FCSS Fidelity China Special Situations Plc

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO  OR FROM THE UNITED STATES OF AMERICA (INCLUDING ITS TERRITORIES AND POSSESSIONS, ANY STATE OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA), AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA, IN ANY MEMBER STATE OF THE EEA OR IN ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.

This announcement is not an offer to sell, or a solicitation of an offer to acquire, securities in the United States or in any other jurisdiction in which the same would be unlawful. Neither this announcement nor any part of it shall form the basis of or be relied on in connection with or act as an inducement to enter into any contract or commitment whatsoever.

16 February 2024

Fidelity China Special Situations PLC

Legal Entity Identifier: 54930076MSJ0ZW67JB75

Publication of Prospectus and Circular in connection with the proposed combination of the Company with abrdn China Investment Company Limited

Introduction

As announced on 28 November 2023, the Board of Fidelity China Special Situations PLC (the "Company" or "FCSS") has agreed heads of terms with the board of abrdn China Investment Company Limited ("ACIC") in respect of a proposed combination of the assets of the Company with the assets of ACIC. The combination, if approved by Shareholders and ACIC Shareholders, will be effected by way of a Guernsey scheme of reconstruction and members' voluntary winding up of ACIC (the "Scheme") and the associated transfer of part of the cash, assets and undertaking of ACIC to the Company in exchange for the issue of new ordinary shares in the Company (the "New Shares") to ACIC Shareholders who are deemed to have elected for the Rollover Option (the "Issue") (together, the "Proposals").

The Board announces that the Company has today published a prospectus (the "Prospectus") in relation to the Issue, together with a circular to provide Shareholders with further details of the Proposals and to convene a general meeting of the Company (the "General Meeting") to seek approval from Shareholders for the implementation of the Proposals (the "Circular"). Defined terms used in this announcement shall, unless the context requires otherwise, have the meanings ascribed to them in the Circular.

Following implementation of the Proposals, the enlarged FCSS will continue to be managed, in accordance with its existing investment objective and policy, by FIL Investment Management (Hong Kong) Limited with Dale Nicholls continuing as the named portfolio manager. The Board of the Company believes that, if the Proposals are implemented, Shareholders will benefit from, amongst other things, the economies of scale that are expected to result from the enlarged asset base, including improved market liquidity in the Company's Shares (including in relation to its existing share buyback policy) and cost efficiencies.

In order to effect the Proposals, Shareholders are required to approve the Issue. The Scheme is also subject to, among other things, the approval of ACIC Shareholders at the ACIC General Meetings.

Overview of the Scheme

The Proposals will be effected by way of a Guernsey scheme of reconstruction of ACIC, resulting in a members' voluntary winding up of ACIC and the transfer of part of ACIC's cash, assets and undertaking to the Company in return for the issue of New Shares by the Company on a formula asset value ("FAV") for FAV basis.

Under the Scheme, Eligible ACIC Shareholders will be deemed to have elected to receive New Shares in respect of their ACIC Shares (the "Rollover Option") unless they elect (or are deemed to have elected) to receive cash in respect of some or all of their ACIC Shares (the "Cash Option").

The maximum aggregate number of ACIC Shares that can be elected (or deemed to have been elected) for the Cash Option is 33 per cent. of the total number of ACIC Shares in issue (excluding ACIC Shares held in treasury) as at the Calculation Date. Should total elections and deemed elections for the Cash Option exceed 33 per cent. of the ACIC Shares in issue (excluding ACIC Shares held in treasury) as at the Calculation Date, excess applications for the Cash Option will be scaled back into New Shares in a manner that is, as near as practicable, pari passu and pro rata among all Eligible Shareholders who have made such Excess Applications.

The Cash Option will be offered at the Residual ACIC NAV per ACIC Share less a discount of 2 per cent. (the "Cash Option Discount"). The value of the Cash Option Discount will be credited to the Rollover Pool for the benefit of ACIC Shareholders who are deemed to have elected for the Rollover Option.

New Shares will be issued as the default option under the Scheme in the event that ACIC Shareholders do not make (or are not deemed to make) a valid election for the Cash Option under the Scheme or to the extent elections for the Cash Option (including Excess Applications) are scaled back as a result of the Cash Option being oversubscribed. The terms of the Scheme as they relate to Excluded ACIC Shareholders (including Overseas ACIC Shareholders) are described in further detail in the Prospectus and the Circular.

