TIDMPACL
RNS Number : 6759M
Pacific Alliance China Land Limited
20 September 2012
20 September 2012
Pacific Alliance China Land Limited
('PACL' or the 'Company')
Unaudited Results for the six months ended 30 June 2012
Pacific Alliance China Land Limited ('PACL' or the 'Company'),
an AIM-traded, closed-end investment company with a portfolio of
investments including existing properties, new developments,
distressed projects and real estate companies in Greater China, has
today announced its financial results for the six months to 30 June
2012.
Highlights
-- Net asset value as at 30 June 2012 was US$301 million,
representing US$2.16 per share, a 2% increase from 31 December 2011
(US$295 million) and a 19% increase year-on-year (30 June 2011;
US$253m, representing US$1.81 per share). This represents an
annualized increase of 18% since inception.
-- The Company's share price closed at US$1.37, a 13% increase
year-on-year and a 36% discount to the unaudited NAV per share as
at 30 June 2012.
-- PACL's NAV and share price have both consistently
outperformed major benchmark indices including the FTSE 350 Real
Estate Index and the FTSE AIM All-Share Index since inception.
-- PACL was rated the best performing China Real Estate Fund by
Morningstar in May 2012, in recognition of the Company's 18%
compound annual NAV growth.
Patrick Boot, Managing Director, Pacific Alliance Real Estate
Limited said that while there were no signs of across the board
easing of property and monetary policy in China during the first
half of 2012, positive indicators were beginning to emerge across
all sectors of the China property market.
"Office and retail property sale prices and rental rates
continued to rise while vacancy rates dropped during the first half
of 2012, and this upward market momentum once again drove returns
for the PACL portfolio. Over the same period, we began to see
glimpses of improvement in the residential sector as the impact of
lower interest rates and falling home prices released some of the
pent-up demand from both first-time buyers and up-graders.
"The subsequent growth in volumes despite continuing purchase
restrictions is good news, but it is tempered by the expectation
that the Chinese government will maintain controls to curb
residential property speculation and the uncertainty as to the
direction of economic and monetary policy following the Chinese
leadership transition taking place this fall," he said.
The Company continues to monitor market and policy movements and
remains committed to a dynamic investment approach that will
continue to generate attractive returns despite ongoing economic
and political uncertainty.
The interim report will be sent to registered shareholders
shortly and a copy will be available on the Company's website
www.pacl-fund.com.
For further information please contact:
MANAGER: LEGAL COUNSEL:
Patrick Boot, Managing Jon Lewis, General Counsel
Partner PAG
Pacific Alliance Real Estate T: (852) 2918 0088
Limited jlewis@pagasia.com
T: (852) 2918 0088
pboot@pagasia.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
funds@lcfr.co.uk Philip.J.Secrett@uk.gt.com
MEDIA RELATIONS:
Stephanie Barry
PAG
T: (852) 3719 3375
sbarry@pagasia.com
Notes to Editors:
About Pacific Alliance China Land Limited
Pacific Alliance China Land Limited ("PACL") (AIM: PACL) is a
closed-end investment company that was admitted to trading on the
AIM Market of the London Stock Exchange in November 2007. PACL is
focused on investing 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 PAG (formerly
known as Pacific Alliance Group), which is one of the region's
largest Asia-focussed alternative investment managers, with funds
under management across Private Equity, Real Estate and Absolute
Return strategies.
Founded in 2002, PAG now has a presence across Asia with over
300 staff working in the region.
For more information about PAG, please visit:
www.pagasia.com
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
Chair's Statement
Pacific Alliance China Land Limited ("the Company") continued to
grow its net asset value ("NAV") during the first half of 2012. The
Company's NAV was US$301 million or USD2.1553 per share as of 30
June 2012, a 2% increase from 31 December 2011, and a 19% increase
from 30 June 2011. The increase is the result of the Company's
continued commitment to its multi-strategy investment approach
which has delivered significant value to shareholders since the
Company's inception.
China's GDP growth moderated to a three-year low of 7.6% year on
year in the second quarter of 2012. In response to signs of slower
economic growth, the Chinese government moved to lower the loan and
deposit rate, as well as the reserve requirement ratio twice in the
first half of the year. It is widely anticipated that the
government will continue to fine tune monetary policy with
incremental adjustments to maintain stable growth over the
remaining six months.
The impact of lower interest rates and falling home prices has
released pent-up demand from both first-time buyers and up-graders,
leading to more buying in the residential property sector. Despite
purchase limits which remain widely in place, residential sales
volumes have begun to strengthen across-the-board, both in first
and second-tier cities. While this is positive news for the market,
the Chinese government is expected to maintain controls to curb
residential property speculation and purchase restrictions are
expected to continue at least in the near term, so the full extent
of the upturn is yet to be seen.
Adding to this uncertainty will be the impact of the Chinese
leadership transition taking place in the fall of this year. There
is no indication currently as to whether a new government will
change direction on economic and monetary policy and how any change
might affect the property sectors. The Manager continues to monitor
conditions closely and will adjust its strategy as required to
adapt to these ever-changing market dynamics, and ensure it is well
placed to exploit all opportunities they present, while minimizing
potential risk.
