TIDMPACL
Interim Results
Pacific Alliance China Land Limited
18 September, 2009
Pacific Alliance China Land Limited
('PACL' or the 'Company')
Interim Results for the six months ended 30 June 2009
Pacific Alliance China Land Limited ('PACL' or the 'Company'), the
closed-end investment company admitted to trading on the AIM Market
of the London Stock Exchange plc and focused on investing in a
portfolio of existing properties, new developments, distressed
projects and real estate companies in Greater China, today announces
its unaudited financial results for the six months ended 30 June
2009.
Financial Highlights
* As at 30 June 2009, the Company's unaudited net asset value (NAV)
per share was US$1.1070, a 4.33% increase from the 31 December
2008 Audited Financial Statements.
* The Company's share price closed on 30 June 2009 at US$0.7075, an
8% increase from 31 December 2008.
* Cash and cash equivalents as at 30 June 2009 were US$102 million.
Portfolio and Fund Developments
* On 2 March 2009, the Company held an extraordinary general
meeting to approve a tender offer that allowed shareholders to
exchange all or part of their shares for shares in PACL II
Limited ("PACL II"), a newly organized Cayman Islands private
vehicle that will distribute free cash and proceeds from exited
investments held by the Company. Those shareholders who have
chosen to remain as shareholders of the Company will benefit from
an increased annual yield of up to 12% of NAV.
* On 5 March 2009, the tender offer was completed and 48.69% of the
Company's ordinary shares were repurchased and cancelled by the
Company. In return, shareholders who successfully tendered their
shares in the Company received an equivalent number of new shares
in PACL II.
* The Company executed the early sale of Project Villa, a
high-yield loan project, in May 2009. The proceeds represented a
net IRR of 13%.
* As at 30 June 2009, the Company held investments with a cost of
approximately US$195 million and a carrying value of US$232
million. The breakdown of the portfolio allocation is as follows;
bridge financing 36.8%, pre-IPO financing 19.4%, co-development
13.4% and 30.4% cash deposits.
Significant subsequent events
* The Company took advantage of the weak market conditions and
reinvested US$35 million in two new investments during August
2009.
* On 2 July 2009, a second tender offer was completed and an
additional 5.024% of the Company's ordinary shares were
repurchased by the Company's wholly-owned subsidiary, PACL
Trading Limited, at a price of US$1.09 per share. Following the
repurchase, the Company has a total of 189,833,893 ordinary
shares in issue, of which 37,991,849 are held to effectively
replicate a treasury facility.
Commenting on the results, Patrick Boot, Managing Director, Pacific
Alliance Real Estate Limited, said:
"China's economic stimulus package has sustained growth and led to a
recent rebound in domestic equity markets. We have already seen some
improvement in the Chinese property market in recent months and there
are signs that this recovery has a high chance of being sustainable.
This presents real estate opportunities for us as both buyers and
sellers, and the Company has taken advantage of opportunities to make
both divestments and acquisitions. The early exit of Project Villa at
an impressive IRR of 13% is evidence of how our market insight and
experience is realising benefits."
Copies of the report are being sent to registered shareholders. A
copy of the report will be posted on the Company's website
(www.pacl-fund.com).
For more information please contact:
MANAGER: LEGAL COUNSEL:
Patrick Boot, Managing Director Jon Lewis, General Counsel
Pacific Alliance Real Estate Limited Pacific Alliance Group
16/F, St. John's Building 16/F St. John's Building
33 Garden Road 33 Garden Road
Central, Hong Kong Central, Hong Kong
Tel: (86) 21 6288 3788 Tel: (852) 29180088
Fax: (86) 21 6288 9272 Fax: (852) 29180881
pboot@pacific-alliance.com.cn jlewis@pacific-alliance.com
BROKER: NOMINATED ADVISER:
Hiroshi Funaki Philip Secrett
LCF Edmond de Rothschild Grant Thornton Corporate Finance
Securities Tel: (44) 20 7383 5100
Tel: (44) 20 7845 5960 Philip.J.Secrett@gtuk.com
Fax: (44) 20 7845 5961
funds@lcfr.co.uk
MEDIA RELATIONS: MEDIA RELATIONS:
Sophie Hoggarth Financial Dynamics, London
Pacific Alliance Group Andrew Walton/David Cranmer
Tel: (86) 21 6288 3788 Tel: (44) 20 7269 7217
shoggarth@pacific-alliance.com
Financial Dynamics, Asia
Alastair Hetherington/Christine
Wood
Tel: (852) 3716 9800
Notes to Editors:
Pacific Alliance China Land Limited ('PACL') (AIM:PACL) is a
closed-end investment company with net assets of US$170.85 million at
31 August 2009. PACL was admitted to trading on the AIM Market of the
London Stock Exchange plc in November 2007. PACL's principal
investment objective is to invest in a portfolio of existing
properties, new developments, distressed projects and real estate
companies in Greater China.
