AMID a gloomy sharemarket outlook, Contango Asset Management is seeking to launch another listed investment company, hoping to raise as much as $200 million to invest in mid-cap stocks.
Tapping into investor demand for dividends, the Contango MidCap Income fund is boasting a 7.2 per cent annual yield, payable via a 1.8 per cent quarterly dividend, which will be generated from investment performance or from capital.
The launch comes at a difficult time for financial markets, with the resources sector off the boil and most domestic cyclical stocks forecasting tough trading conditions well into 2013, leaving only defensive sectors such as healthcare, facing firmer earnings prospects.
The proposed float comes six months after it delisted trading in Contango Capital Partners after seeking to merge it with another of its listed funds, Contango Microcap, following a poor investment performance and being wrong-footed by sharemarket gyrations in the wake of the global financial crisis.
Along with some unlisted funds, this has left Contango Asset Management with the sharemarket-listed Contango Microcap, a $150 million fund that has struggled on a five-year view, although it has performed well since its inception in 2004.
The proposed mid-cap fund is to invest in ASX 300 stocks, excluding the top 30 companies. Investors are being offered a free bonus option for each share subscribed for, with the minimum size of the offer pegged at $30 million.
If the float succeeds in raising the $200 million it is targeting, this will rank it as one of the biggest floats of 2012. Difficult market conditions are keeping new issues to a minimum, while companies raising fresh equity have typically been forced to offer sizeable discounts.
Listed investment funds associated with former stockbroker Geoff Wilson have blocked the move to merge Contango Capital Partners, arguing that the offer price of 90? a share was too cheap. It is believed there have been sporadic negotiations between the two parties, although Mr Wilson would not comment on the status this week.
Contango MidCap plans to have an ongoing buy-back program if the shares fall below 90 per cent of the net asset value and hasn't ruled out further issues of shares after the first two years of trading.
Management fees will average 1 per cent of the gross portfolio annually, with no fees for the first two years, but 1.66 per cent annually for subsequent years.
A 20 per cent performance fee is also payable if the fund has paid a minimum 1.8 per cent quarterly return, exceeded a performance benchmark of the Reserve Bank's cash rate plus 4 per cent and for the portfolio value to exceed a "high water mark" valuation.