For now, the Manager believes the Company's focus on the
commercial and retail sectors remains correct. While we watch the
residential sector movements with interest, we continue to generate
positive results from the ongoing upward trend in the commercial
and retail markets.
To date, the Company's investment focus on commercial property
has proven successful. Over the past four years the Manager's
unique multi-strategy investment approach has delivered a compound
annual growth in NAV of 18%, making it the best performing 'China
Real Estate Fund' as rated by Morningstar in May 2012 (1). I would
like to extend our congratulations and thanks to the Manager on
behalf of the Board of Directors. We are confident that our dynamic
investment approach will continue to generate attractive returns,
and we look forward to continued success, even in these uncertain
times.
(1)As at May 2012 by Morningstar; based on cumulative returns
over a three-year period from May 2009 to April 2012.
Margaret Brooke
Chair
Investment Manager's Report
Portfolio Performance
As at 30 June 2012, the Company's unaudited total net asset
value ("NAV") was US$301 million, or US$2.1553 per share. This is a
2% increase from 2011 or 19% increase year-on-year and an
annualized increase of 18% since inception. Independent valuations
are currently undertaken on a quarterly basis by recognized
international valuation firms and real estate appraisers.
On 30 June 2012, the Company's share price closed at US$1.3725,
a 13% increase year-on-year and a 36% discount to the audited NAV
per share. PACL's NAV and share price have both outperformed major
benchmark indices including the FTSE 350 Real Estate Index and the
FTSE AIM All-Share Index on a consistent basis since inception.
From 1 January
to
30 June 2012
US$
Realized Gain
Investment interest income 8,957,746
Dividend income 1,497,780
Deposit interest 348,528
Other income 1,007,451
------------------
11,811,505
Change in Unrealized Gain/(Losses)
Pre-IPO financing 9,842,438
Bridge financing (9,709,073)
Co-development (6,512,132)
Other real estate investments 6,850,797
Share of losses receivable from
PACL II 1,396,274
Foreign exchange losses (812,308)
------------------
1,055,996
------------------
12,867,501
Portfolio Summary
As at 30 June 2012, the Company held investments with a cost of
approximately US$131 million and fair value of approximately US$312
million. The Company's portfolio is diversified across five
strategies including bridge financing, co-development, pre-IPO
financing, platform investment and asset acquisition.
Attribut-
Fair value able
(gross) % of to PACL
Investment US$ Type of investment total Location II
Project
Diplomat 81,627,250 Asset acquisition 20.53% Beijing -
Project Mainland
Malls 78,534,500 Platform investment 19.76% China -
Project Mainland
Auspice 62,609,686 Pre-IPO Financing 15.75% China -
Project Bridge Financing
Speed 39,443,220 (1) 9.92% Guangdong 19,853,587
Project
Winpoint 28,886,796 Co-Development 7.27% Jiangyin -
Project Co-Development
Jingrui 11,698,208 (1) 2.94% Huzhou 5,888,247
Project Bridge Financing
Olympic 9,002,514 (1) 2.26% Beijing 4,531,379
Pre-IPO Financing Mainland
HNA - Options 140,706 (1) 0.04% China 70,824
Cash 85,589,468 Cash (1) 21.53% 5,551,611
TOTAL 397,532,348 100% 35,895,648
Note
(1) The gross investment value includes an amount attributable
to the PACL II shareholders.
Investment Strategy
During the first half of 2012, there were signs that
opportunities may begin to re-appear in the residential property
sector in the second half of the year and beyond, despite the
government's continuing commitment to purchase limits. The Manager
believes that recent improvements in residential sales volumes
suggest that attractive risk-adjusted returns may be derived over
the medium term from residential projects supported by sound
fundamentals, combined with downside protected structures. Longer
term support for the sector will likely come from China's steadily
continuing urbanization driving residential demand. The Company
will continue to act prudently in selecting and monitoring
investments from this sector.
The office and retail property sectors continue their upward
momentum as sales prices and rental rates continued to rise, while
vacancy rates lowered. The attractiveness of first-tier cities to
international retailers as brand locations has further sustained
prime retail rental growth, and an expected rise in domestic
consumption, driven by government stimulus, should drive this
growth further. Meanwhile, steady take-up in the office property
sector was seen across all major first-tier cities and this was not
limited to prime CBD locations. We see that some of the evolving
decentralized areas which offer larger office space with better
infrastructure and facilities are increasingly sought after by both
domestic and multinational companies in the non-financial
sector.
With approximately two thirds of the Company's portfolio
weighted in the office, retail and leisure sectors, our
multi-strategy approach has enabled us to effectively mitigate some
of the policy risks to the portfolio and thereby allowed the
Company to outperform its peers. Looking ahead, we will continue to
seek co-development opportunities with quality development
partners. We will pursue value-added asset acquisitions emerging
from off-market and/or special situations. In the meantime, we will
continue to improve the operations of the Company's existing
investments, and actively seek to exit opportunities at attractive
pricing which can be accretive to the Company's NAV.
Defensive Strategies
Bridge Financing
Despite the improved market liquidity, small-to-medium sized
developers are still finding it difficult to secure new loans. The
Company's bridge financing solutions continue to offer these
cash-constrained developers alternative financing sources. The
Manager will work discreetly to select projects that have sound
real estate fundamentals and credit-worthy borrowers with good
development track records.