Benefits of the Proposals

The Board believes that, if implemented, the Proposals will offer Shareholders the following benefits:

• Scale and enhanced profile: The Enlarged Company is expected to have a Net Asset Value of approximately £1.094 billion (based on valuations as at 14 February 2024 and assuming the Cash Option is fully subscribed). As the flagship UK closed-ended vehicle for investment in China and a constituent of the FTSE 250 Index, it is expected that the Enlarged Company would benefit from an enhanced profile and improved marketability.
• Enhanced liquidity: The scale of the Enlarged Company, as the largest and most liquid company in the AIC's China/Greater China sector, is expected to improve the secondary market liquidity for Shareholders (including in relation to the Company's Share buyback policy).
• Shareholder register: The implementation of the Proposals would allow a number of Shareholders to consolidate their holdings across the Company and ACIC whilst also creating a more diversified Shareholder base through a combination of the two share registers.
• Lower ongoing charges: The Enlarged Company would be expected to benefit from a lower ongoing expense ratio with the Company's fixed costs being spread over a larger asset base.
• Contribution to costs: As described below, the AIFM has agreed to make a cost contribution in respect of the Proposals and the Scheme which is expected to offset the direct transaction costs of the Company relating to the Proposals.
• Lower tiered management fee: The AIFM and the Investment Manager have agreed that, with effect from the admission to listing and trading of the New Shares, the base management fee payable by the Company under the Management Agreement will be reduced from 0.70 per cent. to 0.65 per cent. in respect of the Company's Net Assets in excess of £1.5 billion, which is expected to lower the ongoing costs of the Company as it grows over the longer term.

Conditions of the Proposals

Implementation of the Proposals is subject to a number of conditions, including:

• the passing of the ACIC Resolutions to approve the Scheme and the winding up of ACIC at the ACIC General Meetings, or any adjournment thereof, any conditions of such ACIC Resolutions being fulfilled and the Scheme becoming unconditional in all respects (including the Transfer Agreement becoming unconditional in all respects);
• the passing of the Resolution to approve the Issue at the General Meeting, or any adjournment thereof, and such Resolution becoming unconditional in all respects;
• the Financial Conduct Authority agreeing to admit the New Shares to the Official List and the London Stock Exchange agreeing to admit the New Shares to trading on the Main Market, subject only to allotment; and
• the Directors and the ACIC Directors resolving to proceed with the Scheme.

Unless the conditions referred to above have been satisfied or, to the extent permitted, waived by both the Company and ACIC on or before 31 March 2024 (or such later date as may be agreed by the Company and ACIC), no part of the Proposals will become effective and no New Shares will be issued pursuant to the Scheme.

Costs and expenses of the Scheme and the Proposals

Subject as noted below, if the Scheme is implemented, the Company and ACIC have each agreed to bear their own costs associated with the Scheme and the Proposals. The fixed direct costs of the Proposals payable by the Company (that is, excluding listing fees) are expected to be approximately £617,000 inclusive of VAT (which is assumed to be irrecoverable) where applicable.

Any costs of realignment and/or realisation of the ACIC Portfolio incurred prior to the Effective Date and any sales or acquisition costs (including any commissions, taxes (including stamp duty), transaction charges and/or market charges) associated with the transfer of the Rollover Pool to the Company will be borne by ACIC. Any listing fees in respect of the listing of the New Shares will be borne by the Company.

In the event that implementation of the Scheme does not proceed, each party will bear its own costs.

The AIFM has agreed to make a material contribution towards the costs of the Proposals. The Fidelity Contribution will constitute a contribution of £500,000 plus an amount equal to eight months of management fees that would otherwise be payable by the Enlarged Company to the AIFM and the Investment Manager under the AIFM Agreement and Investment Management Agreement, respectively, in respect of the assets to be transferred by ACIC to the Company pursuant to the Scheme. The Fidelity Contribution will first be applied to meet the Company's costs in respect of the Proposals up to a maximum of £1 million (the "FCSS Fidelity Contribution") with the balance, if any, being applied towards ACIC's costs in respect of the Scheme (the "ACIC Fidelity Contribution"). For the avoidance of doubt, the Fidelity Contribution will be reflected in the calculation of the FCSS FAV and the Rollover FAV.

The AIFM and Investment Manager have also agreed that, subject to implementation of the Scheme and with effect from Admission, the annual base management fee payable by the Company in respect of the Company's net assets in excess of £1.5 billion will be reduced from 0.70 per cent. to 0.65 per cent. Although it is not anticipated that this threshold will be reached immediately as a result of the Proposals, the Board expects that this reduction in the management fee will lower the ongoing costs of the Company as it grows over the longer term.

Continuation Vote

Subject to the implementation of the Scheme, the Board has committed to holding a continuation vote in 2029 and every five years thereafter.

