TIDMARCH
RNS Number : 3292T
ARC Capital Holdings Limited
27 September 2010
27 September 2010
ARC Capital Holdings Limited
("ARCH" or the "Company")
Unaudited Interim Results for the six months ended 30 June 2010
ARC Capital Holdings Limited ("ARCH" or the"Company"), the AIM-quoted investment
vehicle established to make investments in the retail and consumer goods
sectors in China, today announces its unaudited financial results for the six
months ended 30 June 2010.
Financial Highlights
· The unaudited net asset value ("NAV") per share remained unchanged at
US$1.36 per share as at 30 June 2010, compared to the US$1.36 audited NAV per
share as at 31 December 2009.
Portfolio and Fund Developments
· On 25 February 2010, ARCH announced the partial sale of its interest in
Hainan Airport for which it received approximately US$45 million. Further to the
initial transaction, on 7 June 2010, ARCH announced that the shareholders of
Hainan Meilan International Airport Company Limited (0357 HK) approved the
purchase of Kingward Investment Limited for total consideration of US$145
million. ARCH is a 46.67% shareholder of Kingward, which has a 24.5% interest in
HNA Airport.
· On 25 March 2010, Huiyin Household Appliances, a leading electrical
appliance retailer in the eastern China region focusing on 3rd and 4th tier
cities and rural markets, successfully raised US$48.4 million from its initial
public offering on the Hong Kong Stock Exchange. The imposed lock-up for ARCH's
shares will expire in March 2011.
· On 17 June 2010, ARCH completed the sale of its entire equity investment
in UCCAL back to the company for US$6.9 million.
Significant Subsequent Events
· On 16 September2010, ARCH completed the final sale of its equity in
Department Store Holding for a total consideration of RMB750.6 million
(equivalent to US$110.8 million) in cash. The sale, in combination with past
dividend payments, represent a 5.9x cash multiple and an IRR of 77.0%. ARCH used
part of the sale proceeds of the transaction to fully repay its outstanding loan
commitments.
Commenting on the results, Allan Liu, the Managing Partner of the Investment
Manager and a Director of ARCH said: "In the first half of 2010 we have
continued to make significant progress in generating liquidity and enhancing the
value of our portfolio. A number of our investments have been realised in the
period, offering good returns and strengthening the balance sheet. During this
time, we have also focused our efforts on rebuilding a pipeline of new
investments that capitalise on the attractive opportunities that exist in
China's consumer retail sector."
Enquiries:
For more information, please contact:
+--------------------------------+-----------------------------+
| MANAGER: | LEGAL COUNSEL: |
| Allan Liu, Managing | Jon Lewis, General |
| Partner | Counsel |
| c/o ARC Capital Partners | c/o Pacific Alliance |
| Limited | Group |
| 13/F St. John's Building | 16/F St. John's Building |
| 33 Garden Road | |
| Central, Hong Kong | 33 Garden Road |
| T: (852) 3115 0243 | Central, Hong Kong |
| F: (852) 3115 0244 | T: (852) 2918 0088 |
| aliu@pacific-alliance.com | F: (852) 2918 0881 |
| | jlewis@pacific-alliance.com |
+--------------------------------+-----------------------------+
| BROKER: | NOMINATED ADVISER: |
| Hiroshi Funaki | Philip Secrett |
| LCF Edmond de Rothschild | Grant Thornton Corporate |
| Securities | Finance |
| T: (44) 20 7845 5960 | T: (44) 20 7383 5100 |
| F: (44) 20 7845 5961 | Philip.J.Secrett@gtuk.com |
| funds@lcfr.co.uk | |
+--------------------------------+-----------------------------+
| | |
| MEDIA RELATIONS: | |
| Sophie Hoggarth | |
| Pacific Alliance Group | |
| T: (86) 21 6113 5818 | |
| shoggarth@pacific-alliance.com | |
+--------------------------------+-----------------------------+
Andrew Walton
Financial Dynamics, London
T: (44) 20 7269 7100
Christine Wood / Queenie Tsao
Financial Dynamics, Asia
T: (852) 3716 9800
Notes to Editors:
ARC Capital Holdings Limited ("ARCH") (AIM: ARCH) is a closed-end investment
company with net assets of US$606.0 million as at 31 August 2010. ARCH was
admitted to trading on the AIM Market of the London Stock Exchange in June 2006.
ARCH makes and holds investments in the retail, consumer goods and consumer
services sectors, principally in China but also in neighbouring Asian countries.
Target investments include regional hypermarkets and supermarkets, dominant
consumer brands, specialty retail chains, retail property assets and retail and
consumer service providers.
For more information about ARCH, please visit: www.arch-fund.com
ARCH is a member of Pacific Alliance Group ("PAG"), one of the leading Asian
alternative investment managers. Founded in 2002, PAG manages funds covering
private equity, real estate, hedge fund and distressed investments and has
offices across Asia including Hong Kong, Shanghai, Beijing and Tokyo.
Chairman's Statement
On behalf of the Board of Directors, I am pleased to present the interim report
of ARC Capital Holdings Limited ("ARCH" or the "Company") and its subsidiaries
(collectively the "Fund") for the six month period ended 30 June 2010.
Review
China reported GDP growth of 10.3% in the second quarter of 2010 which was
slightly higher than anticipated, and yet a decrease compared with the 11.9%
growth reported in the first quarter of 2010. Slower growth in industrial output
and investment during the quarter, driven by the unwinding of government
stimulus measures and government policy tightening to stabilise the housing
market, contributed to the second quarter slowdown. Despite the weaker
investment and industrial environment, domestic spending continued to grow with
retail sales of consumer goods climbing 18.5% in the second quarter compared
with the 17.9% growth reported in the first. Personal income growth figures
reported for the first half of 2010 stating that urban and rural incomes
increased by 7.5% and 9.5%, respectively, further encouraged positive sentiment
around the domestic consumer market.
Despite the apparent gloom in international markets, China stands out as an
attractive investment opportunity. Government policy to boost domestic
consumption should ensure continued economic growth, while the rapid
transformation of transport systems should help accelerate and underpin
development. China's five year plan,commencing in 2011, is expected to
concentrate on the quality and quantity of growth with particular attention to
income distribution and the environment. In what promises to be another
encouraging period for China's growth, ARCH remains one of the few China
consumer focused private equity funds which allows international investors
toparticipate in growth capital.
The value of the Renminbi continues to attract considerable attention. The
recent adoption of a more flexible trade weighted exchange rate system seems
ideal for this stage of China's economic development and should provide
stability to the overall economic environment.
Since becoming Chairman, I have had the opportunity to visit several of our
portfolio companies including Goodbaby and Supermarket Holdings and I am pleased
to report that my impressions were favourable. Goodbaby management has achieved
strong financial results and is also attentive to the welfare of its employees.
In addition, the company has an impressive product safety record. I am also
impressed by the rapid progress at Supermarket Holdings where the management
team is to be praised for its success in implementing significant efficiency
improvements and turning around profitability.
Realisations
During the first half of 2010, ARCH completed a number of important transactions
and realisations. On 25 February 2010, ARCH announced the partial sale of its
interest in Hainan Airport for which it received approximately US$45 million.
Hainan Airport is the domestic airport affiliate of Hainan Airlines (600221 CH)
and Hainan Meilan Airport Group (0357 HK). Subsequently on 31 May 2010, the
shareholders of Hainan Meilan Airport Group approved the purchase of the
remainder of ARCH's Hainan Airport stake. It is expected that this will close in
December 2010 after negotiations are finalised and certain conditions are
satisfied.
On 25 March 2010, Huiyin Household Appliances, a leading electrical appliance
retailer in the eastern China region focusing on 3rd and 4th tier cities and
rural markets, successfully completed its initial public offering on the Hong
Kong Stock Exchange under the stock code (1280). The imposed lock-up for ARCH's
shares will expire in March 2011.
Since the end of the first half, ARCH completed the sale of its equity in
Department Store Holdingon 16 September 2010, fully realising its stake at a
total consideration of RMB750.6 million (equivalent to US$110.8 million) in
cash. Combined with past dividend payments, the transaction represents a 5.9x
cash multiple and an IRR of 77.0%. ARCH used part of the sale proceeds of the
transaction to fully repay its outstanding loan commitments.
Investing Policy and Share Price Discount
As a reminder to shareholders, on 1 April 2009, the Company announced its policy
to address the share price discount to Net Asset Value ("NAV"). It was stated
that the Company will:
(i) Cease to make any new investments until the Independent Directors determine
otherwise.
(ii) Use substantially all proceeds (in the form of principal and profits) from
realisations to fund distributions to shareholders through share buy-backs,
tender offers or capital distributions, subject to serving existing debt and
other payables, and funding contractual follow-on commitments to the current
portfolio.
The Independent Directors will determine (i) whether to approve funds to be used
to make follow-on investments; and (ii) when new investments may be made. In
making these determinations, the Independent Directors will have regard to the
alternative use of funds in effecting shareholder distributions, including the
potential short-term increase in NAV per share that may result from share
buybacks.