Co-Developments with Preferred Returns
Recent improvements in the credit environment and the rebound in
home sales have improved liquidity among larger developers.
Consequently, the Manager is seeing some decline in the
attractiveness of joint ventures terms being offered compared to
six months ago. At the same time, improved sentiment has boosted
confidence and developers have started to stock up their land banks
while land prices are still relatively modest, particularly in the
mixed-use sector. We see this as a good opportunity to work closely
with quality developers and over the remainder of the year, the
Manager will continue to focus on opportunities in commercial or
mixed-use development projects in first and second-tier cities. As
we explore opportunities in this sector we look not only for
preferred return structures, but also to work with partners who
have a good reputation, proven development track record and strong
execution capability.
Growth Strategies
Value-Added Asset Acquisitions
In light of the more favourable market conditions in the
commercial property sector, the Manager is actively seeking
existing or nearly completed retail/commercial properties with
lease-up and/or ineffective management which represent high
value-added opportunities. We are actively exploring this
investment sector, particularly opportunities arising from special
situations and off-market.
Platform Investment
The slow recovery of the global economy and uncertainty over the
Eurozone's prospects, along with China's softening economic
conditions, are impacting the capital markets. Developers who had
planned IPOs may now be forced to consider strategic financing at a
corporate and/or project level for additional funds. We expect this
will open up new platform opportunities for the Company. As in the
co-development sector, we will pursue opportunities with quality
companies that have good track records and high-quality land
banks.
Conclusion
China's residential property market continues to face a
challenging environment amid mixed policy targets for this year.
The Manager is confident the Company will continue to capitalize on
attractive investment opportunities while minimizing the risk
associated with the residential property sector. The Company
remains committed to improving its asset management programme and
strengthening its investment pipeline to deliver sustainable
long-term results for its shareholders.
UNAUDITED CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 30 JUNE 2012
As at As at 31
30 June December
Note 2012 2011
US$ US$
Assets
Investments, at fair value
(Cost: US$128,798,042; 2011:
US$128,798,042) 3,4,5,6 311,942,880 312,461,715
Other receivables 450,000 185,259
Restricted cash 7,12(d) - 43,330,560
Cash and bank balances 85,589,468 117,196,263
-------------------- --------------------
Total assets 397,982,348 473,173,797
------------------ -------------------
Liabilities
Provision for taxation 9 49,319,870 62,264,914
Amounts due to PACL II Limited 12(a) 34,525,182 55,890,197
Bank loan 7,12(d) - 38,121,000
Performance fee payable 12(b) 4,815,983 12,542,028
Provision for investment
agency fees 11 7,841,354 7,841,354
Accrued expenses and other
payables - 1,756,219
-------------------- --------------------
Total liabilities 96,502,389 178,415,712
------------------ -------------------
Net assets 301,479,959 294,758,085
Analysis of net assets
Share capital 8 1,898,339 1,898,339
Share premium 8 187,935,554 187,935,554
Capital surplus 8 1,816,917 1,816,917
Tendered shares 8 (49,293,340) (49,293,340)
Retained earnings 159,122,489 152,400,615
-------------------- --------------------
Net assets (equivalent to
US$2.1553
(2011: US$2.1073) per share
based on 139,876,717
(2011: 139,876,717) outstanding
shares) 301,479,959 294,758,085
Approved by the Board of Directors
UNAUDITED CONSOLIDATED SCHEDULE OF INVESTMENTS
AS AT 30 JUNE 2012
As at 30 June 2012 As at 31 December 2011
% of % of
effective effective
% of equity % of equity
Investments net interest Cost/ Fair net interest Cost/ Fair
- Assets assets held principal value assets held principal value
US$ US$ US$ US$
COMMON
STOCKS 87.36% 85.98%
Real Estate
Development,
China 87.36% 85.98%
Huzhou
Jingrui
Real Estate
Co. Ltd 3.88% 49.00% 7,423,167 11,698,208 5.94% 49.00% 7,423,167 17,495,501
Jiangyin
Aijia
Investment 9.58% 15.00% 22,725,000 28,886,796 10.10% 15.00% 22,725,000 29,777,820
SZITIC
Commercial
Property
Co Ltd 26.05% 30.00% 5,548,341 78,534,500 25.91% 30.00% 5,548,341 76,372,900
Dalian
Wanda
Commercial
Real Estate
Co Ltd 20.77% 0.50% 22,414,500 62,609,686 17.93% 0.50% 22,414,500 52,853,760
Beijing
Hines Jing
Sheng Real
Estate
Development
Co Ltd 27.08% 40.00% 20,880,000 81,627,250 26.10% 40.00% 20,880,000 76,938,054
BONDS 13.08% 16.61%
Real Estate
Development,
China 13.08% 16.61%
Times
Property
Holdings
Co. Ltd 13.08% 40,000,000 39,443,220 16.61% 40,000,000 48,957,746
LOANS
RECEIVABLE 2.99% 3.33%
Real Estate
Development,
China 2.99% 3.33%
Spirit
Charter
Investment
Limited
(1) 2.99% 9,807,034 9,002,514 3.33% 9,807,034 9,807,034
DERIVATIVES 0.05% 0.09%
Others 0.05% - 140,706 0.09% - 258,900
128,798,042 311,942,880 128,798,042 312,461,715
============ ============ ============ ============
(1)The principal above represents the principal calculated
