For the year ended 31 December 2011, a net loss on Loan-related
expense of US$1,256,155 was incurred and allocated to PACL II. It
comprised of interest expense, arrangement and handling fee
expenses, interest income and foreign exchange gain amounting to
US$882,841, US$469,599, US$637,479, and US$1,971,116
respectively.
The Loan was repaid and the Pledged Deposit released in February
2012.
8 Share capital, share premium, capital surplus and tendered
shares
Number
of shares Capital Tendered
outstanding Share capital Share premium surplus shares Total
US$ US$ US$ US$ US$
As at 1
January
2010 151,842,044 1,898,339 187,935,554 1,816,917 (34,969,715) 156,681,095
Repurchase
of
tendered
shares (13,685,184) - - - (17,408,877) (17,408,877)
-------------------- ------------------ -------------------- -------------------- -------------------- --------------------
As at 31
December
2010 and 1
January
2011 138,156,860 1,898,339 187,935,554 1,816,917 (52,378,592) 139,272,218
Re-issue of
tendered
shares 1,719,857 - - - 3,085,252 3,085,252
-------------------- ------------------ -------------------- -------------------- -------------------- --------------------
As at 31
December
2011 139,876,717 1,898,339 187,935,554 1,816,917 (49,293,340) 142,357,470
At 31 December 2011, the total authorized number of ordinary
shares was 10,000,000,000 (2010: 10,000,000,000) with par value of
US$0.01 (2010: US$0.01) per share.
Movement of tendered shares are as follows:
Number of
shares repurchased/ Repurchase/
(reissued) reissue price Total
US$ US$
At 1 January 2010 37,991,849 0.9205 34,969,715
Repurchased in January 2010 6,970,762 1.1200 7,807,253
Repurchased in August 2010 6,714,422 1.4300 9,601,624
------------------ ------------------
At 31 December 2010 and 1 January
2011 51,677,033 52,378,592
Reissued in June 2011 (1,719,857) 1.7939 (3,085,252)
------------------ ------------------
At 31 December 2011 49,957,176 49,293,340
In June 2011, the Company transferred 1,719,857 tendered shares
at US$1.7939 per share (net asset value per share as at 31 May
2011) to the Investment Manager to settle its obligation in respect
of the share portion of the 2010 performance fee. See Note 11 below
for details.
As at 31 December 2011, the Company had 189,833,893 (2010:
189,833,893) ordinary shares in issue, of which 49,957,176 (2010:
51,677,033) were held as tendered shares.
9 Consulting income
During the year ended 31 December 2011, the Fund recognized
consulting income of US$3,532,551 (2010: US$Nil), mainly from
providing consulting services to the buyer of an investment sold
during the year.
10 Taxation
The Fund adopted the authoritative guidance contained in FASB
ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which required the directors to determine whether a tax
position of the Fund is more likely than not to be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. For tax positions meeting the more likely than not
threshold, the tax amount recognized in the financial statements is
reduced by the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the
relevant taxing authority.
The uncertain tax positions identified by the directors mainly
include:
(a) Whether any of the Fund and its offshore SPVs would be
deemed as a China Tax Resident Enterprise ("TRE") under the China
Corporate Income Tax ("CIT") Law. If an offshore entity is deemed
as a China TRE, its income would be subject to China corporate
income tax at 25%.
(b) Whether any of the Fund and its offshore SPVs that may
derive income would be deemed as having an establishment or place
in China. If an offshore entity has an establishment or place in
China, income derived by the offshore entity that is derived from
China by the establishment or place or income that is effectively
connected to the establishment or place would be subject to China
CIT at 25%.
(c) Whether any of the Fund and its offshore SPVs is subject to
Hong Kong profits tax. An entity would be subject to Hong Kong
profits tax if (i) the entity carries on a trade, profession or
business in Hong Kong; (ii) profits are derived from that trade,
profession or business carried on in Hong Kong (excluding gains of
a capital nature); and (iii) the profits arise in or are derived
from Hong Kong, i.e. have a Hong Kong source.
The directors assessed that the Fund and its offshore SPVs are
not TREs in China and do not have an establishment or place in
China.
Gains from the disposal of investments in China by the Fund or
its SPVs may be subject to China withholding tax at 10% without
considering the potential relief that may be available under any
tax treaty between the tax jurisdiction of the transferor and
China. In addition, where Chinese equity investments are held via
an offshore intermediate holding company, exit of the Chinese
equity investment via disposal of shares in the offshore
intermediate holding company could be regarded as an indirect
transfer of the Chinese equity investment. According to the General
Anti Avoidance Rules under the China CIT Law, if above investment
holding structure and investment exit via indirect transfer do not
have a reasonable commercial purpose, the Chinese tax authority is
empowered to disregard such arrangement and impose withholding tax
on the gains from such an indirect transfer. The directors have
reviewed the structure of the investment portfolio and assessed the
potential withholding tax implications and considered adequate
provision to China tax has been made on the Fund's financial
statements.
As at 31 December 2011, provision for current tax and deferred
tax, uncertain tax amounted to US$17,741,470 (2010: US$161,682),
US$38,174,629 (2010: US$42,083,914) and US$6,348,815 (2010:
US$4,460,931) respectively. However, given the uncertainty of China
tax, the Investment Manager would like to highlight that there is a
possibility that some or all of the tax provided as at 31 December
2011 will not be payable and may be released. The Investment
Manager is regularly monitoring the position.
The Investment Manger has reviewed the structure of the Fund's
investment portfolio and considered the Fund's exposure to Hong
Kong Profits tax has been properly reflected in the Fund's
consolidated financial statements.
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.
11 Management fees and performance fees
Pursuant to the Investment Management Agreement dated 20
November 2007, the Investment Manager was appointed to manage the
investments of the Fund. 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 first day of each fiscal quarter. For the
year ended 31 December 2011, total management fees amounted to
US$5,197,861 (2010: US$4,000,797). As at 31 December 2011,
management fees payable amounted to US$1,490,191 (2010: Nil), which
were settled in March 2012 subsequently.
The Investment Manager is also entitled to receive performance
fees from the Fund in the event that the year-end NAV is greater
than (a) the year-end NAV for the last year in which a performance
fee was payable ("High Water Mark") and (b) 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 the year-end NAV above the
Hurdle up to 10% (the "Catch-up"); and
-- 20% of the relevant increase in the year-end NAV above the Catch-up.
For the year ended 31 December 2011, total performance fees
amounted to US$12,542,028 (2010: US$12,341,008).
Under the Investment Management Agreement, the performance fee
shall be paid 75% in cash and 25% in the Company's ordinary shares
("share portion"). 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.
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