Thank you for attending the virtual Extraordinary General Meeting (EGM) held yesterday, 26th June 2021, to discuss the way forward pertaining to your investments in Cytonn High Yield Solutions LLP (“CHYS”) and Cytonn Real Estate Project Notes LLP (“CPN”).
Background
The funding model for both funds was raising funds from High Net worth Individual (“HNW”) and deploying them into real estate investments and providing an above market return to the investors. Up to the onset of COVID pandemic this funding model worked by and large with the funds meeting their obligations as and when they arose.
In March 2020 following the declaration of COVID-19 as a pandemic by the WHO, an initial 3-month extension was declared in anticipation that liquidity stress was a temporary event and would be restored, however, this became clear as not the case and at its expiry, the force majeure clause was invoked and a 12 months’ extension effected. This has now come to an end, and the liquidity has not been restored.
Current situation
Both funds unfortunately have not been able to raise liquidity that was envisaged for them to get back to meeting obligations to the investors and partner body. The primary reason for this was the slower than expected recovery in real estate sales as well as a hampered ability to attract the new funding required to complete projects that were already in the pipeline.
A decision was made to hold a combined meeting yesterday to update the investors on where both funds currently are; listen to the concerns raised by the investors and the possible solutions suggested to be able to resolve the problem as well as prepare the options and road map available to the investors and wider stakeholder body of CHYS and CPN in resolving the temporary liquidity problem that they are facing.
The management of the principal partner have noted the following key takeaways from the interactions yesterday:
- Communication with investor’s body
- There have been shortcomings on this front.
- It was agreed that information flow to the investors shall improve significantly going forward with investors expecting to receive regular updates on what is being done on the restructuring of the funds to raise liquidity. This brief note is the start of the improved communication process.
- Preparation and circulation of the Audited Financial Statements (ÄFS”)
- The AFS for both funds for the FYE 2019 and 2020 are delayed. The auditors are working on completing these AFS, the 2019 by mid July 2021 and those of 2020 by mid-August 2021.
- These will be circulated to the both fund investors in advance of the next meeting to allow investors to interrogate the financials of the funds.
- Preparation of the options pack to investors
The respective boards together with management will take into account the informal feedback that was received at yesterday’s forum when preparing the options available to the members. The key issue of consideration in preparation of these options will be the preservation of value of the underlying assets as well as the quickest and most sensible route to some form of monetization of the assets to allow for a repayment plan to kick off.
- Governance of the funds
The shortcomings highlighted in the meeting have been noted and there shall be steps taken to improve the governance of both funds.
- Empathy
The management team wholeheartedly and unreservedly accepts that interactions with the investor body and wider stakeholder group has not been to the level that is expected of all of them and they will work to change their language, tone and demeanor going forward.
- Online Registration Challenges
The management team noted, with concern, that there were investors who experienced challenges joining the EGM as a result of unforeseen technical hitches and late registration. The management team had procured the services of an external party to offer technological support and is committed to ensuring a better experience for investors going forward and eliminating similar technical challenges in future online General Meetings.
Way forward
The management team shall engage with the respective boards, investors/partners and other key stakeholders such as government bodies to ensure that value is preserved and liquidity restored and to the extent possible redemptions restored in a viable and sustainable manner in the shortest time possible.
The next key step from this end will be the circulation of the information pack that will contain the AFS as well as the options pack and thereafter call the meeting for the investor body to deliberate on the way forward.
As we close off this evening we accept our shortcomings and pledge to work with all stakeholders to resolve this situation. The success of our efforts shall not be as a result of the action by only one section of the stakeholder, but by the actions of all key stakeholders pulling in the same direction.