The Board and the Investment Manager will continue to attempt to resolve the
share price discount to NAV in a determined manner. We are mindful of our
patient and supportive shareholders who have expressed their desire for a
distribution, while meeting the aspirations of those investors who value long
term NAV appreciation. With a stronger balance sheet and positive expected cash
flow, we will endeavour to address the share price discount before considering
any pipeline opportunities.
Distributions to shareholders can, of course, only take place once the relevant
disposal proceeds have been repatriated from China and are available to the
Company. In view of Chinese exchange control considerations, repatriation can
sometimes take several months.
Valuation
The unaudited NAV per share as at 30 June 2010 remained unchanged at US$1.36,
compared to the US$1.36 audited NAV per share as at the end of 2009. Valuations
are reviewed and approved by the Valuation Committee following consideration of
quarterly independent valuation reports produced by one of the "Big Four"
international accountancy firms. The valuations are prepared in accordance with
US GAAP and US private equity valuation guidelines and are based on the 30 June
2010 financials of the investee companies held in the portfolio.
Unlisted portfolio investments, where appropriate, are valued using the median
of earnings multiples of listed comparables, while applying liquidity discounts
for unlisted holdings. The selected comparables include both Chinese and
non-Chinese listed companies. As a result, recent movements in the public
markets were factored into the valuations of the individual investments and are
therefore reflected in the NAV. In determining the fair value of a portfolio
investment, other events which may provide a reasonable indication of the value,
such as the price of recent transactions involving the investee company or
similar assets, are also taken into account.
Corporate Governance
On 20 April 2010, the Company formed a Nomination and a Remuneration Committee
comprised of all Independent Directors responsible for guiding the Board in
matters pertaining to nomination and remuneration. The first meetings were held
on 6 September 2010. The Audit Committee comprises exclusively the Independent
Directors; the Valuation Committee comprises the three members of the Audit
Committee and a representative of the Investment Manager.
Closing Remarks
I would like to express my appreciation and gratitude for the diligent efforts
of the Investment Manager's team who continuously strive to support our
investments. The quality of the portfolio is a testament to its hard work and
ability to bring investments to fruition while continuing to improve the value
of the underlying companies.In addition, on behalf of the Board, I would like to
thank Horst Geicke and William Ng for their contributions and also Allan Liu for
the direction he gave to the Board as chairman.
The other Independent Directors and I welcome suggestions from shareholders
regarding improving our shareholder communications, to complement the existing
flow of information from the Investment Manager.
Michael Guy Hilliard Heald
Chairman
24 September 2010
Investment Manager's Report
Since inception, the Investment Manager has sought to capture attractive
investment opportunities in the Chinese consumer retail sector for ARCH and has
successfully accumulated a portfolio of quality assets. The Investment Manager
reached its fourth anniversary at the end of the first half of 2010 and
continues to be focused on enhancing the operational capabilities of its
investee companies. Throughout the first half of 2010, the Investment Manager
pursued realisationopportunities for the portfolio as a number of its
investments matured. Simultaneously, the Investment Manager strengthened its
efforts to enhance the value of its remaining investee companies. Huiyin was
successfully listed on the Hong Kong Stock Exchange in the first quarter of 2010
and additionally, the Investment Manager completed two partial realisations
during the first half of 2010. Further strengthening ARCH's balance sheet, an
additional full realisationwas executed since the end of the first half with
part of the proceeds used to repay the outstanding debt.
China's Macro Economy
According to the second quarter figures released by the Chinese and Japanese
governments, China surpassed Japan as the world's second largest economy
reporting nominal GDP figures of US$1.33 trillion compared to Japan's US$1.28
trillion. China's GDP growth was 11.1% year-on-year in the first half of the
year, with retail sales and fixed asset investment fuelling much of the growth.
However, concerns about overheating asset and commodity prices, pressure on
Renminbi appreciation and increasing labour costs are casting uncertainty over a
longer term economic growth, which is a priority for the Chinese government.
Investment Environment and the ARCH Strategy
Although ranked as the best global equity market performers of 2009, the Hong
Kong and Shanghai equity markets became increasingly volatile during the second
quarter of 2010, following the trends of other major international markets as
concerns over the international credit crisis ensued. During the first half of
2010, the Shanghai Stock Exchange Composite dropped by 27%, while the Hong Kong
Hang Seng Index dropped by 8%. Despite the decrease in valuations in the
secondary market, the Shanghai and Hong Kong markets raised the most funds from
initial public offerings in the first half of the year as investors continued to
subscribe to the growth story of the Chinese economy.
The Investment Manager maintains its stance of cautious optimism and believes
there will continue to be significant growth in China's economy based on the
rapid expansion of domestic demand and consumption. The Investment Manager has
been i) harvesting several of its mature holdings via sales to strategic
investors and in the secondary market, ii) enhancing the value of its remaining
investee companies and iii) slowly rebuilding a pipeline of potential investment
opportunities.
Portfolio Activities
Focused on providing liquidity and enhancing the value of its portfolio, ARCH
completed the first half of 2010 with a series of realisations and noteworthy
events.
On 25 February 2010, ARCH announced the partial sale of its interest in Hainan
Airport for which it received approximately US$45 million. Further to the
initial transaction, on 7 June 2010, ARCH announced that the shareholders of
Hainan Meilan International Airport Company Limited (0357 HK) approved the
purchase of Kingward Investment Limited for total consideration of US$145
million. ARCH is a 46.67% shareholder of Kingward which has a 24.5% interest in
HNA Airport.
On 25 March 2010, Huiyin successfully raised US$48.4 million from an initial
public offering and commenced trading its shares on the Hong Kong Stock Exchange
under the stock code 1280. The retail tranche of the offering was nearly 600
times oversubscribed.
On 17 June 2010, ARCH completed the sale of its entire equity investment in
UCCAL back to the company for US$6.9 million, representing a slight premium to
cost. ARCH will continue to provide an interest-bearing loan to UCCAL to support
its ongoing growth.
On 16 September 2010, ARCH completed the final sale of its equity in Department
Store Holding for a total consideration of RMB750.6 million (equivalent to
US$110.8 million) in cash. The sale, in combination with past dividend payments,
represent a 5.9x cash multiple and an IRR of 77.0%. ARCH used partof the sale
proceeds of the transaction to fully repay its outstanding loan commitments.
Over the past two years, the Orient Home team has worked to turn around the
company's operations having made progress through installing financial control
and operating systems, launching a new ERP system, developing a new retail
format and diversifying its product categories. Despite the best efforts of the
team to implement operational and strategic changes to the company, Orient Home
continues to face a challenging environment which started at the time of the
slowdown in the local property market in 2008-2009. As a result, the
improvement plans implemented at the initial stage of the investment are coming
to fruition more slowly than expected. The Board has approved the use of
additional resources to reevaluate the company's operations and strategy.
Conclusion
The lingering effects of the financial crisis and uncertainties in the global
markets have prompted investors to take a cautious approach to investing.
However, China continues to be a global growth engine, having recently been
ranked as the second largest economy in the world. Understanding the need for
China's domestic consumption to drive its economic growth, the Investment
Manager remains confident of ARCH's ability to deliver maximum value to its
shareholders through its investment strategy focused on China's retail and
consumer sectors.