For more information about PACL, please visit www.pacl-fund.com
Pacific Alliance China Land Limited is a member of Pacific Alliance
Group, the Asian alternative asset investment manager, founded in
2002. Pacific Alliance Group and its affiliates manage assets in
excess of US$4 billion across three strategies covering private
equity; real estate; and absolute return and distressed. The Group
has offices in Shanghai, Beijing, Hong Kong and Tokyo.
For more information about Pacific Alliance Group, please visit:
www.pacific-alliance.com
Chairman's Statement
Amid the global economic crisis, China's stimulus package has
delivered some impressive initial results - in particular, GDP growth
reached 7.1% in the first half of the year and 7.9% in the second
quarter. Overall, China's domestic equity market has rebounded
relatively quickly, posting a gain of 57% from January to June
2009. Similarly, its residential real estate markets rebounded with
both transaction volumes and selling prices increasing substantially
from the market bottom in the fourth quarter of 2008. The Company
benefited from these market conditions as both the selling prices and
sales frequency of our residential projects increased during 2009.
The Company also completed its share capital reconstruction in March,
with mandates to realise existing investments in an optimal manner to
return capital to the shareholders of PACL II (a newly organized
Cayman Islands private vehicle that will distribute free cash and
proceeds from exited investments held by the Company), and to provide
capital to the Company for reinvestment in new opportunities that are
attractively priced due to weak market sentiment. To this end in May
the Company executed the early sale of Project Villa, a high-yield
loan project. The proceeds represented a net IRR of 13% during a time
when the market was suffering from numerous debt delinquencies. To
date, the Company has returned US$45 million to the shareholders of
PACL II and has taken advantage of the weak market conditions to
reinvest US$35 million in two new investments during the month of
August.
Looking to the second half of 2009, we remain positive as transaction
volumes should continue to be supported by availability of credit and
strong underlying fundamentals. We expect to see continued government
support that is focused on growing domestic consumption which will
prove positive for the PRC's residential and retail real estate
sectors. In addition, the Company and the Investment Manager intend
to implement a prudent medium term investment strategy to achieve
more sustainable growth. The once widely anticipated distressed
opportunities continue to be a focus but not to the extent initially
anticipated because of the lower supply of new construction during
the past 12 months and the increasing availability of credit for
developers. Therefore we will prepare for the emerging demand for
income producing properties from China's domestic institutional
investors by looking to acquire income producing assets with
value-added opportunities. This strategy should help deliver strong
returns to our shareholders in 2009 and beyond.
Horst F. Geicke
Chairman
Investment Manager's Report
Portfolio Performance
As at 30 June 2009, the Company's net asset value per share ('NAV')
was US$1.1070, a 4.33 per cent increase from the 31 December 2008
Audited Financial Statements. Independent valuations have been
performed quarterly with bridge financing collateral valued by
recognized international real estate appraisers.
The Company's share price increased 8 per cent between 1 January and
30 June 2009, closing at US$0.7075. On 30 June 2009, the share price
stood at a 36 per cent discount to the unaudited NAV per ordinary
share. On a relative basis, on 30 June 2009 the Company had since
inception outperformed the F3REAL and AXX Indices by 60 and 53 per
cent, respectively.
Realized and unrealized income for the period from 1 January 2009 to
30 June 2009
30 June 09
US$
Realized Income / (Loss)
Bridge Financing (1,153,529)
Deposit Interest 140,341
-------
(1,013,188)
Unrealized Gain / (Loss)
Pre-IPO Investment 3,086,000
Bridge Financing* (1,302,921)
Co-Development Investment (2,204,798)
Foreign Exchange (110,781)
-------
(532,500)
--------
(1,545,688)
Restructuring Income** =======
5% Discount on Tender Offer 9,592,589
* Bridge Financing includes a mark down in relation to an option.
** Restructuring income has been booked to reserves
Portfolio Summary
As at 30 June 2009, the Company held investments with a cost of
approximately US$195 million and a carrying value of US$232 million.
The Company's portfolio is currently diversified across three
strategies including Bridge Financing, Co-Development and Pre-IPO
Financing.
Investments Value (US$) Type of % of Location
investment Total
Project Speed Bridge Financing 12.45% Guandong
41,521,127
Project Silk Bridge Financing 13.73% Hangzhou
45,801,063
Project Beijing Bridge Financing 12.68% Beijing
Olympic 42,279,452
Project RMBox Bridge Financing 10.41% Beijing
34,717,075
Project Blue Bird Co-Development 7.84% Qingdao
26,137,630
Hainan Airport Pre-IPO 6.92% Greater
Group 23,086,000 Financing China
Project Shanghai Co-Development 5.54% Huzhou
Jingrui 18,466,403
Cash 101,539,225 Cash 30.44%
Investment Strategy
In contrast to the downturn of the global real estate markets, the
China residential real estate markets have shown signs of a robust
recovery. Developers have gained confidence from domestic home
buyers' strong investment in the first half of the year. Meanwhile,
reputable local real estate companies succeeded in new bond and share
issuances as capital markets in China improved after many difficult
months. It is believed the first REIT in China will launch its IPO in
2010 which should bode well for the strength of the domestic property
investment market. Furthermore, new regulations are under review to
allow insurance companies to invest directly in income producing
properties. Both of these two prospective developments would enhance
the market liquidity for income producing properties and potentially
result in yield compression for core products in the mid-term. The
Investment Manager intends to pursue the following strategies to
capitalize on these emerging opportunities:
Value-Added Asset Acquisitions
In response to mid-term demand from domestic institutional investors,
the investment manager will seek to identify properties with
value-added potential in first tier and core second tier cities and
to deliver repositioning, recapitalization or operating efficiency
improvement opportunities. Projects which are close to completion
with attractive leasing fundamentals are an example of this strategy.