Admission and Dealings

Applications will be made by the Company to the FCA and to the London Stock Exchange for the New Shares to be admitted to listing on the premium segment of the Official List and to trading on the Main Market, respectively. If the Proposals become effective, it is expected that the New Shares will be admitted to the Official List, and dealings on the Main Market will commence, at 8.00 a.m. on 14 March 2024.

General Meeting

The Proposals are conditional, among other things, upon Shareholders' approval of the Resolution to be proposed at the General Meeting. The General Meeting will be held at 3.00 p.m. on 11 March 2024 at the offices of Fidelity International, 4 Cannon Street, London EC4M 5AB.The Resolution will be proposed as an ordinary resolution and in order to be passed will, accordingly, require more than 50 per cent. of votes cast in person or by proxy to be voted in favour of it.

The Resolution will, if passed, authorise the Directors to allot up to 130 million New Shares to ACIC Shareholders who are deemed to have elected for the Rollover Option pursuant to the Scheme, such number being considered sufficient to satisfy the maximum number of New Shares that could be required to be issued in connection with the Scheme. Notice of the General Meeting is set out at the end of the Circular and contains the full text of the Resolution.

The Board considers the Proposals to be in the best interests of Shareholders as a whole and recommends that Shareholders vote in favour of the Resolution to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings in the Company's shares.

Expected Timetable

All references to time are to UK time. Each of the times and dates in the above expected timetable (other than in relation to the General Meeting) may be extended or brought forward. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notified to Shareholders by an announcement through a Regulatory Information Service.

Dickson Minto Advisers is acting as sponsor and financial adviser to the Company in connection with the Proposals.

The Prospectus and Circular have been submitted to the Financial Conduct Authority and will shortly be available for inspection at the National Storage Mechanism which is located at https://data.fca.org.uk/a/nsm/nationalstoragemechanism and on the Company's website at www.fidelity.co.uk/china.

IMPORTANT NOTICES

General

This announcement is an advertisement for the purposes of the Prospectus Regulation Rules of the UK Financial Conduct Authority ("FCA") and is not a prospectus. This announcement does not constitute or form part of, and should not be construed as, an offer for sale or subscription of, or solicitation of any offer to subscribe for or to acquire, any ordinary shares in the Company in any jurisdiction, including in or into Australia, Canada, Japan, the Republic of South Africa, the United States of America (including its territories and possessions, any state of the United States and the District of Columbia) or any member state of the EEA.

This announcement is not for publication or distribution, directly or indirectly, in or into the United States of America. This announcement is not an offer of securities for sale into the United States. The securities referred to herein have not been and will not be registered under the US Securities Act of 1933, as amended, and may not be offered or sold in the United States, except pursuant to an applicable exemption from registration. No public offering of securities is being made in the United States.

This announcement does not contain all the information set out in the Circular. Shareholders should read the Circular in full before deciding what action to take in respect of the Proposals.

Approval of the Prospectus by the FCA should not be understood as an endorsement of the securities that are the subject of the Prospectus. ACIC Shareholders are recommended to read the Prospectus before making a decision in order to fully understand the potential risks associated with a decision to invest in the Company's securities.

Sponsor

Dickson Minto Advisers, which is authorised and regulated by the FCA in the United Kingdom, is acting as sponsor and financial adviser to the Company and for no one else in connection with the matters set out in this announcement and is not, and will not be, responsible to anyone other than the Company for providing the protections afforded to its clients nor for providing advice in connection with the matters set out in this announcement.

Apart from the responsibilities and liabilities, if any, that may be imposed upon Dickson Minto Advisers by the Financial Services and Markets Act 2000 or the regulatory regime established thereunder, neither Dickson Minto Advisers nor any persons associated or affiliated with it accepts any responsibility whatsoever or makes any representation or warranty, express or implied, concerning the contents of this announcement, including its accuracy, completeness or verification, or concerning any other statement made or purported to be made by it or them, or on its or their behalf, the Company or the Directors in connection with the Company or the Proposals, and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Dickson Minto Advisers and its respective associates and affiliates accordingly disclaim, to the fullest extent permitted by law, all and any responsibility and liability whether arising in tort, contract or otherwise (save as referred to herein) that it or they might otherwise have in respect of this announcement or any such statement.

Corporate Broker

Jefferies International Limited ("Jefferies"), which is authorised and regulated by the FCA in the United Kingdom, is acting exclusively for the Company and no one else in connection with the matters referred to in this announcement anfd will not regard any other person as its client in relation to the matters in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Jefferies nor for providing advice in relation to any matter referred to in this announcement or any transaction or arrangement referred to herein. Neither Jefferies nor any of its affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Jefferies in connection with this announcement, any statement contained herein, any transaction or arrangement referred to herein, or otherwise.