’s upstream business.
Prior to joining Ernst & Young, Ben held a senior finance position with gas transmission business Epic Energy (which was owned by the ASX listed Hastings Diversified Utilities Fund, backed by Westpac Banking Corporation) where he was responsible for overall financial control and compliance.
Managing Director, John Patton, commented, “we are delighted to have secured the services of a very senior and experienced industry professional to Aurora’s management team. Ben Norman’s extensive professional and industry experience will be a valuable addition to Aurora’s capabilities”.
In light of the changes that have taken place within the business, Aurora has decided to update and refresh its Product Disclosure Statement (PDS). Pending this review being finalized, Aurora has withdrawn its PDS for new retail applications, however all existing terms will continue to apply save as varied in accordance with the terms of the PDS. Upon the lodgment of an updated PDS, the fund will then accept applications from new retail investors.
- Dated 18/04/17 – Takeovers Panel update
Further to the announcement made by Aurora Funds Management Limited (“Aurora”) on 12 April 2017 in relation to applications made by the Australian Securities and Investments Commission (“ASIC”) and Molopo Energy Limited (“Molopo”) to the Takeovers Panel seeking declarations of unacceptable circumstances in relation to Aurora’s acquisitions of shares in Molopo on the basis of an alleged ‘association’ with Keybridge Capital Limited, Aurora notes that:
1. the members of the Panel who will consider the applications have been appointed;
2. the Panel has not yet decided whether to conduct proceedings on either application; and
3. if proceedings are conducted, one of the orders sought by ASIC is that approximately 39.5 million Molopo shares held by Aurora be sold within a period of 3 months (with the net proceeds of sale being paid to Aurora). If such an order were to be made, the effect that the sale of such a large number of shares in a relatively short timeframe would have on the trading price of Molopo shares is unknown (and could be adverse, having regard to the illiquid nature of trading in Molopo shares).
Aurora also notes that in the separate application made by Molopo, a divestment order is also sought on the basis that Aurora not receive any profit on the sale of the shares.
The Molopo shares owned by Aurora on behalf of Aurora Fortitude Absolute Return Fund and Aurora Global Income Trust currently represent approximately 30.4% and 39.5% respectively of the value of the assets of those funds.
As stated in its announcement on 12 April 2017, Aurora intends to vigorously oppose the applications.
- Dated 12/04/17 – Takeovers Panel
Aurora Funds Management Limited (“Aurora”) has received applications by Australian Securities and Investments Commission and Molopo Energy Limited (“Molopo”) to the Takeovers Panel seeking declarations of unacceptable circumstances in relation to Aurora’s acquisitions of shares in Molopo on the basis of an alleged ‘association’ with Keybridge Capital Limited (“Keybridge”) in relation to Molopo. No date for the panel hearing has been fixed at this stage.
Aurora has consistently denied that it is acting in concert with Keybridge (or anyone else) in relation to the affairs of Molopo and expects to vigorously oppose the applications following its review of the extensive materials submitted with the applications. Aurora has engaged commercial lawyers Norton Gledhill to assist it in this regard.
Aurora currently owns approximately 12.79% of Molopo on behalf of Aurora Fortitude Absolute Return Fund and approximately 5.10% on behalf of Aurora Global Income Trust.
- Dated 17/02/17 – Liquidity Management
Aurora Funds Management Limited (“Aurora” or the “Responsible Entity”) provides an important update detailing the manner in which redemption requests in the Aurora Fortitude Absolute Return Fund (the “Fund”) will be handled, effective immediately.
As you may be aware, from 31 August 2016 Aurora reinstated liquidity to the Fund, providing an extraordinary liquidity solution, superior to the requirements of the Fund’s Constitution. On 7 November 2016, Aurora further advised that the Withdrawal Fee that was introduced as part of this extraordinary liquidity solution, would be reduced to nil, effective from 1 January 2017.
Since 1 January 2017, the level of redemption requests exceed the provisions contained in the Fund Constitution. The Responsible Entity has given careful consideration to these requests, its power to permit redemptions and its obligation to act in the best interests of all unit holders. The Responsible Entity has resolved that it intends to exercise its discretion to accept these requests, and any future redemption requests, subject to the redemption guidelines and process set out below.