The Investment Manager has a strong deal pipeline and has been in
active discussions with local property owners to source additional
value-added opportunities.
Co-Developments and Corporate Level Investments with Local Developers
Chinese home buyers have consistently shown great resilience in
recent market cycles. The Investment Manager believes residential
and retail development will remain important areas in China's real
estate investment for many years as the urbanization process
continues and the domestic economy grows. The Investment Manager will
seek co-development opportunities and corporate level
investment opportunities with quality developers in first tier and
core second tier cities.
Discounted Corporate and Project Investments
There have been numerous offshore investments in pre-IPO and
development projects in China during the past few years. We believe
the current state of the international capital markets will present
many attractive opportunities to acquire convertible debt or other
pre-IPO securities issued by reputable real estate companies and
offshore interests in development projects at attractive discounts as
global deleveraging and restructuring continues.
Conclusion
The Company has established a strong reputation and delivered one of
the more robust performances among listed companies investing in the
China property market since listing on the AIM market of the London
Stock Exchange in November 2007. The Investment Manager believes
opportunities in the China property market remain compelling as a
result of the downturn in the global economy, and the Company's
investment strategies are well positioned to capitalize on these
opportunities.
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
Note As at As at
30 June 2009 31 Dec 2008
US$ US$
Assets
Investments, at fair value
(Cost: US$195,162,125) 3,4,5 232,008,750 257,047,676
Due from related parties 147 7,542
Other receivables 4,149 86,515
Other assets 100,811 1,587,041
Cash and bank balances 3 101,539,225 112,694,832
Total assets 333,653,082 371,423,606
Liabilities
Due to PACL II 149,067,832 -
Deferred taxation 8 7,544,811 10,293,093
Accrued expenses and other
payables 56,558 302,232
Total liabilities 156,669,201 10,595,325
Net assets 176,983,881 360,828,281
Analysis of net assets
Share capital 6 1,898,339 3,700,000
Share premium 6 187,935,554 366,300,000
Capital surplus* 6 4,707,515 3,910,000
Treasury shares 6 (26,215,000) (26,215,000)
Retained earnings 8,657,473 13,133,281
Net assets 176,983,881 360,828,281
*includes restructuring income.
(Equivalent to US$1.1070 per share based on 159,873,893 issued and
outstanding shares)
The accompanying notes on pages 11 to 23 are an integral part of
these consolidated financial statements.
CONSOLIDATED SCHEDULE OF INVESTMENTS
% of
effective
% of % of
equity net As at net As at
Investments interest
- Assets held assets 30 June 09 assets 31 Dec 08
Cost/Principal Fair value Cost/Principal Fair value
US$ US$ US$ US$
COMMON
STOCKS 35.15% 20.16%
Aviation,
China 9.95% 5.54%
Hainan
Airport
Group
Ltd. 4.90% 9.95% 20,000,000 23,086,000 5.54% 20,000,000 20,000,000
Real Estate
Development,
China 25.20% 14.62%
Huzhou
Jingrui
Real
Estate Co.
Ltd.* 49.00% 10.43% 17,832,984 18,466,403 6.22% 20,817,650 22,440,344
Qingdao
Vanke Real
Estate Co.
Ltd. * 40.00% 14.77% 22,838,400 26,137,630 8.40% 25,784,000 30,305,283
LOANS
RECEIVABLE 92.84% 51.08%
Real Estate
Development,
China 92.84% 51.08%
Glorious
Property
(Holdings)
Co Ltd. 0.00% - - 5.16% 15,000,000 18,612,329
Spirit
Charter
Investment
Ltd. 23.89% 30,000,000 42,279,452 15.04% 30,000,000 54,256,886
Times
Property
Holdings
Co. Ltd. 23.46% 40,000,000 41,521,127 11.09% 40,000,000 40,000,000
Zhonghong
Xingye Real
Estate
Dev. Co.
