PIA Announcement
Catering to the changing needs of investors.
Proposal to boost fully franked income dividends for shareholders, paid monthly.
In today’s environment (longer life expectancy coupled with higher cost of living) – investors are becoming increasingly focussed on income – yet most of the income accessible to average Aussies investors is highly correlated to either property, or large franked-dividend shares.
PIA’s proposed enhancements will deliver truly unique, and attractive, fully franked dividends to shareholders, derived from both the global equities, and global private credit markets.
The prospects for this new structure are further boosted by a shrinking product set available in the market, with the wind down / phase out of bank hybrids.
Under this new proposal, PIA will enable shareholders to retain their focus for income, without increasing the concentration of their investments.
Webinar Registration
Thursday September 4th at 11am AEST
We are pleased to invite shareholders to join members of the Company’s Board for a live webinar, to walk through today’s proposal in greater detail.
We encourage you to pre-submit any questions in advance, and there will also be the opportunity to submit questions during the session.
Speakers
NEWS AND INSIGHTS
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Global private credit to move from ‘niche’ to necessity as demographic shifts favour steady income
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FAQ
1. What is the main change being proposed for PIA?
Pengana International Equities Limited (PIA) is proposing a strategic enhancement to diversify its portfolio and boost shareholder returns. The proposal introduces a leveraged investment into a diversified global private credit portfolio, without altering the size or composition of the existing global equities portfolio.
The proposal aims to diversify assets, generate consistent and reliable income, and increase fully franked dividends by 55% to 8.4 cents per share cash dividend (gross yield of 8.9% at the 31 July 2025 share price of $1.255) assuming a 25% corporate tax rate.
PIA also proposed to update the frequency of distribution payments to shareholders to be paid monthly.
The proposal is subject to shareholder approval at the upcoming AGM.
2. What is Global Private Credit?
Global private credit refers to loans made to businesses by non-bank lenders, such as by specialist investment funds, rather than traditional banks. These contractual and secured loans are not traded on public markets and are often negotiated directly between the borrower and the lender. It is considered part of the ‘private markets’ asset class, along with private equity, infrastructure, and real estate.
Private credit includes loans that might help businesses grow, buy other companies, leverage their assets, or manage their cash flow. Globally, private credit has been one of the fastest growing asset classes over the last 15+ years, but has largely been accessed exclusively by large institutional investors
3. How does this change affect PIA’s equity exposure?
The size and composition of PIA’s equity exposure will not change. The new global private credit exposure is funded via a loan secured against PIA’s equity portfolioensuring full exposure to global equities is maintained.
4. Why is PIA making this change now?
Market context: Fewer alternatives for high-yield, fully franked income due to the withdrawal of bank hybrids.
Demographics: Ageing populations and rising living costs make reliable income more important.
Diversification: Reduces reliance on concentrated sectors like banks and resources in the Australian market.
Unique Opportunity: Over the last 5 years, Pengana Capital Group has rolled out a innovative global private credit capability in the Australian market, in association with global investment leader Mercer. This unique capability presents an opportunity for PIA to complement the Company structure with an additional layer of returns to increase distributions that will be paid to PIA shareholders in the future.
5. How is the global private credit exposure funded?
The exposure is funded via a competitively priced loan (~45% of NAV), secured against PIA’s cash and equity portfolio. The interest cost is fully underwritten by Pengana Capital Group (PCG), meaning PCG covers any shortfall if the global private credit returns fall below the loan cost.
6. Why can PIA do this when others can’t?
Permanent capital: The unique LIC structure of PIA enables long-term allocations to less iquid, high-yielding credit.
Corporate structure: Allows distribution of credit and equity income as fully franked dividends.
Institutional access: Through PIA’s association with Pengana Capital Group and Mercer, PIA is able to invest in high-quality global private credit funds typically unavailable to retail investors.
7. Who are the key organisations behind this strategy?
Mercer: Advises on global private credit, providing access to a broad range of opportunities.
Harding Loevner: Manages the global equities portfolio.
Pengana Credit: Manages the global private credit portfolio.
Pengana Capital Group: Underwrites the loan cost and aligns interests with shareholders.