ARC Capital Partners Limited
Investment Manager
24 September 2010
Consolidated Statement of Assets and Liabilities as at 30 June 2010
+--------------------------------+-------+--------------------+----------------------+
| | Note | 30 June | 31 |
| | | 2010 | December |
| | | US$ | 2009 |
| | | | US$ |
+--------------------------------+-------+--------------------+----------------------+
| Assets | | (unaudited) | (audited) |
+--------------------------------+-------+--------------------+----------------------+
| | | | |
+--------------------------------+-------+--------------------+----------------------+
| Investments, at fair value | | | |
+--------------------------------+-------+--------------------+----------------------+
| (Cost: 30 June 2010: | | | |
| US$489,749,267; | | | |
+--------------------------------+-------+--------------------+----------------------+
| 31 December 2009: | 3 | 661,496,412 | 690,663,238 |
| US$533,673,270) | | | |
+--------------------------------+-------+--------------------+----------------------+
| Investment deposits | 8 | 13,582,980 | 13,582,980 |
+--------------------------------+-------+--------------------+----------------------+
| Other assets | 9 | 20,733,016 | 20,081,317 |
+--------------------------------+-------+--------------------+----------------------+
| Cash and cash equivalents | 10 | 42,991,457 | 5,817,051 |
+--------------------------------+-------+--------------------+----------------------+
| | | | |
+--------------------------------+-------+--------------------+----------------------+
| Total assets | | 738,803,865 | 730,144,586 |
+--------------------------------+-------+--------------------+----------------------+
| | | ----------------- | ------------------ |
+--------------------------------+-------+--------------------+----------------------+
| Liabilities | | | |
+--------------------------------+-------+--------------------+----------------------+
| | | | |
+--------------------------------+-------+--------------------+----------------------+
| Investment management fee | 4 | - | 6,546,401 |
| payable | | | |
+--------------------------------+-------+--------------------+----------------------+
| Performance fee payable | 5 | 10,406,850 | 10,406,850 |
+--------------------------------+-------+--------------------+----------------------+
| Borrowings | 11(a) | 75,204,601 | 74,703,384 |
+--------------------------------+-------+--------------------+----------------------+
| Deferred tax | 7 | 43,114,553 | 33,590,910 |
+--------------------------------+-------+--------------------+----------------------+
| Other payables and accruals | 12 | 26,336,801 | 19,973,430 |
+--------------------------------+-------+--------------------+----------------------+
| | | | |
+--------------------------------+-------+--------------------+----------------------+
| Total liabilities | | 155,062,805 | 145,220,975 |
+--------------------------------+-------+--------------------+----------------------+
| | | ------------------ | -------------------- |
+--------------------------------+-------+--------------------+----------------------+
| | | | |
+--------------------------------+-------+--------------------+----------------------+
| Net assets | | 583,741,060 | 584,923,611 |
+--------------------------------+-------+--------------------+----------------------+
| | | =========== | =========== |
+--------------------------------+-------+--------------------+----------------------+
| Shareholders' equity | | | |
+--------------------------------+-------+--------------------+----------------------+
| | | | |
+--------------------------------+-------+--------------------+----------------------+
| Share capital | 13(a) | 4,295,334 | 4,295,334 |
+--------------------------------+-------+--------------------+----------------------+
| Share premium | 13(b) | 529,989,036 | 529,989,036 |
+--------------------------------+-------+--------------------+----------------------+
| Retained earnings | | 48,378,478 | 49,410,990 |
+--------------------------------+-------+--------------------+----------------------+
| Foreign currency translation | | 1,078,212 | 1,228,251 |
| reserve | | | |
+--------------------------------+-------+--------------------+----------------------+
| | | | |
+--------------------------------+-------+--------------------+----------------------+
| | | 583,741,060 | 584,923,611 |
+--------------------------------+-------+--------------------+----------------------+
| | | =========== | =========== |
+--------------------------------+-------+--------------------+----------------------+
| | | | |
+--------------------------------+-------+--------------------+----------------------+
| Net Asset Value per share | 17(a) | 1.36 | 1.36 |
+--------------------------------+-------+--------------------+----------------------+
| | | =========== | =========== |
+--------------------------------+-------+--------------------+----------------------+
| | | | |
+--------------------------------+-------+--------------------+----------------------+
Approved by the Board of Directorson 24 September 2010.
The accompanying notes are an integral part of these consolidated financial
statements
Consolidated Schedule of Investments as at 30 June 2010
+--------------+------------+------------+-------------+--------+----------+--------+------------+--------+
| | Instrument | 30 June 2010 (unaudited) | | 31 December 2009 |
| | | | | (audited) |
+--------------+------------+-----------------------------------+----------+------------------------------+
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Investment | | Cost | Fair | % of | Cost | Fair | % of |
| (Note 3) | | | value | net | | value | net |
| | | | | assets | | | assets |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | US$ | US$ | | US$ | US$ | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Mobile phone retail, | | | | | | |
| China | | | | | | |
+---------------------------+------------+-------------+--------+-------------------+------------+--------+
| Funtalk | Common | 90,000,044 | 118,988,000 | 20.38% | 90,000,044 | 97,000,000 | 16.58% |
| China | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Holdings | Stock | | | | | | |
| Ltd | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| (formerly | and | | | | | | |
| Pypo | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Digital | Warrants | | | | | | |
| Company | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Limited) | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Child products, China | | | | | | |
+---------------------------+------------+-------------+--------+-------------------+------------+--------+
| Goodbaby | Common | 23,880,000 | 45,600,000 | 7.81% | 23,880,000 | 42,500,000 | 7.27% |
| Group | Stock | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Goodbaby | Loan | 4,500,000 | 6,457,250 | 1.11% | 4,500,000 | 5,962,250 | 1.02% |
| Group | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Fashion retail, China | | | | | | |
+---------------------------+------------+-------------+--------+-------------------+------------+--------+
| UCCAL | Common | 4,335,162 | 4,568,780 | 0.78% | 10,837,906 | 11,000,000 | 1.88% |
| Holdings | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Ltd. | Stock and | | | | | | |
| | loan | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Airport, | | | | | | | |
| China | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| HNA Airport | Common | 35,494,368 | 50,750,000 | 8.69% | 70,988,735 | 90,500,000 | 15.47% |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Holding | Stock | | | | | | |
| (Group) | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Company | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Limited | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | |
+----------------------------------------+-------------+--------+-------------------+------------+--------+
| Home appliance retail, China | | | | | |
+----------------------------------------+-------------+--------+-------------------+------------+--------+
| Huiyin | Common | 42,302,055 | 44,938,855 | 7.70% | 42,302,055 | 44,600,000 | 7.63% |
| Household | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Appliances | Stock | | | | | | |
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| (Holdings) | | | | | | | |
| Co., | | | | | | | |
| Ltd. | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Home decoration retail, | | | | | | |
| China | | | | | | |
+---------------------------+------------+-------------+--------+-------------------+------------+--------+
| Orient Home | Common | 74,264,151 | 38,500,000 | 6.60% | 74,264,151 | 51,900,000 | 8.87% |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Decoration | Stock | | | | | | |
| & | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Building | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Materials | | | | | | | |
| Co., Ltd | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Orient Home | Loan | 7,373,000 | 3,686,500 | 0.63% | 7,373,000 | 7,373,000 | 1.26% |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Decoration | | | | | | | |
| & | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Building | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| Materials | | | | | | | |
| Co., Ltd | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | | | |
+--------------+------------+------------+-------------+--------+-------------------+------------+--------+
| | | | | | | | | |
+--------------+------------+------------+-------------+--------+----------+--------+------------+--------+
Consolidated Schedule of Investments as at 30 June 2010 (continued)
+--------------+------------+-------------+-------------+----------+----------+--------+-----------------+------------+
| | | |
+--------------+------------+-----------------------------------------------------------------------------------------+
| | Instrument | 30 June 2010 (unaudited) | | 31 December 2009 (audited) |
+--------------+------------+--------------------------------------+----------+---------------------------------------+
| | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | | | % of | | | % of |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Investment | | Cost | Fair | net | Cost | Fair | net assets |
| (Note 3) | | | value | assets | | value | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | US$ | US$ | | US$ | US$ | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | | | | | |
+---------------------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Department store, China | | | | | | |
+---------------------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Department | Common | 19,066,352 | 91,411,811 | 15.66% | 19,066,352 | 85,900,000 | 14.69% |
| Store A# | Stock | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Super/hypermarket, | | | | | | |
| China | | | | | | |
+---------------------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Shanghai | Common | 89,142,235 | 159,100,000 | 27.26% | 89,142,235 | 143,900,000 | 24.60% |
| Jiadeli | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | Stock | | | | | | |
| Supermarket | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Co., Ltd. | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| K.P.I. | Common | 11,591,388 | 9,268,153 | 1.59% | 13,518,280 | 13,752,491 | 2.35% |
| Company | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Limited | Stock | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Dairy, China | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Ningxia | Common | 18,130,000 | 22,800,000 | 3.91% | 18,130,000 | 31,000,000 | 5.30% |
| Xiajin | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Dairy Co., | Stock | | | | | | |
| Ltd. | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Education, | | | | | | | |
| China | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Beijing | Common | 21,863,663 | 22,741,509 | 3.90% | 21,863,663 | 22,589,943 | 3.86% |
| Science | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Technology | Stock | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| Management | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| College | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | | | | | | |
+--------------+------------+-------------+-------------+----------+-------------------+-----------------+------------+
| | | | | | | | | |
+--------------+------------+-------------+-------------+----------+----------+--------+-----------------+------------+
Consolidated Schedule of Investments as at 30 June 2010 (continued)
+---------------+-------------+-------------+-------------+----------+----------+--------+-------------+----------+----------+
| | Instrument | 30 June 2010 (unaudited) | | 31 December 2009 (audited) | |
+---------------+-------------+--------------------------------------+----------+---------------------------------+----------+
| | | | | % of | | | % of | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| Investment | | Cost | Fair | net | Cost | Fair | net | |
| (Note 3) | | | value | assets | | value | assets | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | | US$ | US$ | | US$ | US$ | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | | | | | | | |
+-----------------------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| Education, China | | | | | | | |
| (continued) | | | | | | | |
+-----------------------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| Shaanxi Da | Common | 42,806,849 | 42,685,554 | 7.30% | 42,806,849 | 42,685,554 | 7.30% | |
| De | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| Education | Stock | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| (formerly | | | | | | | | |
| Xian | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | | | | | | | | |
| University) | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| Food services, Hong Kong | | | | | | | |
+-----------------------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| International | Convertible | 5,000,000 | - | 0.00% | 5,000,000 | - | 0.00% | |
| | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | Notes | | | | | | | |
| Restaurants | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| Holdings | | | | | | | | |
| Limited | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | | __________ | ___________ | ________ | ___________ | ___________ | ________ | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| Total | | 489,749,267 | 661,496,412 | 113.32% | 533,673,270 | 690,663,238 | 118.08% | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | | =========== | =========== | ======== | ============ | =========== | ======== | |
+---------------+-------------+-------------+-------------+----------+-------------------+-------------+----------+----------+
| | | | | | | | | | |
+---------------+-------------+-------------+-------------+----------+----------+--------+-------------+----------+----------+