Ltd. 19.62% 27,889,200 34,717,075 8.76% 27,908,250 31,594,195
Zhongjiang
Holding
Co. Ltd. 25.88% 36,601,541 45,801,063 11.04% 36,626,542 39,838,639
195,162,125 232,008,750 216,136,442 257,047,676
The accompanying notes on pages 11 to 23 are an integral part of
these consolidated financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
Period from
Period from 5 Sep 2007
1 Jan 2009 (date of
to incorporation) to
Note 30 Jun 2009 30 Jun 2008
US$ US$
Income
Loan origination income - 750,000
Bank interest income 140,341 4,768,303
Other interest income - 238,016
------- -------
Total income 140,341 5,756,319
------- -------
Expenses
Management fees 7,9(a) 3,409,216 4,853,270
Local taxes other than income
tax 8 (2,579,362) 1,728,000
Legal and professional fees 214,352 1,014,910
Placement fees - 7,000,000
Setup costs - 1,466,470
Investment structuring costs 1,468,431 1,750,000
Other expenses 399,482 728,338
------- -------
Total expenses 2,930,120 18,540,988
------- -------
Net investment loss (2,789,779) (12,784,669)
------- -------
Realized and unrealized gains
from investments
Net realized (loss)/gain from
investments (1,153,529) 595,272
Net unrealized (loss)/gain from
investments (421,719) 23,117,455
Net foreign exchange (loss)/gain (110,781) 2,304,426
------- -------
Net realized and unrealized
(losses)/gains
from investments (1,686,029) 26,017,153
------- -------
Net (decrease)/increase in net
assets
resulting from operations (4,475,808) 13,232,484
======= =======
The accompanying notes on pages 11 to 23 are an integral part of
these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Share
capital and
share Capital Treasury Retained
premium surplus shares earnings Total
US$ US$ US$ US$ US$
At 5 September
2007
(date of
incorporation) - - - - -
Issue of
shares 400,000,000 - - - 400,000,000
Repurchase and
cancellation
of shares (30,000,000) 3,910,000 - - (26,090,000)
Repurchase of
shares - - (26,215,000) - (26,215,000)
Net increase
in net assets
resulting
from
operations - - - 13,133,281 13,133,281
------- ------- ------- ------- -------
At 31 December
2008 370,000,000 3,910,000 (26,215,000) 13,133,281 360,828,281
======= ======= ======= ======= =======
Share
capital and
share Capital Treasury Retained
Note premium surplus shares earnings Total
US$ US$ US$ US$ US$
At 1 January
2009 370,000,000 3,910,000 (26,215,000) 13,133,281 360,828,281
Issue of
shares - - - - -
Repurchase
and
cancellation
of shares 6 (180,166,107) 797,515 - - (179,368,592)
Repurchase of
shares - - - - -
Net increase
in net assets
resulting
from
operations 6 - - - (4,475,808) (4,475,808)
------- ------- ------- ------- -------
At 30 June
2009 189,833,893 4,707,515 (26,215,000) 8,657,473 176,983,881
======= ======= ======= ======= =======
The accompanying notes on pages 11 to 23 are an integral part of
these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from
5 Sep 2007
(date of
Period from incorporation)
1 Jan 2009 to to
30 Jun 2009 31 Dec 2008
US$ US$
Net (decrease)/increase in net assets
resulting from operations (4,475,808) 13,133,281
Adjustments
Increase in operating assets
Purchase of investments - (216,136,442)
Sale of investments 20,974,317 -
Net unrealized gains/(losses) from
investments 4,064,609 (40,911,234)
Due from/(to) related parties 179,073,450 (7,542)
Other receivables/(payables) 84,161 (86,515)
Other assets/(liabilities) 1,486,211 (1,587,041)
(Decrease)/Increase in operating
liabilities
Deferred taxation (2,748,283) 10,293,093
Accrued expenses and other payables (245,673) 302,232
------- -------
Net cash provided/(used) by operating
activities 198,212,985 (235,000,168)
------- -------
Issue of shares - 400,000,000
Repurchase of shares (179,368,592) (52,305,000)
Distribution to PACL II (30,000,000) -
------- -------
Net cash provided /(used) by financing
activities (209,368,592) 347,695,000
------- -------
Net (decrease)/increase in cash and cash
equivalents (11,155,607) 112,694,832
Beginning balance 112,694,832 -
------- -------
Ending balance, representing cash and
bank balances 101,539,225 112,694,832
======= =======
The accompanying notes on pages 11 to 23 are an integral part of
these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Organization
Pacific Alliance China Land Limited (the "Company") was incorporated
on 5 September 2007 in the Cayman Islands. It is a closed-end Cayman
Islands registered, exempted company. The address of its registered
office is PO Box 309GT, Ugland House, South Church Street, George
Town, Grand Cayman, Cayman Islands. The Company can raise additional
capital up to the authorized share capital as described in Note 6.
The Company's principal investment objectives are to provide
shareholders with capital growth and a regular level of income, from
a diversified portfolio of property in Greater China and to achieve
above average returns for an acceptable level of risk.
The Company's investment activities are managed by Pacific Alliance
Real Estate Limited (the "Investment Manager"). The Company has
appointed Sanne Trust Company Limited to act as Custodian of certain
assets of the Company pursuant to the custodian agreement. Sanne
Trust Company Limited has also been appointed as Administrator and
Registrar of the Company pursuant to the fund administration services
agreement.
On 2 March 2009, the Company held an extraordinary general meeting
("EGM") to approve a tender offer that allowed shareholders to
exchange all or part of their shares for shares in PACL II Limited
("PACL II"), a newly organized Cayman Islands private vehicle that
will distribute free cash and proceeds from exited investments held
by the Company. Those shareholders who have chosen to remain as
shareholders of the Company will benefit from an increased annual
yield of up to 12% of NAV.