according to the Fund's accounting purpose, which is different from
the loan principal calculated in accordance with the legal
agreements whereby the cost is paid prior to the repayment of
interest component.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED 30 JUNE 2012
Period Period
from from
1 January 1 January
to to
30 June 30 June
2012 2011
Note US$ US$
Income
Interest income 348,528 112,867
Dividend income 1,497,780 -
Other income 1,007,451 -
------------------ ------------------
Total income 2,853,759 112,867
----------------- -----------------
Expenses
Local taxes 9 767,909 9,637,953
Performance fees 10,12(b) 1,680,476 2,211,051
Management fees 10,12(b) 3,050,430 2,400,389
Legal and professional fees 183,312 371,589
Interest expenses 7, 12(d) 106,536 352,399
Loan handling fees expenses 7, 12(d) 205,585 200,643
Net (loss)/gain on loan
related expenses allocated
to PACL II 7, 12(d) (228,173) 250,777
Other expenses 379,552 426,610
------------------ ------------------
Total expenses 6,145,627 15,851,411
---------------- ----------------
Net investment loss (3,291,868) (15,738,544)
---------------- -----------------
Realized and unrealized
gain from investments and
foreign currency
Net realized gain from investments
and foreign currency transactions 8,957,746 4,497,500
Net change in unrealized
gain from investments and
gain on translation of assets
and liabilities in foreign
currencies 7,12(d) (340,278) 21,362,064
Net decrease/(increase)
in payable to PACL II Limited
from loss/(gain) attributable
to PACL II Limited 12(a) 1,396,274 (1,284,361)
------------------ ------------------
Net realized and unrealized
gain from investments and
foreign currency 10,013,742 24,575,203
---------------- ----------------
Net increase in net assets
from operations 6,721,874 8,836,659
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED 30 JUNE 2012
Share
capital
and share Capital Tendered Retained
Note premium surplus shares earnings Total
US$ US$ US$ US$ US$
At 1
January
2011 189,833,893 1,816,917 (52,378,592) 102,232,502 241,504,720
Reissue of
tendered
shares 8 - - 3,085,252 - 3,085,252
Net
increase
in net
assets
from
operations - - - 50,168,113 50,168,113
------------------ ------------------ ------------------ ------------------ ------------------
At 31
December
2011 and 1
January
2012 189,833,893 1,816,917 (49,293,340) 152,400,615 294,758,085
Net
increase
in net
assets
from
operations - - - 6,721,874 6,721,874
------------------ ------------------ ----------------- ------------------ ------------------
At 30 June
2012 189,833,893 1,816,917 (49,293,340) 159,122,489 301,479,959
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 JUNE 2012
Period Period
from from
1 January 1 January
to 30 June to 31 December
2012 2011
US$ US$
Net increase in net assets from
operations 6,721,874 50,168,113
Adjustments
(Increase)/decrease in operating
assets
Disposal of investments 9,514,526 109,052,998
Net realized and unrealized gain
from investments (8,995,692) (85,763,527)
Net decrease in payable from
(losses)/gain attributable to
PACL II Limited (1,396,274) (2,383,238)
Other receivables (264,741) 1,314,741
Other assets - -
Restricted cash 43,330,560 (43,330,560)
Increase/(decrease) in operating
liabilities
Amounts due to PACL II Limited (19,740,568) (44,142,178)
Net (loss)/gain on loan related
expense allocated to PACL II
Limited (228,173) 1,256,155
Performance fee payable (7,726,045) 3,286,272
Provision for taxation (12,945,044) 15,558,387
Provision for investment agency
fees - 7,841,354
Accrued expenses and other payables (1,756,218) 1,620,341
------------------ ------------------
Net cash generated from operating
activities 6,514,205 14,478,858
----------------- -----------------
Cash flows from financing activities
Bank loans repayment)/obtained (38,121,000) 38,121,000
Repurchase of shares - -
------------------ ------------------
Net cash generated (used in)/from
financing activities (38,121,000) 38,121,000
----------------- -----------------
Net (decrease)/increase in cash
and cash equivalents (31,606,795) 52,599,858
Beginning balance 117,196,263 64,596,405
------------------ ------------------
Ending balance, representing
cash and bank balances 85,589,468 117,196,263
Non-cash transaction:
See Note 10 for the settlement of performance fee in shares.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2012
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 472, 2nd Floor, Harbour Place,
Grand Cayman KY1-1106, Cayman Islands.
The Company's ordinary shares are traded on the AIM Market of
the London Stock Exchange. The Company can raise additional capital
up to the authorized share capital as described in Note 8
below.
The principal investment objective of the Company is to provide
shareholders with capital growth and a regular level of income from
investments in existing properties, new developments, distressed
projects and real estate companies in Greater China.
The Company's investment activities are managed by Pacific
Alliance Real Estate Limited ("PARE" or the "Investment Manager").
The Company has appointed Sanne Trust Company Limited to act as the
custodian of certain assets of the Company, the administrator and
registrar pursuant to the custodian agreement and fund
administration services agreement respectively.
