THE BLACK SEA PROPERTY FUND LIMITED

For immediate release
7 June 2012

Proposed amendment to articles of incorporation in order to extend the life of the Company and
Notice of Annual General Meeting

Letter from the Chairman of the Company

Directors:
John David Chapman
Stephen Charles Coe
Antony Gardner-Hillman
Andrew Ian Wignall

Registered office:
22-24 Seale Street
St Helier, Jersey
JE2 3QG

7 June 2012

Dear Shareholders:

Our Revised Articles of Association require the Company to convene an extraordinary general meeting on or before 30 June 2012 to consider a winding up of the Company. After giving due consideration to various alternatives, your Board now recommends that the shareholders extend the Company’s life for an additional twenty-four months to pursue a strategy of asset realization on the best terms and by such means as the Board considers reasonably achievable. We believe that given our asset base, projections as to what we might accomplish over the next twenty-four months, and projected cost structure as outlined below, a twenty-four month extension is likely optimal.

The Company is invested primarily in development assets in the Bulgarian holiday sector. Bulgaria has a substantial excess supply of holiday inventory and an insufficient supply of credit for property development. The Greek and other European banks, which dominated the Bulgarian banking sector, are under substantial stress in their home markets and are not lending to Bulgarian developers. It also seems likely that they have a large inventory of property assets that have not been marked down to reflect current reality. Because of this absence of credit and inventory overhang, the development of Evergreen, Byala and Borovets is currently unlikely. The absence of credit substantially affects demand for these assets because if the assets cannot be developed they can only be land banked till circumstances change.

Banks are reluctant to lend for development regardless of the asset quality. Evergreen, for example, is a quality asset. It is well located in Bulgaria’s capital city. It has infrastructure and permissions in place. It is adjacent to another large development that following completion has seen reasonable sales. There is a shortage in Sofia of the kind of upscale residential housing Evergreen was designed to cater to. But these factors have not induced a prospective buyer to offer an appropriate price. By contrast, Borovets and Byala are not located in Bulgaria’s capital, but, rather, in rural areas with limited infrastructure. They are holiday, rather than residential, assets and thus compete for attention with the many other holiday assets on the market. Credit markets will at some point return to life and demand for development assets will reawaken, but that time is not now.

By contrast, we have had substantial success over the last six months in selling units in completed construction, including completed construction that once seemed quite problematic. As a result of our local office’s trial and error work in discovering the market clearing price and nurturing relationships with local brokers, we have now entered into contracts to sell forty-three units at Nikea, which represents about half of our stock. We are hopeful that these preliminary sales will close so that by the end of the 2013 summer season we will have sold all or most all of our Nikea units. As cash comes in from the Nikea sales we would hope to make further distributions.

At Obzor we were a mezzanine lender to a developer and hold a security interest in the completed units. We have a revenue sharing agreement with the developer, who in recent years has had limited success in marketing these assets. Pursuant to our contract with the developer, at year end we will take possession of the remaining unsold Obzor units, currently numbering thirty-four. Once we have control over the Obzor marketing process we will try to duplicate our strategy at Nikea. Based on our results this year, we are hopeful that by the end of 2013 we will have converted our inventory at Nikea and Obzor into distributable cash.

Another issue that should be considered in determining whether to extend the life of the Company is its cost structure. It is doubtful that costs can be significantly reduced so long as the Company continues on the AIM Market as a publicly traded vehicle. We are willing to explore delisting the company, which will largely eliminate the London cost structure and may reduce some of our other costs. We invite shareholders’ thoughts on this issue.

Recommendation

Based on the considerations outlined above, we recommend that shareholders authorise the directors to pursue a strategy of asset realisation on the best terms and by such means as they consider to be reasonably achievable, with the view to liquidating as much as possible of the assets of the Company by 31 December 2014. Prior to that date we would then put to shareholders a special resolution that a liquidator be appointed and the Company be wound up. We therefore recommend that you vote in favour of the special resolution outlined below.

Annual General Meeting

Set out at the end of this document is a notice convening the Company’s 2011 Annual General Meeting to be held at the offices of the Company’s secretary, SJ Secretaries Limited, 22-24 Seale Street, St Helier, Jersey, JE2 3QG at 11.00am on 28th June 2012 at which two ordinary resolutions will be proposed (1. to adopt the audited financial statements of the Company for the year ended 31 December 2011 and 2. to approve the appointment of the Company’s auditor for 2012) and one special resolution will be proposed (to extend the life of the Company to 30 June 2014).

Action to be taken

A Form of proxy for use at the Annual General Meeting accompanies this document and hard copies have been sent out by the Company’s registrar. The Form of Proxy should be completed and signed in accordance with the instructions thereon and returned to the Company’s registrar, Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU not less than 48 hours before the time appointed for holding the meeting or adjournment as the case may be. The completion and return of a Form of Proxy will not preclude shareholders from attending the Annual General Meeting and voting in person should they so wish.

Respectfully yours,

John D. Chapman
Chairman

 

 

Notice of the Annual General Meeting of the Company

The Company is pleased to announce that its Annual General Meeting will be held at 11:00am on Thursday 28 June 2012 at 22-24 Seale Street, St Helier, Jersey, Channel Islands, JE2 3QG to consider and, if thought fit, to pass the following resolutions, of which resolutions 1 and 2 will be proposed as ordinary resolutions and resolution 3 will be proposed as a special resolution:

Ordinary Resolutions:

1. THAT the Annual Report and Audited Financial Statements of the Company for the year ended 31 December 2011 and the Directors’ and Auditor’s reports thereon be received and adopted.

2. THAT BDO LLP be appointed as auditors of the Company for 2012 and THAT the Directors be authorised to fix their remuneration.

Special Resolution:

3. THAT notwithstanding article 9 of the articles of association of the Company the Members hereby authorise the directors to pursue a strategy of asset realisation on the best terms and by such means as they consider to be reasonably achievable, with the view to liquidating as much as possible of the assets of the Company and then proposing to the Members not later than 30 June 2014 a resolution (which will be proposed as a special resolution) that a liquidator be appointed and the Company be wound up.

By order of the board:

Company Secretary
22-24 Seale Street, St Helier
Jersey, JE2 3QG
7 June 2012

Notes:

1. A shareholder entitled to attend and vote at the meeting convened by this Notice is entitled to appoint one or more proxies to attend and (on a poll) to vote instead of him/her. A proxy need not be a member of the Company.

2. A form of proxy is attached. The Chairman of the Meeting would be willing to act as your proxy if desired. Please sign and complete the form and return, to reach the office of the Registrar not later than 48 hours before the time fixed for the meeting.

3. The Company specifies that only those shareholders registered in the register of members of the Company as at 5.00 p.m. on 26 June 2012 or, in the event that the meeting is adjourned, in the register of members 48 hours before the time of any adjourned meeting, shall be entitled to attend or vote at the aforesaid general meeting in respect of the number of shares registered in their name at the relevant time. Changes to entries in the register of members after 5.00 p.m. on 26 June 2012 or, in the event that the meeting is adjourned, in the register of members less than 48 hours before the time of any adjourned meeting, shall be disregarded in determining the rights of any person to attend or vote at the meeting.

Notice of this meeting and a form of proxy have been sent to all registered shareholders and are available on the Company website www.blackseapropertyfund.com

Enquiries:

Nominated Advisor
Singer Capital Markets Limited         +44 (0) 203 205 7500
James Maxwell
Nick Donovan

Company Secretary
SJ Secretaries Limited     +44 (0) 1534 850750