On 5 March 2009, the tender offer was completed and 48.69% of the
Company's ordinary shares were repurchased and cancelled by the
Company. In return, shareholders who successfully tendered their
shares in the Company received an equivalent number of new shares in
PACL II. Following the cancellation, the Company has a total of
189,833,893 ordinary shares in issue, of which 29,960,000 are held as
treasury shares.
Details and results of the EGM were announced on 6 February 2009 and
3 March 2009 respectively. On 7 March 2009, the Company voluntarily
delisted its ordinary shares from the Channel Islands Stock Exchange
("CISX"). The Company's ordinary shares continue to trade on the AIM
market of the London Stock Exchange.
The consolidated interim financial statements were approved by the
Board of Directors on 17 September 2009.
2 Summary of Significant Accounting Policies
The following significant accounting policies are in conformity with
accounting principles generally accepted in the United States of
America. The Company applies the provision of the AICPA Audit and
Accounting Guide for Investment Companies (the "Guide"). Such
policies are consistently followed by the Company in the preparation
of its consolidated financial statements.
2 Summary of Significant Accounting Policies (Continued)
(a) Principles of Consolidation
These consolidated financial statements include the financial
statements of the Company and its subsidiaries (collectively the
"Fund"). Subsidiaries are fully consolidated from the date on which
control is transferred to the Fund and deconsolidated from the date
that control ceases. Inter-company transactions between group
companies are eliminated upon consolidation.
The Fund uses wholly and partially owned special purpose vehicles
("SPV") to hold and transact in certain investments and lending. The
Fund's policy is to consolidate, as appropriate, those entities in
which the Fund has control over significant operating, financial or
investing decisions of the entity.
Except when an operating company provides services to the Fund,
investment in an operating company is carried at fair value (refer to
Note 2(c) for fair value measurement).
(b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires the directors to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements and
accompanying notes. The directors believe that the estimates
utilized in preparing the financial statements are reasonable;
however, actual results could differ from these estimates.
(c) Investments
The Fund holds investment securities which are unlisted and have
limited marketability.
The Fund engages in secured lending transactions consisting of
repurchase agreements and secured lending.
(i) Recognition, Derecognition and Measurement
Regular purchase and sale of investments are accounted for on the
trade date, the date the trade is executed. Costs used in
determining realized gains or losses on the sale of investments are
based on the specific identification method. Cost includes legal and
due diligence fees associated with acquisition of the investments.
Transfer of investments is accounted for as a sale when the Fund has
relinquished control over the transferred assets. Any realized gains
or losses from investments are recognized 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.
2 Summary of Significant Accounting Policies (Continued)
(c) Investments
(ii) Fair Value Measurement
The Fund 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 unrealized gains and losses
resulting from changes in fair value recognized in the consolidated
statement of operations.
Fair value is the amount that would be received to sell 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 Investment Manager and the Board of Directors.
Although the Valuation Committee uses its best judgment in estimating
fair value, there are inherent limitations in any valuation
technique. Estimated fair value may differ significantly from the
value that would have been used had a readily available market for
such investments existed and these differences could be material to
the financial statements. Additional information about the level of
market observability associated with investments carried at fair
value are disclosed in Note 4.
(iii) Loans Receivable
The Fund enters into secured lending transactions which are reported
as operating activities. The loans receivable are recorded at fair
value which is the amount of cash advanced under the loan agreements
and related interest income. Interest income is accrued based on
rates associated with the related loans. The changes in fair value of
loans receivable are included in realized and unrealized gains and
losses from investments.
The Fund monitors the fair value of collateral on a regular basis
relative to the loan amounts plus accrued interest and where
necessary, requires the transfer of additional cash or collateral to
manage its exposure. If the counterparty defaults, realization of
the collateral by the Fund may be delayed or limited.
(d) Cash and Cash Equivalents
Cash and cash equivalents represent cash at banks.
(e) Foreign Currency Translation
The books and records of the Fund are maintained in United States
Dollars ("US$"), which is also the functional currency. Assets and
liabilities denominated in foreign currencies are translated into US$
at period-end exchange rates, while income and expenses are
translated at the exchange rates in effect during the period. The
net realized and unrealized gains or losses from investments
denominated in currencies other than the functional currency include
the results of operations arising as a result of changes in exchange
rates and the fluctuations arising from changes in the market prices
of securities held during the period.
(f) Income Taxes
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
earned. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized gains, as applicable, when the
income and/or gains are earned. The Fund accrues for liabilities
relating to uncertain tax positions only when such liabilities are
probable and can be reasonably estimated. Such income and/or gains
are recorded gross of taxes in the consolidated statement of
operations and taxes are shown as a separate item in the consolidated
statement of operations.
(g) Recognition of Income and Expenses
Interest income on bank balances is accrued as earned using the
effective interest method.
Loan origination income is recognized when the relevant services are
rendered.
Expenses are recorded on an accrual basis.
3 Concentration of Risks
(a) Market Risk
Market risk represents the potential loss in value of financial
instruments caused by movements in market variables, such as interest
rates, exchange rates and equity prices.