Aurora continues to actively manage the liquidity requirements of the Fund to ensure that the Fund is able to achieve its investment objectives whilst also providing unitholders with the ability to access their investment as and when they may wish to do so. It is important to achieve an equitable balance between the competing interests of those unitholders seeking to redeem their investment and those unitholders who wish to remain invested in the Fund.
Aurora has decided to adopt the following redemption guidelines to ensure that the manner in which it considers redemption requests is equitable to all unit holders and ensures that the investment objectives of the Fund can be achieved:
Redemption requests will be considered and processed on a quarterly basis with the next redemption date scheduled for 31 March 2017 .
As a general principle, the Fund will provide unitholder access to liquidity, in the form of redemptions, of up to 5% of the total funds under management (“FUM”) in any given quarter . The Responsible Entity has reviewed Fund inflows / outflows and market peers and believes that a 5% benchmark is adequate for a Fund of this size.
If aggregate redemptions exceed 5% of the total Fund FUM in the relevant quarter, then redemption requests will be deemed to be for a proportionately scaled back amount according to the redemption price as at the date the redemption request is received by the Responsible Entity.
Any unsatisfied portion of a redemption request will be carried over to the next redemption quarter. Unitholders will not be required to lodge a new redemption request form as the Responsible Entity will maintain a record of all redemption requests received in the prior quarter.
Aurora believes that these general redemption guidelines will ensure that the Fund does not return to a state where redemptions are ‘suspended’, subject to the occurrence of any extraordinary circumstances. The Responsible Entity will continue to exercise its discretion in respect of any redemption requests on a case-by-case basis, but will do so with the above guidelines in mind.
How are the redemption proceeds calculated?
Under clause 7 of Fund’s Constitution, the redemption price per unit is calculated as the net asset value per unit less transaction costs which have been estimated at 0.02%. The net asset value is calculated as the total assets less the total liabilities.
When the Responsible Entity exercises its discretion to accept a redemption request, the redemption proceeds owing to the unitholder will, in the normal course, be calculated on the last business day of each quarter. If, during any quarter, the aggregate redemptions exceed 5% of the total Fund FUM, any residual balance (of units) will automatically be carried forward to the next quarter and will rank equally with any other redemption requests received in that quarter. Any redemption request(s) that is carried into the next quarter will receive the prevailing net asset value at the end of that quarter. This process will continue until all redemption requests are satisfied.
Payment of redemption proceeds
Unitholders will be paid their redemption proceeds within 10 days of each quarterly redemption date. All proceeds will be paid via your nominated payment method.
Confirmation of redemption
Once redemption requests have been processed, unitholders who have redeemed will be issued with a transaction statement advising of the number of units withdrawn and value of redemption proceeds.
- Dated 08/02/17 – Update in relation to the Investment Strategy
Aurora Funds Management Limited (“Aurora”) provides the following update in relation to the investment strategy for the Aurora Fortitude Absolute Return Fund.
- Historically, Aurora has typically targeted a large number of positions in highly liquid investments. Whilst this still forms the basis of the investment strategy, Aurora is also prepared to take more concentrated and/or substantial positions where there is an opportunity to take an active role in creating a catalyst to unlock underlying value. Aurora believes the pursuit of these opportunities will enable the Fund to generate higher investment returns over the longer term whilst potentially increasing volatility.
- The current Product Disclosure Statement (“PDS”) contemplates 90% of the Fund’s assets being able to be liquidated within 10 business days. The Fund will revert to the liquidity requirements contained in its Constitution, which is consistent with the Corporations Act.
- All investments continue to be managed within the Investment Mandate as outlined in the current Product Disclosure Statement’s and Fund Updates.
- Dated 19/01/17 – Appointment and Resignation of Compliance committee member of the responsible entity
Aurora Funds Management Limited, as Responsible Entity for Aurora Fortitude Absolute Return Fund is pleased to announce the Board has appointed Mr Jim Hallam as an external member of the Responsible Entity’s Compliance Committee to replace Mr David Lewis who has resigned. Jim’s appointment will take effect immediately.
Jim is currently a Non‐Executive Director of Aurora Funds Management Limited.