# Name of investee is not disclosed due to confidentiality arrangement.
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statement of Operations for the period ended 30 June 2010
+----------------------------------+-------+------------+----------+----------------------+
| | | 6 months | 6 months |
+----------------------------------+-------+-----------------------+----------------------+
| | | ended | ended |
+----------------------------------+-------+------------+---------------------------------+
| | | 30 June | 30 June |
+----------------------------------+-------+-----------------------+----------------------+
| | Note | 2010 | 2009 |
+----------------------------------+-------+-----------------------+----------------------+
| | | US$ | US$ |
+----------------------------------+-------+-----------------------+----------------------+
| Investment income | | (unaudited) | (unaudited) |
+----------------------------------+-------+-----------------------+----------------------+
| | | | |
+----------------------------------+-------+-----------------------+----------------------+
| Interest income from investments | | - | 250,000 |
+----------------------------------+-------+-----------------------+----------------------+
| Other interest income | | 38,515 | 219,299 |
+----------------------------------+-------+-----------------------+----------------------+
| Dividend income | | 796,284 | 790,549 |
+----------------------------------+-------+-----------------------+----------------------+
| | | | |
+----------------------------------+-------+-----------------------+----------------------+
| Total investment income | | 834,799 | 1,259,848 |
+----------------------------------+-------+-----------------------+----------------------+
| | | ------------------- | ------------------- |
+----------------------------------+-------+-----------------------+----------------------+
| Expenses | | | |
+----------------------------------+-------+-----------------------+----------------------+
| | | | |
+----------------------------------+-------+-----------------------+----------------------+
| Investment management fee | 4 | 5,764,696 | 5,690,880 |
+----------------------------------+-------+-----------------------+----------------------+
| Performance fee | 5 | - | - |
+----------------------------------+-------+-----------------------+----------------------+
| Administration, custodian and | | 197,998 | 219,003 |
| registrar fees | | | |
+----------------------------------+-------+-----------------------+----------------------+
| Professional fees | | 1,164,722 | 1,202,580 |
+----------------------------------+-------+-----------------------+----------------------+
| Directors' fees | 6 | 54,167 | 56,096 |
+----------------------------------+-------+-----------------------+----------------------+
| Finance costs | 11(b) | 8,664,691 | 5,662,253 |
+----------------------------------+-------+-----------------------+----------------------+
| Other expenses | | 521,061 | 1,331,873 |
+----------------------------------+-------+-----------------------+----------------------+
| | | | |
+----------------------------------+-------+-----------------------+----------------------+
| Total expenses | | 16,367,335 | 14,162,685 |
+----------------------------------+-------+-----------------------+----------------------+
| | | ------------------- | ------------------- |
+----------------------------------+-------+-----------------------+----------------------+
| Net investment loss before | | | |
| income | | | |
+----------------------------------+-------+-----------------------+----------------------+
| tax expense | | (15,532,536) | (12,902,837) |
+----------------------------------+-------+-----------------------+----------------------+
| | | ------------------- | -------------------- |
+----------------------------------+-------+-----------------------+----------------------+
| | | | |
+----------------------------------+-------+-----------------------+----------------------+
| Income tax expense | 7 | 9,523,642 | 3,773,578 |
+----------------------------------+-------+-----------------------+----------------------+
| | | | |
+----------------------------------+-------+-----------------------+----------------------+
| Net investment loss | | (25,056,178) | (16,676,415) |
+----------------------------------+-------+-----------------------+----------------------+
| | | ------------------- | ------------------- |
+----------------------------------+-------+-----------------------+----------------------+
| | | | | |
+----------------------------------+-------+------------+----------+----------------------+
Consolidated Statement of Operations for the period ended 30 June 2010
(continued)
+------------------------------------+------+------------+----------+-------------------+
| | | 6 months | 6 months |
+------------------------------------+------+-----------------------+-------------------+
| | | ended | ended |
+------------------------------------+------+------------+------------------------------+
| | | 30 June | 30 June |
+------------------------------------+------+-----------------------+-------------------+
| | Note | 2010 | 2009 |
+------------------------------------+------+-----------------------+-------------------+
| | | US$ | US$ |
+------------------------------------+------+-----------------------+-------------------+
| | | (unaudited) | (unaudited) |
+------------------------------------+------+-----------------------+-------------------+
| | | | |
+------------------------------------+------+-----------------------+-------------------+
| | | | |
+------------------------------------+------+-----------------------+-------------------+
| Net gain on investments | | | |
+------------------------------------+------+-----------------------+-------------------+
| and foreign currencies | | | |
+------------------------------------+------+-----------------------+-------------------+
| | | | |
+------------------------------------+------+-----------------------+-------------------+
| Net realised gain on investments | | 10,462,197 | 1,857,960 |
+------------------------------------+------+-----------------------+-------------------+
| | | | |
+------------------------------------+------+-----------------------+-------------------+
| Net unrealised gain on investments | | 13,530,022 | 43,432,035 |
+------------------------------------+------+-----------------------+-------------------+
| | | | |
+------------------------------------+------+-----------------------+-------------------+
| Net realised and unrealised | | | |
| gain/(loss) on | | | |
+------------------------------------+------+-----------------------+-------------------+
| foreign currencies | | 31,447 | (10,540) |
+------------------------------------+------+-----------------------+-------------------+
| | | ------------------ | ----------------- |
+------------------------------------+------+-----------------------+-------------------+
| Net gain on investments | | | |
+------------------------------------+------+-----------------------+-------------------+
| and foreign currencies | | 24,023,666 | 45,279,455 |
+------------------------------------+------+-----------------------+-------------------+
| | | ------------------ | ----------------- |
+------------------------------------+------+-----------------------+-------------------+
| Net (decrease)/increase in net | | | |
| assets | | | |
+------------------------------------+------+-----------------------+-------------------+
| from operations | | (1,032,512) | 28,603,040 |
+------------------------------------+------+-----------------------+-------------------+
| | | ========== | ========== |
+------------------------------------+------+-----------------------+-------------------+
| | | | | |
+------------------------------------+------+------------+----------+-------------------+
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statement of Changes in Net Assets for the period ended 30 June
2010
+------------------------+---------------+-----------------------+--------------+--------------+
| | Capital | Retained | Foreign | Total |
| | contributions | earnings/(accumulated | currency | US$ |
| | US$ | losses) US$ | translation | |
| | | | reserve | |
| | | | US$ | |
+------------------------+---------------+-----------------------+--------------+--------------+
| | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| At 1 January 2009 | 534,284,370 | (13,063,238) | 1,175,316 | 522,396,448 |
+------------------------+---------------+-----------------------+--------------+--------------+
| Net investment loss | - | (16,676,415) | - | (16,676,415) |
+------------------------+---------------+-----------------------+--------------+--------------+
| Net realised gain on | - | 1,857,960 | - | 1,857,960 |
| investments | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| Net unrealised gain on | - | 43,432,035 | - | 43,432,035 |
| Investments | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| Net unrealised loss on | - | (10,540) | - | (10,540) |
| foreign currencies | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| Foreign currencies | - | - | 28,624 | 28,624 |
| translation difference | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| At 30 June 2009 | 534,284,370 | 15,539,802 | 1,203,940 | 551,028,112 |
+------------------------+---------------+-----------------------+--------------+--------------+
| | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| At 1 January 2010 | 534,284,370 | 49,410,990 | 1,228,251 | 584,923,611 |
+------------------------+---------------+-----------------------+--------------+--------------+
| | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| Net investment loss | - | (25,056,178) | - | (25,056,178) |
+------------------------+---------------+-----------------------+--------------+--------------+
| Net realised gain on | | 10,462,197 | | 10,462,197 |
| investments | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| Net unrealised gain | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| on investments | - | 13,530,022 | - | 13,530,022 |
+------------------------+---------------+-----------------------+--------------+--------------+
| Net realised and | | | | |
| unrealised gain | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| on foreign | - | 31,447 | - | 31,447 |
| currencies | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| Foreign currencies | | | | |
| translation | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
| difference | - | - | (150,039) | (150,039) |
+------------------------+---------------+-----------------------+--------------+--------------+
| | ____________ | _____________ | ____________ | ____________ |
+------------------------+---------------+-----------------------+--------------+--------------+
| At 30 June 2010 | 534,284,370 | 48,378,478 | 1,078,212 | 583,741,060 |
+------------------------+---------------+-----------------------+--------------+--------------+
| | =========== | ============ | =========== | =========== |
+------------------------+---------------+-----------------------+--------------+--------------+
| | | | | |
+------------------------+---------------+-----------------------+--------------+--------------+
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statement of Cash Flows for the period ended 30 June 2010
+--------------------------------+-----+--------+-----------+----------+----------------------+
| | | 6 months | 6 months |
+--------------------------------+--------------+----------------------+----------------------+
| | | ended | ended |
+--------------------------------+--------------+-----------+---------------------------------+