Investments are typically made with a focus on the Greater China.
Political or economic conditions and the possible imposition of
adverse laws or currency exchange restrictions in that region could
cause the Fund's investments and their markets to become less liquid
and also the prices to become more volatile.
The Fund's investments may have concentration in a particular
industry or sector and performance of that 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 and subject to various restrictions
on resale and there can be no assurance that the Fund will be able to
realize the value of such investments in a timely manner.
See Note 4 for a discussion on the inputs in fair value measurement.
(b) Interest Rate Risk
Interest rate risk arises from the effects of fluctuations in the
prevailing levels of market interest rates on the fair value of
financial assets and liabilities and future cash flows. The Fund has
bank accounts and loans receivable that expose the Fund to interest
rate risk. The Fund has direct exposure to interest rate changes on
the valuation and cash flows of its interest bearing assets. The
Fund may also be indirectly affected by the impact of interest rate
changes on the earnings of certain companies in which the Fund
invests and by the impact of the valuation of certain
over-the-counter derivative products that use interest rates as an
input in their valuation models. In accordance with the Fund's
investment policy, the Fund is allowed to enter into derivative
contracts to hedge against interest rate risk where the directors
consider appropriate.
(c) Currency Risk
The Fund has assets and liabilities denominated in currencies other
than the US$, the functional currency. The Fund is therefore exposed
to currency risk as the value of assets and liabilities denominated
in other currencies may fluctuate due to changes in exchange rates.
As at 30 June 2009, cash and cash equivalents are denominated in the
following currencies:
US$ US$
30 Jun 2009 31 Dec 2008
Renminbi 28,327,818 21,958,774
United States Dollars 73,207,378 90,736,048
Others 4,029 10
------- -------
Total 101,539,225 112,694,832
======= =======
In addition, the net assets of the Fund are predominantly denominated
in US$ and Renminbi with net assets carrying at US$31,071,326 and
US$145,912,555, respectively.
(d) Credit Risk
The Fund is exposed to default risk by the counterparties of the
loans receivable. Whilst the loans receivable are structured to
provide the Fund with adequate collateral in the event of default,
enforcement may be subject to the domestic legal system of the
countries in the Asia-Pacific region. Where the contract is
enforced, the collateral may not be sufficient to fully compensate
the Fund for default losses. In an attempt to mitigate the losses,
the Fund, where possible, obtains independent valuations of the
collaterals on a regular basis. However, these valuations do not
guarantee the ultimate realizable value of the collateral.
The domestic legal system of the countries in the Asia-Pacific region
vary widely in their development, degree of sophistication, attitude,
and policies towards bankruptcy, insolvency, liquidation,
receivership, default and treatment of creditors and debtors.
Furthermore, the effectiveness of the judicial system of the
countries in which the Fund invests varies, thus the Fund (or any
entity in which the Fund holds a direct or secondary interest) may
have difficulty in successfully pursuing claims in the courts of such
countries. Further, to the extent that the Fund or an entity in
which the Fund holds a direct or secondary interest has obtained a
judgement but is required to seek its enforcement in the courts of
the countries in the Asia-Pacific region, there can be no assurance
that the court will enforce such judgement.
The Fund is also exposed to credit risk in respect of its investments
in debt securities, cash and bank balances and trades counterparties.
(e) Liquidity Risk
As the Company is closed-end, it is not exposed to redemptions of
shares by its shareholders.
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. 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 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.
The Fund has the ability to borrow in the short term and this is
subject to certain limitations, including the total amount of all
borrowings outstanding at any time shall not exceed 50% of the Fund's
total assets at such time.
4 Investments
Statement of Financial Accounting Standard No. 157, Fair Value
Measurement ("FAS 157") issued by the Financial Accounting Standards
Board ("FASB") establishes a fair value hierarchy that prioritizes
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 inputs (level 3 measurements).
The three levels of the fair value hierarchy under FAS 157 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 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 a 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 a
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.
Level 1
As at 30 June 2009, the Fund did not have any investments that were
categorized as level 1 within the fair value hierarchy.
Level 2
As at 30 June 2009, the Fund did not have any investments that were
categorized as level 2 within the fair value hierarchy.
Level 3
Assets 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 include investments in unlisted stocks and
bonds and loans receivable. Valuation methodologies utilized by the
Valuation Committee include comparable transactions or performance
multiples, latest round of financing, and are supported by
independent valuations of underlying assets. The selection of
appropriate valuation techniques may be affected by the availability
of reliable inputs, including management accounts or locally audited
financial statements of the underlying investee companies. In some
cases, one valuation technique may provide an appropriate estimation
of fair value while in other circumstances, multiple valuation
techniques may be appropriate. Once used, the methodology will
continue to be used until a new, more appropriate method is
determined.
The fair value of loans receivable is determined using multiple
inputs, including terms of maturity, estimated cash flows under the
loans, valuations of the underlying collaterals and credit assessment
of the borrowers. The Valuation Committee considers the costs of the
loans receivable generally approximate their fair value since the
loans have relatively short maturity and the interest rates charged
reflect market discount rates.