Jim was appointed as Non‐Executive Director of Aurora Funds Management Limited on 30 June 2016. Jim has over 20 years’ finance and operational experience in Australian funds and investment management experience. Focused on building strong strategically important processes to create and support funds management, Jim’s expertise in finance includes his role as CFO at Hastings Funds Management Limited from 1997 to 2006. Whilst at Hastings, funds under management grew from A$500 million to A$3,600 million, with investments being made in Australia, UK and the US for listed and unlisted funds. His experience spans a diverse range of businesses including toll roads, airports, electricity and gas transmission networks, water utilities, timber plantations, telecommunications, ports and stadiums.
The Board wish to thank Mr Lewis for his considerable contribution since his appointment.
- Dated 30/11/16 – AFARF meeting
Aurora Funds Management Limited, the responsible entity of the Aurora Fortitude Absolute Return Fund (AFARF), advises that the extraordinary resolutions put to unitholders were not approved by AFARF unitholders earlier today.
- Resolution 1 (Removal of Aurora as the current Responsible Entity) was not passed.
- Resolution 2 (Appointment of Millinium as the new Responsible Entity) was not passed.
- Resolution 3 (Winding up the Fund) was not passed.
Accordingly, Aurora will remain the responsible entity of AFARF and will continue to act as the responsible entity of AFARF and seek to accomplish the investment objective and strategy of AFARF.
- Dated 07/11/16 – Withdrawal Fee Update
On 25 July 2016, Aurora announced a withdrawal fee of 1.85% (in accordance with the current PDS dated 14 February 2016 and the Consolidated Constitution of the Fund).
As previously disclosed, Antares Energy Convertible Notes were suspended from trading on the ASX and were considered illiquid, therefore causing uncertainty in the valuation. As a result, effective 25 February 2016, Aurora temporarily froze off market applications and redemptions in the Fund.
On 31 August 2016, Aurora announced it had developed an extraordinary liquidity solution allowing the unfreezing of the redemptions requests. As part of developing, implementing and facilitating the extraordinary liquidity solution, Aurora elected to impose a Withdrawal Fee as a temporary measure.
After careful consideration, the Board of Aurora has decided to reduce the Withdrawal Fee to nil, effective from 1 January 2017.
- Dated 26/09/16 – AFARF Meeting
A meeting of the members of the Aurora Fortitude Absolute Return Fund was held at 11.00am on 26 September 2016 in accordance with the Notice of Meeting issued on 18 August 2016.
The independent Chairman, Mr John Malon, opened the meeting and noted that there had been some recent developments in relation to the subject matter of the meeting. In particular, the Chairman noted that Aurora had informed him that:
(a) It wished to retire as Responsible Entity under section 601FL of the Corporations Act and clause 17.1 of the Fund’s constitution;
(b) It considered it in the best interests of members of the Fund that they have a choice of responsible entities to replace it as responsible entity of the Fund; and
(c) It requested that the meeting be adjourned to allow unitholders the opportunity to consider the alternatives and to receive additional information in relation to them.
The Chairman indicated that it was appropriate to adjourn the meeting to enable additional options to be put before the members of the Fund and for the relevant additional information to be provided to them.
It was indicated that notices of the meetings and additional information would be despatched as soon as possible, expected to be within the next 3 weeks.
The Chairman noted that Aurora was not yet in a position to confirm the date on which the meetings will be held, partly due to uncertainty surrounding the Chairman’s availability for the meeting. However, it was stated that the objective was for the meetings to be held in early November.
The Chairman declared the meeting of the Fund adjourned to the place and time specified in a notice of adjourned meeting to be issued by Aurora and thanked unitholders for their attendance.
- Dated 23/09/16 – Chairman Notification
John Malon, principal of Hive Legal, has been appointed by Aurora as Chairman of the Meeting for the Aurora Fortitude Absolute Return Fund Members meeting to be held on Monday 26 September 2016.
- Dated 09/08/16 – Explanatory Memorandum
In relation to members’ resolutions to be voted on by eligible unitholders of the Aurora Fortitude Absolute Return Fund at a meeting to be held on 26 September 2016.
The directors of the responsible entity unanimously recommend that you vote AGAINST all of the resolutions.
Read the Explanatory Memorandum here.
- Dated 08/09/16 – Daily applications and redemptions reinstated
Aurora Funds Management Limited (“Aurora”) is pleased to announce that daily applications and redemptions will be reinstated for the Aurora Fortitude Absolute Return Fund. The daily application and redemption facility is available from 8 September 2016.