The consolidated financial statements were approved by the Board
of Directors on 19 September 2012.
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 ("US GAAP"). The Company applies the provisions of
Financial Accounting Standards Board ("FASB") Accounting Standard
Codification ("ASC") 946-10, Financial Services - Investment
Companies (formerly 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.
(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 Company uses wholly and partially owned special purpose
vehicles ("SPVs") to hold and transact in certain investments. The
Company's policy is to consolidate, as appropriate, those SPVs in
which the Company has control over significant operating, financial
or investing decisions of the entity.
Except when an operating company provides services to the
Company, investment in an operating company is carried at fair
value (refer to Note 2(c) below for fair value measurement).
(b) Use of estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires the Fund's management to make
estimates and assumptions that affect the reported value of assets
and liabilities and disclosures of contingent assets and
liabilities as at 30 June 2012 and the reported amounts of income
and expenses for the period then ended. The areas involving a
higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the financial statements are
disclosed in Note 2(m).
(c) Investments
The Fund holds investment securities which are unlisted and have
limited marketability. The Fund also engages in secured lending
transactions consisting of repurchase agreements and other secured
borrowings.
(i) Recognition and derecognition
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 and losses on the disposal of
investments are based on the specific identification method for
unlisted or unquoted investments. Cost includes legal and due
diligence fees associated with the acquisition of investments.
Transfer of investments is accounted for as a sale when the Fund
has relinquished control over the transferred assets. Any realized
gains and losses from investments are recognized in the
consolidated statement of operations.
(ii) Fair value measurement
The Fund is an investment company under the Guide. As a result,
the Fund records and re-measures its investments on the
consolidated statement of assets and liabilities at 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 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 of
the Fund, which is established by the Investment Manager and the
Board of Directors.
The fair value of unlisted or unquoted securities are based on
the Fund's valuation models, including earnings multiples (based on
the budgeted earnings or historical earnings of the issuer and
earnings multiples of comparable listed companies) and discounted
cash flows. The Valuation Committee also considers the relevant
developments since acquisition of the investments, the original
transaction price, recent transactions in the same or similar
instruments, completed third-party transactions in comparable
instruments, reliable indicative offers from potential buyers and
rights in connection with realization. It adjusts the model as
necessary for factors such as non-maintainable earnings, tax risk,
growth stage, and cash traps. Cross-checks of primary techniques
are made against other secondary valuation techniques.
In determining fair valuation of certain unlisted securities,
the Valuation Committee uses as reference valuations made by
independent valuers which rely on the financial data of investees
and on estimates made by the management of the investee companies
as to the effect of future developments. The independent valuers
also assist in the selection of valuation techniques and models.
Loans receivable are recorded at fair value in accordance with the
guidance set forth in Note 4, and the valuation techniques applied
usually takes into account the estimated future cash flows,
liquidity, credit, market and interest rate factors. However, there
are inherent limitations in any valuation technique due to the lack
of observable inputs. 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 below.
(d) Other receivables and payables
Other receivables and payables are initially measured at fair
value and subsequently measured at amortized cost.
(e) Cash and cash equivalents
Cash represents cash at banks and does not include restricted
cash such as fixed deposits pledged as security for the bank loans.
Cash equivalents are defined as short-term, highly liquid
investments which mature within three months or less of the date of
purchase.
(f) Restricted cash
The Fund classifies cash that is restricted for specific
purposes and is unavailable for general use as restricted cash.
(g) Bank loans
Bank loans are initially recognized at fair value, net of
transaction costs incurred and subsequently stated at amortized
cost. Any difference between the proceeds (net of transaction
costs) and the redemption value is recognized in the consolidated
statement of operations over the period of the borrowing using the
effective interest method.
(h) Share capital
Ordinary shares are classified as equity. Where any group
company purchases the Company's equity share capital, the
consideration paid is deducted from equity until the shares are
cancelled or reissued. Where such ordinary shares are subsequently
reissued, any consideration received is included in equity.
(i) Foreign currency translation
The books and records of the Fund are maintained in United
States Dollars ("US$"), which is also the functional currency.
Assets and liabilities, both monetary and non-monetary, denominated
in foreign currencies are translated into US$ at period-end
exchange rates, while income and expenses are translated at the
exchange rates in effect during the period.
Gains and losses attributed to changes in the value of foreign
currencies for investments, cash balances and other assets and
liabilities are reported as foreign exchange gain and loss.
(j) Taxation
The Fund may be subject to taxes imposed in jurisdictions in
which it invests and operates. Such taxes are generally based on
income and gains earned. Taxes are accrued on investment income,
realized gains, and unrealized gains, as appropriate, when the
income and gains are earned. The Fund accrues for liabilities
relating to uncertain tax positions only when such liabilities are
probable and can be reasonably estimated in accordance with the
authoritative guidance contained in ASC 740 Income Taxes (formerly,
FASB Interpretation No.48, accounting for uncertainty in Income
Taxes) described in Note 9.
