Tetragon Financial Group adopts IFRS reporting from 31 December 2016
Incentive fee crystallised to be paid in shares, restricted for five years
Tetragon Financial Group (TFG) has announced that it is adopting IFRS reporting for accounting periods ending on and after 31 December 2016. IFRS NAV is expected to be substantially the same as fair value NAV, which TFG has been reporting since September 2015. However, moving from US GAAP to IFRS increases the reported NAV of certain TFG Asset Management businesses, principally LCM and Polygon, to reflect their fair value, and will crystallise an incentive fee payable to TFG’s investment manager, Tetragon Financial Management (TFM). This incentive fee will be paid in shares, held in escrow until 31 December 2021, and subject to a clawback mechanism. Based on fair value NAV at 30 September 2016, the incentive fee would have been US$27.1m, as stated in TFG’s third quarter report.
While TFG’s IFRS NAV is expected to be substantially the same as fair value NAV, which already includes a provision for the incentive fee payable, the payment of the fee in shares will result in an adjustment to both NAV and NAV per share. Based on values at 30 September 2016 and a TFG share price of US$12.00, there will be a US$27.1m or 1.4% increase in NAV due to the release of the incentive fee provision, with a c 2.2m increase in the diluted shares in issue, resulting in a net 0.9% dilution in NAV per share.
The dilutive effect is due to TFG’s share price discount to NAV and, as no new shares are being issued, the share payment can be considered together with the purchase of the equivalent number of shares under the December 2016 US$50m tender offer. Taking these transactions together, there is a negligible net effect on NAV per share.
Read Edison’s most recent research report on TFG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.