Withdrawal window of redemption request closed
On 31 August 2016, Aurora announced that investors who had lodged redemption requests after 25 July 2016 but before 31 August 2016, had the option of withdrawing their redemption request.
Aurora advises that the window to withdraw their redemption request has now closed.
- Dated 31/08/16 – Reinstatement of Liquidity & Antares Convertible Note Update
Aurora Funds Management Limited (“Aurora”) provides the following update in respect of the Aurora Fortitude Absolute Return Fund (the “Fund”).
Antares Convertible Note Update
As at 30 June 2016, the Fund held investments in Antares Energy Limited Convertible Notes (ASX: AZZG), which had been suspended from trading on the Australian Stock Exchange on 15 September 2015 and remain suspended as at the date of this update.
In February 2016, Aurora made the decision to freeze applications and redemptions in the Fund, on the basis that it could not accurately determine a value for the AZZG Notes.
For the purposes of the June 2016 year-end financial statements, and after careful consideration of all of the available information, Aurora has formed the view that the AZZG Notes should be recognised at a nil value. In forming this view, Aurora has relied on the following information:
On 8 April 2016, Antares Energy Limited (“Antares”) issued a notice of resumed meeting of noteholders (to be held on 29 April 2016) to, amongst other things, extend the reset date of the AZZG Notes to 31 March 2017 and amend the next interest payment date to 30 April 2017. This meeting did not proceed.
On 29 April 2016, Antares appointed Bryan Kevin Hughes and Daniel Johannes Bredenkamp of Pitcher Partners as Joint and Several Administrators.
On 10 May 2016, following a resolution passed at the first meeting of creditors, Quentin James Olde and Michael Joseph Ryan of FTI Consulting replaced Bryan Kevin Hughes and Daniel Johannes Bredenkamp of Pitcher Partners as Joint and Several Administrators of Antares.
As part of the 30 June 2016 year-end audit procedures, Aurora engaged an external independent valuer in the US, South Texas Reservoir Alliance LLC (STXRA), to perform an independent valuation of the underlying assets of Antares, being Northern Star and Big Star (STXRA conducted a similar valuation for the purposes of Aurora’s 31 December 2015 financial statements). In summarising the STXRA valuation, the following observations are relevant:
o STXRA reviewed, in the course of its analysis, both recent market transactions and public land records to provide both a liquidation and transactional evaluation of the assets;
o The Administrator of Antares, FTI Consulting, made an ASX Announcement on 30 August 2016 calling for Expressions of Interest. In that Announcement, the Administrator advised that circa 5,000 acres of leased land had expired, leaving circa 15,900 acres;
o STXRA indicated that “there is a trend in the E&P industry right now to only focus on core acreage and this leasehold is not considered core in the Midland basin so the number of potential purchasers for this asset are pretty limited”;
o STXRA provided a valuation range of between USD$985,000 (representing 2X the lower end of the Liquidation value) to USD$12,312,500 (representing 5X the upper end of the Liquidation
value) (being AUD$1,279,055 to AUD$15,988,183). The face value of the AZZG Notes is AUD$47.5 million;
o STXRA concluded that Antares, “given its financial situation and inaction on its leases, would probably tend more towards lower end of liquidation pricing”;
o STXRA also noted that “due to Antares lease position falling apart and the recent lower price per acre metrics, it appears that this asset will tend to the lower values”;
o The STXRA valuation range excludes any other liabilities and costs that need to be satisfied by the Administrator;
o The Funds holds circa 12.0% of the AZZG Notes;
o Antares has been trying to sell the asset for a number of years, with no sale forthcoming; and
o The external valuation is based on the value of the acreage, so any costs of administration would need to be paid first.
In addition to the STXRA valuation, Aurora management had regard to confidential information and reports provided by the Administrators.
The fair value of the AZZG Notes is based on significant estimates and judgements adopted by management of Aurora based on the prevailing market conditions and all available information about Antares as at the date of the 30 June 2016 financial report.
Aurora management considered the range of possible values and determined that the fair value of the AZZG Notes held by the Fund should be nil as at 30 June 2016.
As part of the year-end audit procedures, the external auditors (Deloitte) reviewed the analysis prepared by Aurora management along with the associated reports and concurred with the position taken.