The Fund files tax returns as prescribed by the tax laws of the
jurisdictions in which it operates. The Fund uses the asset and
liability method to provide income taxes on all transactions
recorded in the consolidated financial statements. This method
requires that income taxes reflect the expected future tax
consequences of temporary differences between carrying amounts of
assets or liabilities for book and tax purposes. Accordingly, a
deferred tax asset or liability for each temporary difference is
determined based on the tax rates that the Fund expects to be in
effect when the underlying items of income and expense are
realized.
(k) Recognition of income and expenses
Interest income on bank balances is accrued as earned using the
effective interest method.
Dividend income is recognized on the ex-dividend date and is
recorded net of withholding taxes where applicable.
Consulting income is recognized in accounting period in which
the services are rendered.
Expenses are recorded on an accrual basis. Provision of deferred
expenses are made as if the investments are liquidated and realised
at value stated as the period-end.
(l) Subsequent events
The Fund discloses events that occur after the balance sheet
date but before the financial statements are issued or are
available to be issued. See Note 15, Subsequent Events, for further
discussion.
(m) Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates
and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are addressed below.
(i) Fair value of investments
The fair value of unlisted or unquoted securities and loans
receivable is determined by using valuation techniques. Judgement
is used to select a variety of methods and make assumptions that
are mainly based on market conditions existing at the end of each
reporting period.
Although best judgment is used 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 consolidated
statement of assets, liabilities and partners' capital. Additional
information about the level of market observability associated with
investments carried at fair value is disclosed in Note 4 below.
(ii) Taxation
The Fund may be subject to income taxes in jurisdictions it
invests and operates. Significant judgement is required in
determining the worldwide provision for income taxes. There are
many transactions and calculations for which the ultimate tax
determination is uncertain. The Fund recognises liabilities for
anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these
matters is different from the amounts that were initially recorded,
such differences will impact the current and deferred income tax
assets and liabilities in the period in which such determination is
made.
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 equity
prices.
Investments are 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 the respective 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
concentration of investments in a particular industry or sector is
presented on the consolidated schedule of investments.
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 below for a discussion on the inputs in fair value
measurement of the Fund's investments.
(b) Interest rate risk
Interest rate risk arises from the fluctuations in the
prevailing levels of market interest rates which affect the fair
value of financial assets and liabilities and future cash flows.
The Fund has bank accounts, restricted cash, loans receivable and
bank loans that expose the Fund to interest rate risk. The Fund has
direct exposure to interest rate changes in respect of the
valuation and cash flows of its interest bearing assets and
liabilities. The Fund may also be indirectly affected by interest
rate changes in respect of the earnings of certain companies in
which it invests.
(c) Currency risk
The Fund has assets and liabilities denominated in currencies
other than the US$, the functional currency. The Fund is therefore
exposed to currency risk as the value of assets and liabilities
denominated in other currencies may fluctuate due to changes in
exchange rates. The net assets of the Fund are denominated in the
following currencies:
As at As at
30 June 31 December
2012 2011
US$ US$
Renminbi 153,747,364 204,446,700
United States Dollars 147,732,595 90,337,204
Pounds Sterling - (11,657)
Hong Kong Dollars - (14,162)
-------------------- --------------------
301,479,959 294,758,085
(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 legal system of the countries
where the relevant agreements are entered. Even when a 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
collateral on a regular basis and monitors the fair value of
collateral relative to the loan amounts plus accrued interest and
where necessary, requires additional cash or collateral from the
borrower to manage its exposure. However, these valuations do not
guarantee the ultimate realizable value of the collateral.
The legal system of the countries in which the Fund invests 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. 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 which the Fund invests, there can be no assurance
that the court will enforce such judgement.
As at 30 June 2012, investments in loans receivable and bonds of
US$48,445,734 (31 December 2011: US$58,764,780) were
borrowed/issued by counterparties which are currently unrated by
any rating agency.
(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 majority of the
investments of the Fund are illiquid while some of the Fund's
liabilities are with short maturity. Details of the maturity
analysis on loans receivable are set out in Note 5 below. 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 when necessary to meet liquidity
requirements. The liquidity risk and the liability level of the
Fund is closely monitored by the Investment Manager. All current
bank loans are fully collateralized with cash and the Fund has been
able to distribute US$19,740,568 (31 December 2011: US$44,142,178)
to PACL II Limited ("PACL II") during the period ended 30 June
2012.
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 therefore
exposed to the risk of repatriating funds out of China on a timely
basis to meet its obligations. See Note 3(c) above for exposure to
Renminbi.
The Fund has the ability to borrow in short term and 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
The Fund discloses the fair value of its investment in a
hierarchy that prioritizes the inputs to valuation techniques used
to measure the fair value. The hierarchy gives the highest priority
to valuations based upon unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the
lowest priority to valuations based upon unobservable inputs that
are significant to the valuation (Level 3 measurements). Three
levels of the fair value hierarchy are as follows:
Level 1
Inputs that reflect unadjusted quoted prices in active markets
for identical assets or liabilities that the Fund has the ability
to access at the measurement date;
Level 2
Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly or
indirectly, including quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not considered to
be active, inputs other than quoted prices that are observable for
the asset or liability, and inputs that are derived principally
from or corroborated by observable market data by correlation or
other means; and
Level 3
Unobservable inputs based on the best information available in
the circumstances, to the extent observable inputs are not
available (including the Fund's own assumptions used in determining
the fair value of investments).