| | | 30 June | 30 June |
+--------------------------------+--------------+----------------------+----------------------+
| | Note | 2010 | 2009 |
+--------------------------------+--------------+----------------------+----------------------+
| | | US$ | US$ |
+--------------------------------+--------------+----------------------+----------------------+
| | | (unaudited) | (unaudited) |
+--------------------------------------+--------+----------------------+----------------------+
| Cash flows from operating activities | | | |
+--------------------------------------+--------+----------------------+----------------------+
| | | | |
+--------------------------------------+--------+----------------------+----------------------+
| Net (decrease)/increase in net | | | |
| assets from | | | |
+--------------------------------------+--------+----------------------+----------------------+
| operations | | (1,032,512) | 28,603,040 |
+--------------------------------------+--------+----------------------+----------------------+
| | | | |
+--------------------------------------+--------+----------------------+----------------------+
| Adjustments to reconcile net | | | |
| increase/(decrease) | | | |
+--------------------------------------+--------+----------------------+----------------------+
| in net assets from operations to | | | |
| net cash | | | |
+--------------------------------------+--------+----------------------+----------------------+
| provided by/(used in) operating | | | |
| activities: | | | |
+--------------------------------------+--------+----------------------+----------------------+
| - Net change in realised and | | | |
| unrealised gain from investments | | (24,724,997) | (45,289,995) |
+--------------------------------------+--------+----------------------+----------------------+
| - Purchase of investments | | - | (7,322,681) |
+--------------------------------------+--------+----------------------+----------------------+
| - Proceeds from sale of | | 53,891,823 | 19,074,200 |
| investments | | | |
+--------------------------------------+--------+----------------------+----------------------+
| - Decrease in loans receivable | | - | 7,328,155 |
+--------------------------------------+--------+----------------------+----------------------+
| - Increase in interest receivable | | - | (159,455) |
+--------------------------------------+--------+----------------------+----------------------+
| - Increase in other assets | | (651,699) | (138,114) |
+--------------------------------------+--------+----------------------+----------------------+
| - Decrease in fixed deposits - | | - | 573,310 |
| pledged | | | |
+--------------------------------------+--------+----------------------+----------------------+
| - (Decrease)/Increase in | | | |
| investment | | | |
+--------------------------------------+--------+----------------------+----------------------+
| management fee payable | | (6,546,401) | 2,638,046 |
+--------------------------------------+--------+----------------------+----------------------+
| - Increase in deferred tax | | 9,523,643 | 3,773,577 |
| liabilities | | | |
+--------------------------------------+--------+----------------------+----------------------+
| - Increase in other payables and | | 6,363,371 | 1,095,020 |
| accruals | | | |
+--------------------------------------+--------+----------------------+----------------------+
| | | | |
+--------------------------------------+--------+----------------------+----------------------+
| Net cash provided by operating | | | |
+--------------------------------------+--------+----------------------+----------------------+
| activities | | 36,823,228 | 10,175,103 |
+--------------------------------------+--------+----------------------+----------------------+
| | | ------------------- | -------------------- |
+--------------------------------------+--------+----------------------+----------------------+
| | | | |
+--------------------------------------+--------+----------------------+----------------------+
| | | | | | |
+--------------------------------+-----+--------+-----------+----------+----------------------+
Consolidated Statement of Cash Flows for the period ended 30 June 2010
(continued)
+----------------------------------+--+----+------------+----------+-------------------+
| | | 6 months | 6 months |
+----------------------------------+-------+-----------------------+-------------------+
| | | ended | ended |
+----------------------------------+-------+------------+------------------------------+
| | | 30 June | 30 June |
+----------------------------------+-------+-----------------------+-------------------+
| | Note | 2010 | 2009 |
+----------------------------------+-------+-----------------------+-------------------+
| | | US$ | US$ |
+----------------------------------+-------+-----------------------+-------------------+
| | | (unaudited) | (unaudited) |
+-------------------------------------+----+-----------------------+-------------------+
| Cash flows from financing | | | |
| activities | | | |
+-------------------------------------+----+-----------------------+-------------------+
| | | | |
+-------------------------------------+----+-----------------------+-------------------+
| Increase/(Decrease) in bank loans | | 501,217 | (68,565) |
| and other borrowings | | | |
+-------------------------------------+----+-----------------------+-------------------+
| | | | |
+-------------------------------------+----+-----------------------+-------------------+
| Net cash provided by/(used in) | | | |
| financing | | | |
+-------------------------------------+----+-----------------------+-------------------+
| activities | | 501,217 | (68,565) |
+-------------------------------------+----+-----------------------+-------------------+
| | | ----------------- | ----------------- |
+-------------------------------------+----+-----------------------+-------------------+
| | | | |
+-------------------------------------+----+-----------------------+-------------------+
| Effect on foreign currencies | | (150,039) | 28,624 |
| translation | | | |
+-------------------------------------+----+-----------------------+-------------------+
| | | | |
+-------------------------------------+----+-----------------------+-------------------+
| Net increase in cash and cash | | 37,174,406 | 10,135,162 |
| equivalents | | | |
+-------------------------------------+----+-----------------------+-------------------+
| | | | |
+-------------------------------------+----+-----------------------+-------------------+
| Cash and cash equivalents at | | | |
| beginning of | | | |
+-------------------------------------+----+-----------------------+-------------------+
| period | | 5,817,051 | 8,589,465 |
+-------------------------------------+----+-----------------------+-------------------+
| | | | |
+-------------------------------------+----+-----------------------+-------------------+
| Cash and cash equivalents at end of | | | |
+-------------------------------------+----+-----------------------+-------------------+
| period | 10 | 42,991,457 | 18,724,627 |
+-------------------------------------+----+-----------------------+-------------------+
| | | ========== | ========== |
+-------------------------------------+----+-----------------------+-------------------+
| Supplemental cash flow information | | | |
+-------------------------------------+----+-----------------------+-------------------+
| | | | |
+-------------------------------------+----+-----------------------+-------------------+
| Interest paid | | (6,498,012) | (5,662,253) |
+-------------------------------------+----+-----------------------+-------------------+
| | | ========== | ========== |
+-------------------------------------+----+-----------------------+-------------------+
| | | | | | |
+----------------------------------+--+----+------------+----------+-------------------+
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to the Unaudited Interim Consolidated Financial Statements
1. General
Organisation
ARC Capital Holdings Limited (the "Company") was incorporated with limited
liability in the Cayman Islands as an exempted company under the Companies Law
on 27 July 2005. On 4 April 2006, the Company changed its name from Asia Retail
Consumer Holdings Limited to ARC Capital Holdings Limited.
The Company is a closed-end investment company whose shares have been admitted
and tradeon the Alternative Investment Market ("AIM"), which is operated by the
London Stock Exchange plc. The Company's principal investment objective is to
provide its shareholders with capital appreciation by investing in listed and
unlisted companies in the retail, consumer goods and consumer service sectors
principally in China and in neighbouring Asian countries. The Company finances
these companies for expansion through buy-outs, pre-IPO opportunities and other
equity and mezzanine securities.
The Company is managed by ARC Capital Partners Limited (the "Investment
Manager"). The Investment Manager is responsible for the day-to-day management
of the Company's investment portfolio, including, subject to approval by the
Investment Committee which is appointed by the Investment Manager and approved
by the Company's Board of Directors, the day-to-day acquisition and disposal of
investments in accordance with the Company's investment objective and policies.
2. Summary of significant accounting policies
These unaudited interim consolidated financial statements of the Company and its
subsidiaries (collectively the "Fund") are prepared in accordance with
accounting principles generally accepted in the United States of America ("US
GAAP"). The Company also applies the provision of the AICPA Audit and
Accounting Guide for Investment Companies (the "Guide"). The following are the
significant accounting policies adopted in the preparation of these financial
statements.
(a) Use of estimates
The preparation of consolidated financial statements in conformity with US GAAP
requires the Board to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the data of the consolidated financial statements and the
reported amounts of revenues and expense during the reporting period. Actual
results are likely to differ from those estimates.
(b) Principles of consolidation
These consolidated financial statements include the financial statements of the
Company and its special purpose vehicles.Special purpose vehicles ("SPVs") are
consolidated from the date on which control is transferred to the Company and
are deconsolidated from the date that control ceases. Inter-company transactions
and balances have been eliminated in consolidation.
The Company uses SPVs to hold and transact in certain investments. The
Company's policy is to consolidate, as appropriate, those entities in which the
Company has control over significant operating, financial or investing decisions
of the entity.
(c) Investments
(i) Recognition, derecognition and measurement
Regular purchase and sale of investments are accounted for on the trade date,
the date the trade is executed. All investment securities are initially
recognised at cost. Costs used in determining net realised gains or losses on
the sale of investment securities are based on average-cost method. Legal and
due diligence fees and other charges associated with acquiring the investments
are capitalised as part of the cost of the investment securities.
A transfer of an investment is accounted for as a sale when the Fund has
relinquished control over the transferred assets. Any realised gains or losses
from investments are recognised in the consolidated statement of operations.