Reinstatement of Liquidity
On 25 July 2016, Aurora announced a proposed liquidity solution that, amongst other things, involved the creation of two (2) notional pools, being the Aurora Fortitude Absolute Return Fund General Pool (“General Pool”) and the Aurora Fortitude Absolute Return Fund Note Pool (“Note Pool”). Under this proposal, it was contemplated that the illiquid investment, AZZG Notes, would be transferred to the Note Pool along with some cash to fund the Administration, with the remaining liquid investments being held in the General Pool. All existing investors would then have proportional exposure to both Pools.
In light of the decision above to write down the carrying value of the AZZG Notes to nil as at 30 June 2016:
the commercial rationale supporting the creation of two (2) notional pools no longer exists, as the associated costs are likely to outweigh the potential benefits; and
the Fund becomes unfrozen.
As a result, Aurora will no longer create two (2) notional pools but rather will now process all Redemption Requests pursuant to its Constitution, Product Disclosure Statement and any Fund updates.
Update on Redemption Requests
Prior to the announcement on 25 July 2016, Aurora had received a number of Redemption Requests which would have been processed had it not been for the uncertainty around the AZZG Note valuation. For those requests received prior to 25 July 2016, no withdrawal fee will be charged.
In light of the decision not to proceed with the creation of two (2) notional pools, all investors that had lodged Redemption Requests after 25 July 2016 but before 31 August 2016, will now have the option of withdrawing their Redemption Request. This option remains open for seven (7) days. If no withdrawal request is received by 7 September 2016, Aurora will process those Redemption Requests pursuant to its Constitution, Product Disclosure Statement and any Fund updates.
For all Redemption Requests received by Aurora after the 31 August 2016, Aurora will process those Redemption Requests pursuant to its Constitution, Product Disclosure Statement and any Fund updates.
Read more here.
- Dated 19/8/16 – Update of Investment in Antares Energy Limited Convertible Notes
Aurora Funds Management Limited (“Aurora”) as responsible entity of the Aurora Fortitude Absolute Return Fund (the “Fund”), provides the following update to investors.
As part of the annual preparation for financial reporting, Aurora advises that it expects to recognise a non-cash impairment charge against the carrying value of the Antares Energy Limited Convertible Notes (ASX Code: AZZG) (“Antares Notes”) held by the Fund as at 30 June 2016.
The impairment charge reflects information that has become available through the audit process and which leads Aurora to believe there is a possibility that the value of the Antares Notes is substantially less than the current carrying value of $1.82 per note.
The exact amount of the impairment charge is subject to finalisation of the Fund’s full year audited financial statements, which will be released on or around 31 August 2016.
We will continue to monitor the situation and provide additional information on any material changes in due course through ASX announcements.
- AFARF – Liquidity Solution
Redemption requests can now be submitted immediately, with redemptions to be processed on the last business day of each calendar month, pursuant to the Fund’s Constitution. Due to financial year-end, the next redemption day will be Wednesday 31 August 2016, with proceeds from a redemption request likely to be received within 14 business days thereafter.
How the liquidity solution will work
The Fund will notionally create two (2) pools, being the Aurora Fortitude Absolute Return Fund General Pool (“General Pool”) and the Aurora Fortitude Absolute Return Fund Note Pool (“Note Pool”). The illiquid investment, AZZG, will be transferred to the Note Pool along with some cash to fund the Administration, with the remaining liquid investments being held in the General Pool. All existing investors will have proportional exposure to both Pools.
Investors wishing to withdraw their investment will have redemptions satisfied by a combination of cash from the General Pool (circa 90%, based on the Fund’s current portfolio) and an entitlement to the Note Pool (circa 10%).
The Note Pool will continue to be managed by the Fund and realised over time, which is expected to be in the vicinity of 12 months (although Aurora cannot guarantee this timeframe – a significant timing issue for the Fund is the timing of reports from the Administrator of Antares to creditors, including the Fund). The Fund’s priority is to maximise returns for all investors from the AZZG position.
It is currently contemplated that Aurora will, in due course, establish a separate Special Purpose Vehicle (“SPV”), managed by Aurora, to enable the assets in the Note Pool to be transferred across to the SPV. The SPV would also be able to hold any AZZG Notes currently held by other Aurora Funds. Simultaneously, ownership of the SPV would be transferred in-specie to all unitholders, in proportion to their original investment. This would then enable each of the Aurora funds (impacted by the AZZG Notes) to be unfrozen.
