"Come on!" is the gist of the latest announcement from Blue Sky Alternatives Access Fund (ASX: BAF), a Sydney-headquartered investment house that continues to rue the day it adopted the name of its Gold Coast counterpart now in administration.
Two weeks ago the fund announced negotiations had been delayed to replace a Blue Sky subsidiary as its manager, and today BAF emphasised the toll this protracted process has had on its share price.
The board expresses concern about the "substantial disconnect" that exists between the current share market valuation of the company and the underlying value of its assets.
"Clearly, the ongoing connection of the Company to Blue Sky (the Manager) has weighed heavily on sentiment towards BAF over the past eighteen months," the company says.
"The Board provided an update to shareholders on 21 August 2019 regarding the steps that are underway to appoint a replacement investment manager.
"While substantial progress has been made since that announcement, negotiations with the necessary parties remain incomplete."
In a bid to hammer home the point, BAF claims as at 30 September 2019 its pre-tax net tangible assets stood at $224 million. This would represent around $1.1164 per share as compared to the $0.85 price level at the time of writing.
"BAF's market capitalisation at close on 14 October 2019 was $160.5 million. This compares to the value of BAF's water assets, cash, and cash receivables from the student accommodation sale of $125 million," the company says.
"Excluding these amounts from the Company's market capitalisation results in an implicit market capitalisation for BAF's remaining assets of just $35.4 million.
"This compares to their assessed fair value of $98.8 million, an effective discount of 64 per cent."
BAF notes the manager and its newly appointed valuers have recently undertaken an exhaustive process where "virtually all funds into which BAF is invested were subject to either full independent valuation or independent valuation review".
"There were just five exceptions to this, with the reasons for this set out in our September NTA quarterly report - namely four funds were undergoing a sale or settlement process, and one fund was already written down to nil value.
"These independent valuations and reviews were then further scrutinised by BAF's auditors, including the auditor's own valuation specialists.
"This process concluded on 30 August 2019, with the release of BAF's unqualified audited annual accounts."
After this audit process the board booked a total of $7.8 million in gross impairments.
"While the valuation of a portfolio of unlisted or alternative investment assets necessarily requires some subjective assessment, the Board believes that the current implied market valuation of the Company's investment portfolio is disconnected from its actual value," the fund reiterates.
"The Directors continue to believe that the transfer of BAF's investment management arrangements to a new manager, one with strong LIC experience and a mandate to pursue a new multi-manager 'best of breed' approach, presents the most favourable option for shareholders.
"The Board has devoted substantial energy to this option over the course of this year, seeking to bring a manager transition forward for shareholders to vote on.
"Despite the difficulties presented by BLA's receivership, the Board has actively pursued good faith negotiations with KordaMentha, the appointed receivers and managers of BLA, and Oaktree Capital Management."
If these negotiations conclude successfully, the fund will be calling an extraordinary general meeting (EGM) to vote on the new manager. If no deal is reached however, the company may need to be wound down, the management services agreement may need to be terminated or additional capital initiatives may need to be considered.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
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