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Bell Potter LIC Weekly: KKR investment incentives

Bell Potter analyst Hayden Nicholson updates developments in the LIC market. This week: KKR investment incentives, Metrics institutional placement.
  • Published on April 28, 2021

KKR investment incentives

In recognition of the discrepancy between the current unit price and net asset backing, KKR Australia Investment Mgmt, in capacity as the Manager; and Perpetual, as Responsible Entity of the KKR Credit Income Fund (KKC), are set to introduce a 10% buy-back and an amended distribution schedule. The on-market buy-back period will commence on May 3rd and continue until May 2nd 2022. Distributions will also be paid on a regular monthly basis from the beginning of next financial year, with the Manager maintaining guidance on distributions as originally specified in the PDS of 4-6% p.a. We view this as a positive advancement, however the recent restructure, which caused a temporary pause in the posting of twice-weekly NTA estimates, along with portfolio interest rate duration, could explain reversal in the discount normalisation.

Metrics institutional placement

Perpetual, as Responsible Entity of the MCP Master Income Trust (MXT), is proposing to issue up to 95m new ordinary fully paid units at a placement price of $2.00 to wholesale investors, netting a potential $190m. Metrics had previously intended to raise an additional $638m via an entitlement and shortfall offer, eventually being withdrawn last year in March as fixed interest LITs traded at large discounts. MXT continues to deliver on monthly income with a targeted return equal to the RBA Cash Rate plus 3.25% p.a. We calculate a capital return and distribution return of -0.2% p.a. and 5.3% p.a. since inception. The Trust remains attractive with stable cash yields and a widening spread to the RBA Cash Rate.

Bell Potter’s Indicative NTA tracks the ‘indicative’ movement of a LIC’s underlying NTA each month by monitoring the percentage movements of the disclosed holdings and using an index to track the movement of the remaining positions. The Indicative NTA works best with LICs that have a high percentage of investments concentrated in its Top 20, regular disclosure of its Top 20, lower turnover of investments, regular disclosure of its cash position and the absence of a performance fee. We have also included an adjusted indicative NTA and adjusted discount that removes the LIC distribution from the ex-dividend date until the receipt of the new NTA post the payment date. This report is published each Monday prior to the market open and is available on a daily basis. Intraday indicative NTAs will be available on request through your adviser.

For full details refer to the detailed report below or click here to download your copy.

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