Investments are subsequently carried at fair value and changes in fair value are
presented in the consolidated statement of operations.
(ii) Fair value measurement
The Company is an investment company under the Guide. As a result, the Fund
records its investments on the consolidated statement of assets and liabilities
at their fair value, with unrealised gains and losses resulting from changes in
fair value recognised in the consolidated statement of operations.
Fair value is the amount that would be received to dispose of the investments in
an orderly transaction between market participants at the measurement date (i.e.
the exit price). Fair value of investments is determined by the Valuation
Committee, which is established by the Board of Directors.
The Valuation Committee uses its best judgement in estimating fair value. In
determining the fair value, the Valuation Committee engages third party
valuation agents to assist in the selection of valuation techniques and models.
However, there are inherent limitations in any valuation technique due to the
lack of observable inputs. Estimated fair values may differ significantly from
the values that would have been used had a ready market existed for the
securities, and the differences could be material to the financial statements.
Additional information about the level of market observability associated with
investment carried at fair value is disclosed in Note 3.
(d) Fair value hierarchy
Generally accepted accounting principles establish a fair value hierarchy that
prioritises inputs to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurements) and the lowest priority to unobservable input
(level 3 measurements).
The three levels of the fair value hierarchy are described below:
Level 1: Inputs to measure fair values are unadjusted quoted prices in
active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities;
Level 2: Inputs to measure fair values are quoted prices in markets that
are not active, quoted prices for similar assets or liabilities in active
markets, or prices or valuations for which all significant inputs are
observable, either directly or indirectly;
Level 3: Inputs to measure fair values are both significant to the fair
value measurement and unobservable.
Inputs to measure fair values broadly refer to the assumptions that market
participants use to make valuation decisions, including assumptions about risk.
Inputs may include price information, volatility statistics, specific and broad
credit data, liquidity statistics, and other factors. An asset or liability's
level within the fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement. However, the determination
of what constitutes "observable" requires significant judgment. The Valuation
Committee considers observable data to be such market data which is readily
available, regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by multiple, independent sources that are actively
involved in the relevant market. The categorization of an asset or liability
within the hierarchy is based upon the pricing transparency of the asset or
liability and does not necessarily correspond to the Valuation Committee's
perceived risk of that asset or liability.
Securities traded on a securities exchange are stated at the last reported sales
price on the day of valuation. To the extent these securities are actively
traded and valuation adjustments are not applied, they are categorised in level
1 of the fair value hierarchy. Preferred stock and other equities traded on
inactive markets or valued by reference to similar instruments are categorised
in level 2.
Restricted securities for which quotations are not readily available are valued
at fair value as determined by the Valuation Committee. Restricted securities
issued by publicly traded companies are generally valued at a discount to
similar publicly traded securities. Depending on the relative significance of
valuation inputs, these instruments may be classified in either level 2 or level
3 of the fair value hierarchy.
Investments are classified within level 3 of the fair value hierarchy if they
are traded infrequently and therefore have little or no price transparency.
Such assets and liabilities include unlisted equities and convertible bonds.
Their fair values are estimated with reference to the valuation techniques
recommended by the International Private Equity and Venture Capital Valuation
Guidelines and the U.S. Private Equity Valuation Guidelines. Valuation
methodologies utilised by the Valuation Committee include but are not limited to
comparable transactions or performance multiples, latest round of financing,
discounted cash flow, and are supported by independent valuations of underlying
assets. The selection of appropriate valuation techniques may be affected by
the availability of reliable inputs. In some cases, one valuation technique may
provide the best indication of fair value while in other circumstances, multiple
valuation techniques may be appropriate. Once an appropriate valuation
methodology is determined for an asset or liability, it will continue to be used
until a more appropriate method is determined.
(e) Cash and cash equivalents
Cash and cash equivalents comprise cash at banks placed with reputable banking
institutions with an original maturity of less than three months.
(f) Income and expenses
Dividend income is recognised on the ex-dividend date with the corresponding
foreign withholding taxes recorded as an expense. Withholding taxes on
dividends have been provided for in accordance with the Fund's understanding of
the applicable country's tax rules and rates.
Interest income and all expenses are accounted for on an accruals basis.
Offering costs incurred at the time of launch of ARCH werecharged to the
Company's share premium account upon the issuance of shares.
(g) Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated into US$
at the rates of exchange ruling at the reporting date. Income and expenses
denominated in foreign currencies during the period are translated into US$ at
the rates of exchange ruling at the transaction dates. All exchange differences
arising are included in the consolidated statement of operations.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign currency exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realised and unrealised gain or loss from
investments.
Net realised foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realised between the trade and settlement
dates on securities transactions, and the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's books
and the US$ equivalent of the amounts actually received or paid. Net realised
foreign exchange gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal period
end, resulting from changes in exchange rates.
If a SPV's functional currency is a foreign currency, translation adjustments
result from the process of translating that entity's financial statements into
the reporting currency. Translation adjustments shall not be included in
determining net income but shall be reported separately and accumulated in a
separate component of equity.
(h) Income taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognised for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognised in the consolidated statement of operations in the period
that includes the enactment date.
3. Securities valuation
The following table summarises the inputs used to value the Fund's investments
as of 30 June 2010 and as of 31 December 2009.
+-------------------------------------+--------------+--------------+
| | 30 June | 31 December |
| | 2010 US$ | 2009 |
| | | US$ |
+-------------------------------------+--------------+--------------+
| | | |
+-------------------------------------+--------------+--------------+
| Level 1 | 9,268,153 | 13,752,491 |
+-------------------------------------+--------------+--------------+
| Level 2 | 255,338,666 | 182,900,000 |
+-------------------------------------+--------------+--------------+
| Level 3 | 396,889,593 | 494,010,747 |
+-------------------------------------+--------------+--------------+
| | | |
+-------------------------------------+--------------+--------------+
| Total investments | 661,496,412 | 690,663,238 |
+-------------------------------------+--------------+--------------+
| | ========== | ========== |
+-------------------------------------+--------------+--------------+
The following is a reconciliation of investments for which level 3 inputs were
used in determining fair value:
+------------------------------------------+------------+----------+---------------+
| | | |
+------------------------------------------+-----------------------+---------------+
| | Period | Year ended |
| | ended | |
+------------------------------------------+------------+--------------------------+
| | 30 June | 31 |
| | | December |
+------------------------------------------+-----------------------+---------------+
| | 2010 | 2009 |
+------------------------------------------+-----------------------+---------------+
| | US$ | US$ |
+------------------------------------------+-----------------------+---------------+
| | (unaudited) | (audited) |
+------------------------------------------+-----------------------+---------------+
| | | |
+------------------------------------------+-----------------------+---------------+
| Balance as at beginning of period/year | 494,010,747 | 563,690,848 |
+------------------------------------------+-----------------------+---------------+
| Cost of purchases | - | 36,400,000 |
+------------------------------------------+-----------------------+---------------+
| Proceeds from sales | (52,159,900) | (47,974,200) |
+------------------------------------------+-----------------------+---------------+
| Net unrealised (loss)/gain | | |
+------------------------------------------+-----------------------+---------------+
| on investments before tax | (11,018,411) | 70,463,597 |
+------------------------------------------+-----------------------+---------------+
| Realised profit/(loss) on sale of | 10,657,157 | (1,269,498) |
| investments | | |
+------------------------------------------+-----------------------+---------------+
| Transfer out of level 3 | (44,600,000) | (127,300,000) |
+------------------------------------------+-----------------------+---------------+
| | | |
+------------------------------------------+-----------------------+---------------+
| Balance as at end of period/year | 396,889,593 | 494,010,747 |
+------------------------------------------+-----------------------+---------------+
| | ========== | ========== |
+------------------------------------------+-----------------------+---------------+
| Net unrealised (loss)/gain on investment | | |
| before | | |
+------------------------------------------+-----------------------+---------------+
| tax included in consolidated statement | | |
| of | | |
+------------------------------------------+-----------------------+---------------+
| operations attributable to level 3 | | |
| investments | | |
+------------------------------------------+-----------------------+---------------+
| still held as at 30 June and 31 December | (571,155) | 67,963,597 |
+------------------------------------------+-----------------------+---------------+
| | ========== | ========== |
+------------------------------------------+-----------------------+---------------+
| | | | |
+------------------------------------------+------------+----------+---------------+
During the period, investments with an aggregate carrying amount of
US$44,600,000 were transferred from level 3 to level 2 as they were listed on
stock exchanges. They were valued based on their quoted prices from the stock
exchanges as at 30 June 2010, with discounts to reflect their lock-up
conditions.
Investments presented in the consolidated schedule of investments were held
directly or indirectly by the Fund and represented the most recognizable names
of the underlying investments.
4. Investment management fee
In accordance with the terms of Investment Management Agreement entered into
between the Company and the Investment Manager dated 20 June 2006 amended by
Addendum dated 2 January 2008 and 1 April 2009 (collectively the "Investment
Management Agreement"), the Investment Manager is entitled to receive an
investment management fee calculated at a rate of two per cent per annum of the
Net Asset Value ("NAV") calculated at the beginning of each quarter based on the
average month end NAV of the previous quarter and payable in advance.