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.
In determining an instrument's placement within the hierarchy,
the Valuation Committee follows the following:
Level 1
Investments in listed stocks and derivatives that are valued
using quoted prices in active markets and are therefore classified
within Level 1 of the fair value hierarchy.
As at 30 June 2012 and 31 December 2011, the Fund did not have
any investments that were categorized as Level 1 within the fair
value hierarchy.
Level 2
Investments in listed stocks for which trading is restricted for
a certain period of time and for which the restriction is
applicable to market participants in general (for example, legal
person shares containing lock-up periods) are valued using the last
traded prices of the listed stocks after factoring in discounts for
liquidity. Such investments are generally classified within Level 2
of 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. Investments classified
within Level 3 have significant unobservable inputs, as they trade
infrequently or not at all. When observable prices are not
available for these securities, the Valuation Committee uses one or
more valuation techniques (e.g., the market approach or the income
approach) for which sufficient and reliable data is available.
Within Level 3, the use of the market approach generally consists
of using comparable market transactions, while the income approach
generally consists of the net present value of estimated future
cash flows, adjusted as appropriate for liquidity, credit, market
and/or other risk factors.
The inputs used by the Valuation Committee in estimating the
value of Level 3 investments include the original transaction
price, recent transactions in the same or similar instruments,
completed or pending third-party transactions in the underlying
investment or comparable issuers, subsequent rounds of financing,
recapitalizations and other transactions across the capital
structure, offerings in the equity or debt capital markets, and
changes in financial ratios or cash flows. Valuation of Level 3
investments may also be adjusted to reflect illiquidity and/or
non-transferability with the amount of such discount estimated by
the Valuation Committee in the absence of market information.
The fair value measurement of Level 3 investments does not
include transaction costs that may have been capitalized as part of
the security's cost basis. Assumptions used by the Valuation
Committee due to the lack of observable inputs may significantly
impact the resulting fair value and therefore the Fund's results of
operations.
All of the Fund's investments are categorized as Level 3
investments within the fair value hierarchy. The following table
summarizes the movements in fair value of the Fund's Level 3
instruments by captions:
As at 30 June 2012 Level 3
US$
Investments - stocks 263,356,440
Investments - bonds (Note
6) 39,443,220
Investments - loan receivables
(Note 5) 9,002,514
Investments - derivatives 140,706
--------------------
311,942,880
As at 31 December 2011 Level 3
US$
Investments - stocks 253,438,035
Investments - bonds (Note
6) 48,957,746
Investments - loan receivables
(Note 5) 9,807,034
Investments - derivatives 258,900
--------------------
312,461,715
As at 30 June 2012, investments of US$263,356,441 (31 December
2011: US$253,438,035) were held directly by the Fund, and
investments of US$48,586,440 (31 December 2011: US$59,023,680) were
held through jointly owned entities with Pacific Alliance Asia
Opportunity Fund L.P. ("PAX L.P."), an investment fund managed by
Pacific Alliance Investment Management Limited, a fellow subsidiary
of the Investment Manager.
Investments
Investments Investments- - loan Investments
- stocks bonds receivables -derivatives Total
US$ US$ US$ US$ US$
At 1 January
2011 272,865,493 48,957,746 13,927,947 - 335,751,186
Proceeds from
sale of
investments (109,052,998) - - - (109,052,998)
Net realized
gains 86,349,238 - - - 86,349,238
Net unrealized
gains/(losses) 3,276,302 - (4,120,913) 258,900 (585,711)
------------------ ------------------ ------------------ ------------------ ------------------
At 31 December
2011 and
1 January 2012 253,438,035 48,957,746 9,807,034 258,900 312,461,715
Proceeds from
sale of
investments - (9,514,526) - - (9,514,526)
Net realized
gains - 8,957,746 - - 8,957,746
Net unrealized
gains/(losses) 9,918,405 (8,957,746) (804,520) (118,194) 37,945
------------------ ------------------ ------------------ ------------------ ------------------
At 30 June 2012 263,356,440 39,443,220 9,002,514 140,706 311,942,880
The following table summarizes the movements in fair value of
the Fund's Level 3 instruments.
Total net change in unrealized gains on Level 3 instruments as
shown above are presented in the consolidated statement of
operations.
5 Investments - loans receivable
As at 30 June 2012, the Fund had a secured borrowing receivable
from unaffiliated parties amounting to US$9,002,514 (31 December
2011: US$9,807,034). The loan will mature in the next 6 months.
For the period ended 30 June 2012, total realized gains
recognized on the loan amounted to US$ Nil (31 December 2011:
US$Nil) and net change in unrealized losses for the loan receivable
amounted to US$804,520 (31 December 2011: US$4,120,913).
6 Investments - bonds
As at 30 June 2012, the Fund had a bond investment from an
unaffiliated party amounting to US$39,443,220 (31 December 2011:
US$48,957,746). The Fund held collateral in the form of assets of
the bond issuer and its subsidiaries. The fair value of the
investment is determined by the Valuation Committee. For the period
ended 30 June 2012, total realized gains recognized on the bond
amounted to US$8,957,746 (31 December 2011: US$Nil).