This mechanism will also enable the distribution reinvestment plan to be reintroduced.
Currently, clause 7.7 of the Fund Constitution requires the Responsible Entity to cancel those Units that have been redeemed. Given the creation of two (2) Pools, the Responsible Entity has determined that the rights of unitholders would not be adversely impacted if the Constitution were to be amended to enable units in the General Pool to be cancelled, whilst units in the Note Pool remain on foot.
The current Product Disclosure Statement (“PDS”) contemplates 90% of the Fund’s assets being able to be liquidated within 10 business days. To facilitate the normal functioning of the Fund, whilst the Note Pool is in place, the Fund will revert to the liquidity requirements contained in its Constitution, which is consistent with the Corporations Act.
The PDS will also be amended to make it clear to all new unitholders that any new investment will only have an entitlement to the General Pool.
The Responsible Entity is of the opinion that the creation of two (2) Pools, and establishment of the SPV in due course, will enable existing unitholders to ultimately maximise their investment returns. To facilitate this change to the Fund structure, the Responsible Entity has decided to exercise its power under the Fund’s Constitution to introduce a withdrawal fee equal to 1.85%, excluding any GST, of the redemption amount.
The team at Aurora welcome the resolution of the liquidity situation. With this impediment now removed, we look forward to continuing our strong track record of generating risk-adjusted returns for our investors.
For the full announcement, read here.
- AFARF – Letter to Unit Holders
Suspension of applications and redemptions
From 25th February 2016, applications, redemptions and dividend reinvestments for the Aurora Fortitude Absolute Return Fund (Fund) are temporarily suspended. This means you will not be able to apply for or redeem your units in the Fund until further notice.
The Aurora Fortitude Absolute Return Fund holds Antares Energy Limited Convertible Notes (ASX Code: AZZG) (Antares Notes), which have been suspended from trading and are, consequently, currently illiquid. The note is due to be repaid on 31st March 2016, but information has become available to us which leads us to believe there is a possibility that repayment will not occur on this date, and therefore we are unable to accurately determine a value for the Antares Notes. This uncertainty means we do not believe it is the best interest of unit holders to continue to accept applications and redemptions. The Antares Notes currently comprise 8.03% of the net asset value of the Fund, but this percentage may change as the value of the Antares Notes, and the value of the Fund’s other assets change.
Acting in the best interests of Investors
Aurora has determined that, in these circumstances, it is in the best interest of investors in the Fund as a whole to temporarily suspend applications and redemptions to ensure all investors are treated equally so there is fair treatment between investors who choose to remain invested in the Fund and investors who choose to exit the Fund in the short to medium term.
What this means for you
The Fund has ceased accepting any applications for units or processing redemption requests effective from 25th February 2016. Any application funds received will be returned to you. The temporary suspension does not affect the distributions paid by the Fund. As more information becomes available to us, we will be in better to position to advise when liquidity is likely to be restored.
If you currently have a Distribution Reinvestment Plan in place, your future distributions will only be paid via direct credit into your nominated account and cannot be reinvested in the Fund until further notice. You will need to provide your bank account details by contacting our security registrar, One Registry Services on +61 2 8188 1510.
If you have any queries or concerns, please contact us.
Telephone: 02 9080 2377 or 1300 553 431 (within Australia) or 0800 447 637 (within New Zealand)
Post: PO Box R1695, Royal Exchange NSW 1225
- Dated 18/9/2015 – Annual Reporting and Fund Disclosure as at 30th June 2015
Asset Allocation: 100% Equities
Liquidity Profile: 90% within 2 weeks, additional 10% of special situations due to settle within 4 months.
Note 1 – The fund uses leverage through its Prime Broker facility with UBS AG. A maturity profile cannot be disclosed as the term of the borrowing is dependent upon portfolio construction (subject to the Prime Brokerage Agreement
remaining in place).
Derivative Counterparties: UBS AG.
Investment Returns: +1.74% for the 2014/15 financial year.
ICR to 30 June 2015: 1.56%
Key Service Providers: No change.
- Dated 31/3/2015 – Distribution Update
The Directors of Aurora Funds Management Limited, as Responsible Entity for Aurora Fortitude Absolute Return Fund have announced a change to its quarterly distribution rate, down from 1.5% per quarter to 1% per quarter. The change in the distribution rate takes into account the condition of financial markets, forecast distribution income from the Fund’s investments and the balance sheet position of the Fund. It is anticipated franking credits will be distributed at the end of the financial year.