For the period ended 30 June 2010, the Company incurred expenses in the form of
investment management fees of US$5,764,696 (for the period to 30 June 2009:
US$5,690,880), of which US$Nil was payable as at 30 June 2010 (US$6,546,401 as
at 31 December 2009.)The investment management fees in arrears as at 31 December
2009 were paid in the first quarter of 2010.
5. Performance fee
In accordance with the terms of the Investment Management Agreement, the
Investment Manager is entitled to receive a performance fee provided that the
NAV as at year end is greater than (i) the NAV as at latest year end on which a
performance fee was charged ("High Water Mark"), and (ii) the NAV on admission
of the Company to trading on AIM ("NAV on Admission") increased by a compounded
annual hurdle rate of eight per cent ("the Hurdle").
The Investment Management Agreement states that the performance fee is
calculated and paid as follows:
- 0 per cent if the NAV as at year end is at or below the Hurdle;
- 100 per cent of the relevant increase in the NAV as at year end above
the Hurdle but below the NAV on Admission increased by a compounded annual rate
of 10 per cent (the "Catch-up"); and
- 20 per cent of the relevant increase in the NAV as at year end above
the Catch-up.
The performance fee is calculated in US$ and paid (i) 50 per cent in the
Company's ordinary shares ("shares"), and (ii) 50 per cent in cash. For the
period ended 30 June 2010, the Company incurred no performance fees (period to
30 June 2009: US$Nil). The performance fee payable as at 30 June 2010 and as at
31 December 2009 represented the performance fee for the year ended 30 June 2008
which was not yet paid. The Investment Manager voluntarily deferred the
collection of such performance fee amount until such time as the Fund has
sufficient available funds to meet all of its current third party liabilities.
The Company may elect to meet its share obligation either by issuing new shares
at NAV or purchasing the equivalent number of shares in the market at a
discount. Had the Company opted for issuing new shares at NAV to settle the
outstanding performance fee payable as at 30 June 2010, the total number of
issued Company shares would have increased by 3,828,863 from 429,533,424 to
433,362,287, which would have a negligible dilution effect on the NAV per share.
In addition, any performance fee earned by the Investment Manager will only be
paid from realised profits generated from the sale of investments. The
Investment Manager shall forfeit unconditionally any accrued performance fee
that cannot be paid due to the lack of sufficient realised profits following the
realisation of the last remaining investment.
6. Directors' fees and expenses
The Company pays each of its Directors an annual fee of US$30,000 plus
out-of-pocket expenses and each of its valuation committee members an annual fee
of US$5,000. Two Directors have agreed to waive their annual fees for so long
as they have an equity interest in the Investment Manager.
7. Current and deferred income taxes
(a) No provision for Cayman Island taxes are provided as the Company is not
currently subject to income taxes in the Cayman Islands in which it operates.
The Company has obtained an undertaking from the Governor in Cabinet of the
Cayman Islands that for a period of 20 years from 9 August 2005 that:
- no law which is thereafter enacted in the Cayman Islands imposing any tax to
be levied on profits, income, capital gains or appreciations shall apply to the
Company or its operations; and
- no aforesaid tax or withholding tax, nor estate duty or inheritance tax shall
be payable on or in respect of the share debentures or other obligations of the
Company.
(b) The Fund may be subject to taxes imposed in other countries in which it
invests. Such taxes are generally based on income and/or gains generated.
Dividend and interest income received by the Fund may be subject to withholding
tax imposed in the country of origin. This income is recorded gross of such
taxes and the withholding tax, if any, is recognised separately in the
consolidated statement of operations.
8. Investment deposits
The Fund had placed refundable deposits of US$13,582,980 (31 December 2009:
US$13,582,980) with an identified investment target to secure its exclusivity to
the right of investment, in the ordinary course of the Fund's investment
activities.
9. Other assets
At 30 June 2010, the Fund held properties and financial assets of US$10,702,094
(31 December 2009: US$10,545,220), which were acquired in the ordinary course of
the Fund's investment activities. The properties were carried at their fair
value, while the financial assets, being receivables and prepayments in nature,
were carried at their net realisable value.
10. Cash and cash equivalents
Cash and cash equivalents as at 30 June 2010 and 31 December 2009 consisted of:
+---------------------------------------+------------+------------+
| | 30 June | 31 |
| | 2010 US$ | December |
| | | 2009 |
| | | US$ |
+---------------------------------------+------------+------------+
| Cash at bank | | |
+---------------------------------------+------------+------------+
| - US$ | 37,209,278 | 3,499,872 |
+---------------------------------------+------------+------------+
| - RMB | 5,772,894 | 2,286,330 |
+---------------------------------------+------------+------------+
| - HK$ | 9,285 | 30,849 |
+---------------------------------------+------------+------------+
| | 42,991,457 | 5,817,051 |
+---------------------------------------+------------+------------+
| | ========== | ========= |
+---------------------------------------+------------+------------+
11. Borrowings and use of leverage
(a) Borrowings
At 30 June 2010 and 31 December 2009, borrowings were repayable as follows
+---------------------------------------+------------+-------------+
| | 30 June | 31 |
| | | December |
+---------------------------------------+------------+-------------+
| | 2010 | 2009 |
+---------------------------------------+------------+-------------+
| | US$ | US$ |
+---------------------------------------+------------+-------------+
| | | |
+---------------------------------------+------------+-------------+
| Within one year | 29,492,000 | 29,295,445 |
+---------------------------------------+------------+-------------+
| After one year but within two years | 45,712,601 | 45,407,939 |
+---------------------------------------+------------+-------------+
| | 75,204,601 | 74,703,384 |
+---------------------------------------+------------+-------------+
| | ========== | =========== |
+---------------------------------------+------------+-------------+
Under a loan agreement dated 6 November 2009, the Fund obtained a loan of RMB510
million (equivalent to US$75.4 million), of which RMB200 million (equivalent to
US$29.5 million) will be due in the fourth quarter of 2010 and RMB310 million
(equivalent to US$45.7 million) will be due in the fourth quarter of 2011. The
loan is secured by Fund investments with a carrying value of US$235.3 million as
at 30 June 2010 (US$229.8 million as at 31 December 2009).
(b) Finance costs
The finance costs include interest expenses, loan arrangement fees and any
refinancing costs.
12. Other payables and accruals
At 30 June 2010, the Fund had an amount of RMB100 million, equivalent to
approximately US$14.7 million) (at 31 December 2009: RMB100 million, equivalent
to approximately US$14.7 million) due to an investee company in which the Fund
had a controlling interest. The amount is unsecured and repayable on demand.
13. Share capital and share premium
(a) Share capital
+-------------------+-------------+------------+-------------+------------+
| | 30 June | 31 December |
+-------------------+--------------------------+--------------------------+
| | 2010 | 2009 |
+-------------------+--------------------------+--------------------------+
| | No. Of | Amount | No. of | Amount |
| | shares | US$ | Shares | US$ |
+-------------------+-------------+------------+-------------+------------+
| Authorised: | | | | |
+-------------------+-------------+------------+-------------+------------+
| | | | | |
+-------------------+-------------+------------+-------------+------------+
| Ordinary shares | | | | |
| at | | | | |
+-------------------+-------------+------------+-------------+------------+
| US$0.01each | 500,000,000 | 5,000,000 | 500,000,000 | 5,000,000 |
+-------------------+-------------+------------+-------------+------------+
| | ========== | ========== | ========== | ========== |
+-------------------+-------------+------------+-------------+------------+
| Issued and fully | | | | |
| paid: | | | | |
+-------------------+-------------+------------+-------------+------------+
| | | | | |
+-------------------+-------------+------------+-------------+------------+
| Ordinary shares | | | | |
| at | | | | |
+-------------------+-------------+------------+-------------+------------+
| US$0.01each | 429,533,424 | 4,295,334 | 429,533,424 | 4,295,334 |
+-------------------+-------------+------------+-------------+------------+
| | ========== | ========== | ========== | ========== |
+-------------------+-------------+------------+-------------+------------+
(b) Share premium
+-------------------+-------------+--------------+-------------+--------------+
| | 30 June | 31 December |
+-------------------+----------------------------+----------------------------+
| | 2010 | 2009 |
+-------------------+----------------------------+----------------------------+
| | No. of | Amount | No. of | Amount |
| | shares | US$ | shares | US$ |
+-------------------+-------------+--------------+-------------+--------------+
| | | | | |
+-------------------+-------------+--------------+-------------+--------------+
| Issued shares | 429,533,424 | 545,918,933 | 429,533,424 | 545,918,933 |
+-------------------+-------------+--------------+-------------+--------------+
| Less: Offering | | (15,929,897) | | (15,929,897) |
| cost | - | | - | |
+-------------------+-------------+--------------+-------------+--------------+
| | | | | |
+-------------------+-------------+--------------+-------------+--------------+
| At end of period | 429,533,424 | 529,989,036 | 429,533,424 | 529,989,036 |
| / year | | | | |
+-------------------+-------------+--------------+-------------+--------------+
| | ========== | ========== | ========== | ========== |
+-------------------+-------------+--------------+-------------+--------------+
14. Concentration of market, industry, credit, foreign exchange and
liquidity risks
The Fund's activities (including both investments and loans) may expose it to a
variety of risks: mainly market risk, industry risk, credit risk, foreign
exchange risk and liquidity risk.