The following table summarizes the assets carried on the consolidated
statement of assets and liabilities by captions and by levels within
the fair value hierarchy.
Assets at fair value as of 30 June 2009
Level 1 Level 2 Level 3 Total
US$ US$ US$ US$
Investments - stocks - - 67,690,033 67,690,033
Investments - bonds - - - -
Investments - loans
receivable - - 164,318,717 164,318,717
------- ------- ------- -------
Total - - 232,008,750 232,008,750
======= ======= ======= =======
Assets at fair value as of 31 December 2008
Level 1 Level 2 Level 3 Total
US$ US$ US$ US$
Investments - stocks - - 72,745,627 72,745,627
Investments - bonds - - 40,000,000 40,000,000
Investments - loans
receivable - - 144,302,049 144,302,049
------- ------- ------- -------
Total - - 257,047,676 257,047,676
======= ======= ======= =======
As of 30 June 2009, no investments were held directly by the Fund,
and investments of US$232,008,750 were held through subsidiaries of
the Fund.
As of 1 April 2009 Project Speed was reclassified from a bond
investment to a loan, the fair value as at 31 December 2008 was
US$40,000,000 and as at 30 June 2009 was US$41,521,127. There was no
reclassification between levels or in the valuation methodology used.
The following table summarizes the changes in the fair value of the
Fund's level 3 investments.
Investments
Investments Investments - loans
- stocks - bonds receivable Total
US$ US$ US$ US$
At 1 January
2009 72,745,627 40,000,000 144,302,049 257,047,676
Purchase of
investments - 40,000,000 40,000,000
Sale of
investments (5,530,266) (40,000,000) (15,044,051) (60,974,317)
Net realized
(loss) (1,153,529) (1,153,529)
Net unrealized
gain/(loss) 874,672 - (3,785,752) (2,911,080)
------- ------- ------- -------
At 30 June 2009 67,690,033 - 164,318,717 232,008,750
======= ======= ======= =======
Investments
Investments Investments - loans
- stocks - bonds receivable Total
US$ US$ US$ US$
At 5 September
2007 (date of
incorporation) - - - -
Purchase of
investments 66,601,650 40,000,000 109,534,792 216,136,442
Net realized
gains - - 2,074,363 2,074,363
Net unrealized
gains 6,143,977 - 32,692,894 38,836,871
------- ------- ------- -------
At 31 December
2008 72,745,627 40,000,000 144,302,049 257,047,676
======= ======= ======= =======
For the period ended 30 June 2009, total net unrealized losses on
level 3 investments amounted to US$ 2,911,080.
5 Investments - Loans Receivable
The loans are categorized into the following types by structure:
June 2009 Dec 2008
US$ US$
Repurchase agreements 122,797,591 125,689,720
Secured borrowings 41,521,127 18,612,329
------- -------
Total 164,318,717 144,302,049
======= =======
6 Share Capital, Share Premium, Capital Surplus and Treasury
Shares
As at As at As at As at
30 Jun 09 30 Jun 09 31 Dec 08 31 Dec 08
Number of Number of
shares US$ shares US$
Share Capital
Authorized:
10,000,000,000
ordinary
shares of
US$0.01 10,000,000,000 100,000,000 10,000,000,000 100,000,000
======= ======= ======= =======
Issued and
fully paid:
ordinary
shares of
US$0.01 189,833,893 1,898,339 370,000,000 3,700,000
======= ======= ======= =======
Share Premium
Issued shares 189,833,893 187,935,554 370,000,000 366,300,000
======= ======= ======= =======
Capital
Surplus (30,000,000) 4,707,515 (30,000,000) 3,910,000
======= ======= ======= =======
Treasury
Shares (29,960,000) (26,215,000) (29,960,000) (26,215,000)
======= ======= ======= =======
Total Share
Capital, Share
Premium,
Capital
Surplus 168,326,408 347,695,000
and Treasury
Shares ======= =======
During the period, the Company repurchased and cancelled 180,166,107
shares as part of the reconstruction, at a tender price of US$1.01
per share in March 2009. Upon cancellation of the shares, the
Company recognised a capital surplus of US$797,515. In addition, the
Company continued to hold 29,960,000 shares through a wholly-owned
subsidiary as treasury shares.
7 Management Fees and Performance Fees
Pursuant to the Investment Management Agreement dated 20 November
2007 between the Company and the Investment Manager, the Investment
Manager was appointed to manage the investments of the Fund, subject
to the overall supervision and authorization by the directors and/or
the Investment Committee (as appropriate).
The Investment Manager will receive an aggregate management fee of 2%
per annum of the quarterly net asset value ("NAV"). The management
fee is paid quarterly in advance based on the NAV at the end of the
previous quarter. For the period from 1 January 2009 to 30 June
2009, total management fees amounted to US$3,409,216 and were fully
paid.
The Investment Manager is also entitled to receive a performance fee
in the event that the year end NAV is greater than (i) the year end
NAV for the last year in which a performance fee was payable ("High
Water Mark") and (ii) the year end NAV for the last year in which a
performance fee was payable increased by an annual hurdle rate of 8%
("Hurdle").