- Dated 22/8/2014 – Annual Reporting and Fund Disclosure as at 30th June 2014
Asset Allocation: 100% Equities
Net Equities Exposure: 8.36% long
Liquidity Profile: 70% within 2 weeks, additional 11.4% of special situations due to settle within 4 months
Maturity profile of the Fund’s liabilities:
Derivative Counterparties: UBS AG.
Investment Returns: 4.55% for the 2013/14 financial year
ICR to 30 June 2014: 1.93%
Key Service Providers: No change.
- Dated 14/2/2014 – Amendment to Fees and Expenses
We wish to give notice of our intention to reintroduce an expense recovery for the Fund. This has been in place since March 2012 and was removed in error in the recently issued PDS.
Effective from 18 March 2014 the Fund will reintroduce a normal expense recovery.
- Dated 18/9/2012 – Distribution Update
We advise that effective for the 3-months ended 31 December 2012 (and quarterly thereafter) the minimum distribution payable by the Trust will reduce from 2.0% of NAV per Unit per quarter to 1.5% of NAV per Unit per quarter , plus franking credits.
This reduction reflects the fact that the official cash rate of the Reserve Bank has reduced by 1.50% since November 2011.
The final distribution will be the higher of 1.5% of NAV or the excess net income and realised capital gains generated during the year over the interim distributions paid and Fund expenses.
- Dated 2/7/2012 – GST Update
On 29 May 2012, amendments to the GST financial services regulations were released, including wide ranging new regulations relating to the reduced input tax credit treatment of supplies acquired by managed investment schemes and superannuation funds. The new rules apply from 1 July 2012.
The amendment regulations introduce a new item 32 of GST regulation 70-5.02(2) under which supplies acquired by a ‘recognised trust scheme’ on or after 1 July 2012 will be eligible for a 55% reduced input tax credit (RITC). Certain specified services will remain eligible for the 75% RITC.
- Dated 30/6/12 – Change of Administrator
Please be advised that from 1 July 2012 the Administrator for all applications and redemptions for the Aurora Fortitude Absolute Return Fund (APIR Code: AFM0005AU) will change to Unity Administration Pty Ltd. New email contact: email@example.com
- Dated 11/4/2012 – Franking Credits
The Fund seeks to achieve a high rate of return, comprising both income and capital growth (and preserve the capital of the Fund) over both rising and falling equity markets through using many different investment strategies that allow the Fund to have very little correlation to the Australian stock market. These strategies may include: long/short strategies, convergence trading, merger and acquisition trading, arbitrage opportunities, derivative strategies.
Within the implementation of this strategy, the Investment Manager believes that the Australian equity market presents franking credit opportunities that are being ignored and/or mispriced by the market. As such, the Fund intends to seek to take advantage of these opportunities as they arise.
Accordingly, from 14 May 2012, the value of the franking credits earned by the Fund will be included in the performance returns of the Fund – including within the calculation of Application/Redemption prices and management/performance fees.
- Dated 23/3/2012 – Amendment to Fees and Expenses
We wish to give notice of our intention to implement an expense recovery for the Fund, whilst being partially offset by a reduction in the overall management fee.
Effective from 1 May 2012:
- the management fee will be reduced by 0.05% per annum. Accordingly, the management fee will fall to 1.48625% (including GST) per annum; and
- the Fund will introduce a normal expense recovery. This allows for the recovery of expenses incurred in relation to the proper performance of our duties. Since inception, and over the growth phase of the Fund, we have borne these expenses internally. Now that the Fund is of a more mature size, we feel that it is reasonable that they be borne by the Fund – particularly noting that its already small impact will continue to reduce as the Fund grows further in size.
- Dated 1/1/2012 – Minimum Investment Amount Reduced to $10,000
Please be advised that the Minimum Investment amount referred to in the PDS dated 7 October 2010 has been reduced from $100,000 to $10,000, with additional investment amounts reduced from $50,000 to $5,000. The minimum redemption amount has also been reduced to $5,000 or balance of holdings.
- Dated 7/6/2011 – Buy-Sell Spread Reduced
Please be advised that the buy-sell spread for the Fund has been reduced from 0.20% to 0.02% from 7th June 2011.