New Star Heart of Africa Fund temporarily suspends dealing

Whilst prospects for companies in the sub-Saharan region remain strong, the impact of the credit crunch and the knock-on effect on global stock markets has resulted in an increase in redemptions from investors.

This has coincided with a number of events that have caused liquidity in the sub-Saharan markets to weaken in recent days. New Star, with agreement from the fund's depositary, Royal Bank of Scotland, has, therefore, reluctantly decided to temporarily suspend dealing in the New Star Heart of Africa Fund - valued at £29 million - until further notice.

Events in Nigeria and Ghana have had a particular impact on the fund's liquidity position. In Nigeria, where the fund is approximately 30% invested, the repatriation of monies received from selling securities has been delayed by restricted foreign exchange flows. At 11 December 2008 the fund had some $6.2m of proceeds from disposals awaiting repatriation from Nigeria.

Similarly, in Ghana, where the fund is approximately 21% invested, the market has been less liquid than normal. Trading volumes have been lighter as a result of the uncertainty ahead of the general election. The close election result registered on 11 December 2008 means there will need to be an electoral run-off, which could potentially delay the resumption of normal trading.

Whilst we regret having to take this action, the temporary suspension of dealing is designed to restore sufficient liquidity to the fund for it to meet redemptions once it re-opens for dealing. New Star intends to minimise the period of suspension; in accordance with FSA rules this should last for no more than a maximum of 28 days. We are, however, mindful that fair value for all investors needs to be achieved when selling securities in a weak market environment, given the illiquid nature of some of the markets in the sub-Saharan region.

Jamie Allsopp, manager of the New Star Heart of Africa Fund, says: "It is with great reluctance that New Star has temporarily suspended dealing in the New Star Heart of Africa Fund. Since launch last November, the fund has performed relatively well amidst the turmoil of the past year falling 24.40%. This compares favourably with the 38.78% fall in the MSCI Emerging Markets Total Return Index. The FTSE All-Share Total Return Index has fallen 29.8% over the same period. I still believe, despite this temporary suspension, the fundamental prospects for the region remain attractive over the medium to long term."