8. What is the targeted impact on PIA’s earnings and dividends?
Earnings uplift: Targeting a ~2% uplift to PIA shareholders’ pre-tax earnings.
Dividends: Fully franked dividends will increase to 8.4c per share, paid monthly
Yield: Grossed-up yield of 8.9% at the 31 July 2025 share price of $1.255 (8.0% at the 31 July 2025 post tax NAV of $1.4041). Assumes a 25% corporate tax rate.
9. What are the structural safeguards?
Risk sharing: PCG underwrites the cost of debt and receives returns above the target return.
No base fees on global private credit: Increases return efficiency.
Strategic use of leverage: Structured conservatively and secured against high-quality equities.
10. What are the expected benefits for investors?
Higher, more frequent dividends: Targeting a 55% increase in fully franked dividends, paid monthly instead of quarterly.
Improved yield: Grossed-up dividend yield increases to 8.9% at the current share price.
Diversification – market risk: Adds a second income stream with low correlation to equities, enhancing portfolio resilience.
Diversification – income source: Most fully franked dividends in the Australian market are highly concentrated to just a few Australian sectors (where ~72% of ASX dividend income comes from just four sectors). PIA offers an alternative source of franked dividends, helping investors add true diversification to their fully franked income strategies.
Tax efficiency: Fully franked dividends boost after-tax returns.
11. What are the key risks, and how are they managed?
Leverage: Debt facility sized at ~33% of total assets, with a 30% equity buffer before a margin call.
Return shortfall: PCG covers any shortfall in private credit returns up to the loan cost.
Interest rate risk: Both the loan and credit assets are floating rate
Liquidity: Private credit is illiquid, but the LIC structure avoids daily redemptions, supporting long-term holding.
[DW2]we need to add a mitigant here – same as the point above?
12. What’s Next?
The proposal will be voted on at the Annual General Meeting on 9 October 2025. If approved, the private credit investment is expected to be completed by 31 October 2025.
13. How can investors learn more or get support?
PIA will be hosting a webinar update on Thursday 4 September. Shareholders are invited to register for the webinar where they can submit any questions to the team.
For more information, contact Pengana Investment Management Limited at +61 2 8524 9900 or email [email protected].
KEY BENEFITS
Higher, More Frequent Dividends
Targeting a 55% increase in fully franked dividends to 8.4 cents per share.
Transitioning to monthly dividend payments starting mid-November 2025.
Diversified Income Streams
Adds a second income stream from global private credit, reducing reliance on equity markets.
Expected to lift earnings by 2% per annum.
Tax Efficiency
Fully franked dividends supported by sufficient franking credits for at least 2.25 years.
Institutional-Grade Access
Exposure to 3,000+ mid-market companies via 23 highly rated US and European private credit funds.
Managed by Pengana Private Credit with Mercer as investment consultant.
Inflation & Rate Hedge
Floating-rate instruments provide a natural hedge against inflation and interest rate volatility.
Structural protections (e.g., collateral, covenants, seniority) enhance capital stability.
No Management Fees on Credit Sleeve
Pengana Capital Group will manage the private credit investment and debt facility without charging management fees.
Liquidity & Transparency
PIA remains ASX-listed, offering daily liquidity and full transparency.
Alignment of Interests
PCG underwrites the debt cost and only shares in returns above a 4.5% target.
POTENTIAL RISKS
Leverage Risk
Funded via a ~$168 million revolving debt facilitysecured against PIA’s equity portfolio.
Return Shortfall Risk
If private credit returns fall short of loan costs, PCG covers the gap, but persistent underperformance may impact returns.
Interest Rate Volatility
Floating rates help, but rising rates could still affect borrowing costs and net returns.
Illiquidity
Private credit is not traded and is held to maturity, limiting flexibility in stressed markets.
Market & Economic Risks
Broader downturns or credit market disruptions could affect borrower performance.
Complexity & Execution Risk
Multi-manager strategies require careful oversight, even with Mercer’s institutional expertise.
Regulatory Risk
Changes in tax treatment, franking credit policy, or LIC regulations could affect investor outcomes.