(a) Market risk
Market risk is the risk that the value of a financial instrument will fluctuate
as a result of changes in market variables such as interest, foreign exchange
rates and equity prices, whether those changes are caused by factors specific to
the particular security or factors that affect all securities in the markets.
Investments are typically made with a specific focus on Greater China and thus
are concentrated in that region. Political or economic conditions and the
possible imposition of adverse governmental laws or currency exchange
restrictions in that region could cause any of the Fund's investments and their
markets to be less liquid and prices more volatile. The Fund is exposed to
market risk on all of its investments.
(b) Industry risk
The Fund's investments may be concentrated in a particular industry or sector
and performance of the particular industry or sector may have a significant
impact on the Fund. The Fund's investments may also be subject to the risk
associated with investing in private equity securities. Investments in private
equity securities may be illiquid, can be subject to various restrictions on
resale and there can be no assurance that the Fund will be able to realise the
value of such investments in a timely manner.
(c) Credit risk
Credit risk is the risk that an issuer/counterparty will be unable or unwilling
to meet its commitments to the Fund. Financial assets that are potentially
subject to significant credit risk consist of cash and cash equivalents,
investments in convertible bonds and receivables.
The maximum credit risk exposure of these items is their carrying value.
(d) Currency risk
The Fund has assets and liabilities denominated in currencies other than the
US$, the functional currency. The Fund is therefore exposed to currency risk as
the value of assets and liabilities denominated in other currencies will
fluctuate due to changes in exchange rates.
The table below summarises the Fund's net exposure to each currency as at 30
June 2010 and 31 December 2009.
+---------------------------------------+-------------+-------------+
| | 30 June | 31 |
| | | December |
+---------------------------------------+-------------+-------------+
| | 2010 | 2009 |
+---------------------------------------+-------------+-------------+
| | US$ | US$ |
+---------------------------------------+-------------+-------------+
| | | |
+---------------------------------------+-------------+-------------+
| US$ | 314,025,081 | 346,570,958 |
+---------------------------------------+-------------+-------------+
| RMB | 215,508,970 | 224,600,162 |
+---------------------------------------+-------------+-------------+
| HK$ | 54,207,009 | 13,752,491 |
+---------------------------------------+-------------+-------------+
| | 583,741,060 | 584,923,611 |
+---------------------------------------+-------------+-------------+
| | ========== | ========== |
+---------------------------------------+-------------+-------------+
(e) Liquidity risk
The Fund is exposed to liquidity risk as the Fund's investments are largely
illiquid while the majority of the Fund's liabilities are with short maturity.
The Fund's borrowings are secured by fixed deposits or investments. Illiquid
investments include any securities or instruments which are not actively traded
on any major securities market or for which no established secondary market
exists where the investments can be readily converted into cash. Reduced
liquidity resulting from the absence of an established secondary market may have
an adverse effect on the prices of the Fund's investments and the Fund's ability
to dispose of them where necessary to meet liquidity requirements. As a result,
the Fund may be exposed to significant liquidity risk.
China currently has foreign exchange restrictions, especially in relation to the
repatriation of foreign funds. Any unexpected foreign exchange control in China
may cause difficulties in the repatriation of funds. The Fund invests in China
and is exposed to the risk of repatriating funds out of China to meet its
obligations on a timely basis.
15. Related party transactions
(a) Certain Directors are shareholders and directors of the Investment Manager,
which provides investment management services to the Company and earns
investment management fee (see note 4) and performance fee (see note 5).
(b) As at 30 June 2010, the Investment Manager and its subsidiary held 1,477,034
ordinary shares of the Company (as at 31 December 2009: 1,477,034).
16. Commitment and contingency
As at 30 June 2010, the Fund is committed, subject to the meeting of all funding
conditions by the investees, to fund additional capital to existing investees
detailed as follows:
+---------------------------------------+------------+------------+
| | 30 June | 31 |
| | | December |
+---------------------------------------+------------+------------+
| | 2010 | 2009 |
+---------------------------------------+------------+------------+
| | US$ | US$ |
+---------------------------------------+------------+------------+
| | | |
+---------------------------------------+------------+------------+
| Orient Home Decoration & Building | 66,257,000 | 66,257,000 |
| Material Co., Ltd. | | |
+---------------------------------------+------------+------------+
| Beijing Science Technology Management | | 22,717,000 |
| College | - | |
+---------------------------------------+------------+------------+
| | 66,257,000 | 88,974,000 |
+---------------------------------------+------------+------------+
| | ========== | ========== |
+---------------------------------------+------------+------------+
In April 2010, the Fund negotiated for a return of capital from the Beijing
Science Technology Management College, in which the Fund will fully receive its
invested capital at a premium over a 3-year period. As a result, the Fund no
longer has the commitment to fund Beijing Science Technology Management College
as at 30 June 2010.
17. Financial highlights
(a) Per share operating performance
+------------------------------------+--+------------+------------+
| | | 6 months | 6 months |
+------------------------------------+--+------------+------------+
| | | ended | ended |
+------------------------------------+--+------------+------------+
| | | 30 June | 30 June |
+------------------------------------+--+------------+------------+
| | | 2010 | 2009 |
+------------------------------------+--+------------+------------+
| | | US$ | US$ |
+------------------------------------+--+------------+------------+
| | | |
+---------------------------------------+------------+------------+
| Net Asset Value per share, start of | 1.36 | 1.22 |
| year/period | | |
+---------------------------------------+------------+------------+
| | -------- | --------- |
+---------------------------------------+------------+------------+
| Income from investment operations: | | |
+---------------------------------------+------------+------------+
| - net investment loss | (0.06) | (0.04) |
+---------------------------------------+------------+------------+
| - net realised and unrealised | | |
| gain/(loss) on | | |
+---------------------------------------+------------+------------+
| investments and foreign currencies | 0.06 | 0.10 |
+---------------------------------------+------------+------------+
| | | |
+---------------------------------------+------------+------------+
| Total from investment operations | - | 0.06 |
+---------------------------------------+------------+------------+
| | --------- | --------- |
+---------------------------------------+------------+------------+
| | | |
+---------------------------------------+------------+------------+
| Net Asset Value per share, end of | 1.36 | 1.28 |
| period | | |
+---------------------------------------+------------+------------+
| | ===== | ===== |
+------------------------------------+--+------------+------------+
(b) Ratios to average net assets and other supplemental information
+------+--------------------------------------+---+------------+----------+------------+
| | | | 6 months | 6 months |
+------+--------------------------------------+---+-----------------------+------------+
| | | | ended | ended |
+------+--------------------------------------+---+------------+-----------------------+
| | | | 30 June | 30 June |
+------+--------------------------------------+---+-----------------------+------------+
| | | | 2010 | 2009 |
+------+--------------------------------------+---+-----------------------+------------+
| | | |
+-------------------------------------------------+-----------------------+------------+
| Ratio of net investment loss to average net | (5.4%) | (6.2%) |
| assets-(1) | | |
+-------------------------------------------------+-----------------------+------------+
| | ====== | ===== |
+-------------------------------------------------+-----------------------+------------+
| | | |
+-------------------------------------------------+-----------------------+------------+
| Ratio of expenses to average net assets(1) | | |
+-------------------------------------------------+-----------------------+------------+
| Operating expenses before performance fee | (5.7%) | (6.7%) |
+-------------------------------------------------+-----------------------+------------+
| Performance fee | - | |
| | | - |
+-------------------------------------------------+-----------------------+------------+
| | | |
+-------------------------------------------------+-----------------------+------------+
| Total expenses | (5.7%) | (6.7%) |
+-------------------------------------------------+-----------------------+------------+
| | ====== | ===== |
+-------------------------------------------------+-----------------------+------------+
| Cumulative internal rate of return ("IRR") | | |
| since | | |
+-------------------------------------------------+-----------------------+------------+
| inception through the period end(2) | 2.8% | 1.4% |
+-------------------------------------------------+-----------------------+------------+
| | ====== | ===== |
+-------------------------------------------------+-----------------------+------------+
| | | | | | |
+------+--------------------------------------+---+------------+----------+------------+
(1) Both ratios are presented on an annualised basis with the exception of
one-time costs.
(2) The IRR is computed net of all incentives based on the Fund's actual dates
of the cash inflows (capital contributions), outflows (cash and stock
distributions) and the ending NAV at the end of the year/period (residual value)
as of each measurement date.
18. Comparative data
Certain prior period comparatives have been reclassified to be consistent with
current year disclosures.
19. Subsequent events
On 16 September 2010, the Fund completed the sale its equity in Department Store
Holdings to private parties via a securities broker, fully realising its stake
at a total consideration of RMB750.6million (equivalent to US$110.8 million) in
cash.
The Fund used part of the sales proceeds of the transaction to repay the loan in
full as set out in Note 11.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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