The performance fee will be calculated as follows:
* 0% of the relevant increase in the year end NAV if the year end
NAV is at or below the Hurdle;
* 100% of the relevant increase in year end NAV above the Hurdle up
to 10% (the "Catch-up"); and
* 20% of the relevant increase in year end NAV above the Catch-up.
For the period from 1 January 2009 to 30 June 2009 no performance fee
was accrued, or payable as of 30 June 2009
8 Taxation
Under current Cayman Islands legislation applicable to an exempted
company, there is no income tax, capital gains or withholding tax,
estate duty, or inheritance tax payable by the Fund.
A provision for China tax has been made on the Fund's China sourced
income and realized and unrealized gains from investments. For the
period from 1 January 2009 to 30 June 2009 current tax and deferred
tax amounted to US$158,412 and US$7,544,811, respectively.
No provision for Hong Kong profits tax has been made as the directors
believe that the Fund had no Hong Kong sourced profits during the
period.
9 Related Party Transactions
(a) Management Fees and Performance Fees to the Investment
Manager
The Fund pays management fees and performance fees to the Investment
Manager. See Note 7 for details.
10 Financial Highlights
Net asset value per share at the end of the period is as follows:
Period Period
1 Jan 2009 to 30 from 1 Jan 2008 to
June 2009 30 June 2008
US$ US$
Per share data
(for a share outstanding
throughout the period):
Net asset value at beginning
of period 1.0611 1.0000
Net investment loss (0.0174) (0.0339)
Net realized and unrealized
gains from investments 0.0633 0.0673
------- -------
Net asset value at end of
period 1.1070 1.0335
======= =======
The following represents the ratios to average net assets and other
supplemental information for the period from 1 January 2009 to 30
June 2009:
30 June 2009 30 June 2008
Total return before and after performance 4.33%
fees (1) 3.41%
Ratios to average net assets (2)
Total expenses (1.23%) (4.59%)
Net investment loss (1.17%) (3.35%)
(1) Total return represents the change in net asset value
(before and after performance fees), adjusted for cash flows in
relation to capital transactions for the period from 1 January 2009
to 30 June 2009.
(2) Average net asset value is derived from the beginning and
ending net asset value, adjusted for cash flows related to capital
transactions for the period from 1 January 2009 to 30 June 2009. For
the period from 1 January 2009 to 30 June 2009, the average net asset
value amounted to US$238,851,632.
11 Events after the Balance Sheet Date
At its launch in November 2007, the Company's admission document
indicated that PACL would provide a regular level of income in the
form of a dividend up to an annual yield of 6 per cent of net asset
value. At the EGM held on 2 March 2009, a special resolution was
passed authorising the Company to increase this annual yield to 12
per cent of net asset value.
After further consultation with the Company's major shareholders
following the EGM, the Board and the Investment Manager concluded
that currently it would be more tax efficient, and therefore in the
best interests of the shareholders, that distributions be made by way
of a tender offer instead of a dividend. As such a circular was sent
to shareholders detailing a tender offer (the 'Tender Offer') to
purchase up to 6 per cent of the ordinary shares of the Company at a
price equal to the unaudited net asset value as at 31 May 2009.
The Tender Offer closed on Thursday 2 July 2009 and 8,031,849 of the
Company's ordinary shares, representing 5.024 per cent of the
Company's ordinary shares in issue (and able to be tendered under the
Tender Offer), were tendered and repurchased by the Company's
wholly-owned subsidiary, PACL Trading Limited, at a price of $1.09
per share.
Following the repurchases, the Company has a total of 189,833,893
ordinary shares in issue, of which 37,991,849 are held to effectively
replicate a treasury share facility by PACL Trading Limited.
12 Commitment and Contingency
In the normal course of business, the Fund may enter into
arrangements that contain a variety of representations and warranties
and which provide general indemnification. The Fund's maximum
exposure under these arrangements is unknown, as this involves future
claims that may be made against the Fund and which have not yet
occurred. However, based on experience, the directors expect the
risk of loss to be remote.
13 Recent Accounting Pronouncements
In March 2008, FASB issued Statement of Financial Accounting Standard
No. 161, Disclosures about Derivative Instruments and Hedging
Activities ("FAS 161"), an amendment of FASB Statement No. 133. FAS
161 requires enhanced disclosures about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and
hedging activities are accounted for and (c) how derivative
instruments and related hedging activities affect a fund's financial
position, financial performance and cash flows. FAS 161 is effective
for financial statements issued for fiscal years and interim periods
beginning after 15 November 2008.
The directors do not believe that the adoption of FAS 161 will
materially impact the financial statement amounts as the Company has
not utilised any derivatives for hedging purposes during the period.
In October 2008, FASB issued FSP No. 157-3 "Determining the Fair
Value of a Financial Asset when the Market for that Asset is Not
Active" ("FSP 157-3"). FSP 157-3 clarifies how FAS 157 should be
applied when valuing securities in markets that are not active. FSP
157-3 became effective for fiscal year 2008. The adoption of FSP
157-3 did not have a material impact on the financial statements of
the Fund.
=--END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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