7 Bank loan and restricted cash
In order to finance the investment projects in different
currencies, the Fund may from time to time enter into loan
agreements with banks which are fully secured by deposits in
currencies other than the denomination of the loans held directly
by the Fund or related entities. In the event that amounts under
the loan agreements are due and not paid, the banks are entitled to
receive an amount of the deposits equal to the unpaid amount.
On 25 February 2011, the Fund borrowed a bank loan of
US$38,121,000 ("the Loan") from a bank based in Hong Kong, due on 1
February 2012, to facilitate a cash distribution to PACL II for its
subsequent distribution to its shareholders. The interest charged
on the Loan is LIBOR plus 2.5% per annum and the Loan was pledged
with a cash allocated from the realization proceed of the Tender
Offer Portfolio (see definition in Note 12(a) below) of US$
43,330,560 or RMB273,000,000 kept by the Fund as a fixed deposit
(the "Pledged Deposit").
As part of the arrangement, all interest income earned from the
Pledged Deposit, Loan-related arrangement and handling fee
expenses, interest expenses incurred on the Loan, and foreign
exchange gains/(losses) arising from the Loan will be allocated to
the PACL II.
For the period ended 30 June 2012, a net gain/(loss) on
loan-related expense of (US$228,173) (period ended 30 June 2011:
US$250,777) was incurred and allocated to PACL II. It comprised of
interest expense, arrangement and handling fee expenses, interest
income and foreign exchange gain/(loss) amounting to US$106,536
(period ended 30 June 2011: US$352,399), US$205,585 (period ended
30 June 2011: US$200,643), US$138,548 (period ended 30 June 2011:
US$Nil), and (US$54,600) (period ended 30 June 2011: US$803,819)
respectively.
The Loan was repaid and the Pledged Deposit released in February
2012.
Number
of shares Share Share Capital Tendered
outstanding capital premium surplus shares Total
US$ US$ US$ US$ US$
As at 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 and
1
January
2012 139,876,717 1,898,339 187,935,554 1,816,917 (49,293,340) 142,357,470
Re-issue
of
tendered
shares - - - - - -
------------------ ---------------- ------------------ -------------------- ------------------ ------------------
As at 31
June
2012 139,876,717 1,898,339 187,935,554 1,816,917 (49,293,340) 142,357,470
8 Share capital, share premium, capital surplus and tendered
shares
At 30 June 2012, the total authorized number of ordinary shares
was 10,000,000,000 (31 December 2011: 10,000,000,000) with par
value of US$0.01 (31 December 2011: US$0.01) per share.
Movement of tendered shares are as follows:
Number
of shares Repurchase/
repurchased/ reissue
(reissued) price Total
US$ US$
At 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
and 30 June 2012 49,957,176 49,293,340
As at 30 June 2012, the Company had 189,833,893 (31 December
2011: 189,833,893) ordinary shares in issue, of which 49,957,176
(31 December 2011:49,957,176) were held as tendered shares.
On 18 July 2012, 5,399,241 ordinary shares have been tendered
for repurchase by the Company at a tender price of US$2.11 per
share.
9 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 30 June 2012, provision for current tax and deferred tax,
uncertain tax amounted to US$987,763 (31 December 2011:
US$17,741,470), US$41,499,978 (31 December 2011: US$38,174,629) and
US$6,832,129 (31 December 2011: US$6,348,815) 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 30 June 2012 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.
10 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
period ended 30 June 2012, total management fees amounted to
US$3,050,430 (period ended 30 June 2011: US$2,400,389). As at 30
June 2012, management fees payable amounted to US$ Nil (31 December
2011: US$1,490,191).
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 period ended 30 June 2012, total performance fees
amounted to US$1,680,476 (period ended 30 June 2011:
US$2,211,051).
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.
On 20 July 2012, the Investment Manager agreed to receive
1,454,789 tendered shares from the Company to settle its obligation
in respect of the share portion of the 2011 performance fee of
US$3,135,507.
11 Investment agency fees
To facilitate the disposal of an investment, the Fund has
entered into a consulting agreement with an unrelated third party
(the "Consultant") which is also the party facilitated the
acquisition of the same investment. Under the agreement, the Fund
is obligated to pay an investment agency fee to the Consultant
based on a percentage of the net realized gain earned by the Fund.
As at 30 June 2012, a provision of US$7,841,354 (31 December 2011:
US$7,841,354) was made based on the realized and unrealized gain on
the investment net of certain expenses and tax attributable to the
investment of which approximately US$3.8 million was paid in July
2012.
12 Related party transactions
The Fund had the following significant related-party
transactions:
(a) Restructuring with PACL II Limited
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 Cayman Islands private vehicle that will be used to
realize and distribute cash from exited investments based on the
investment and asset positions held by the Fund as at 31 December
2008 ("Tender Offer Portfolio"). PACL II is also managed by the
Investment Manager. It will, without any further action on the part
of its shareholders, automatically wind up and dissolve in 3 years
upon when its ordinary shares were first issued. On 5 January 2012,
the duration of PACL II has been extended by 1 year to 2 March 2013
with written election by the Investment Manager.
As part of this restructuring, the Company repurchased
180,166,107 shares at a tender price of US$1.01 per share in
exchange for holders of these shares receiving the same number of
shares in PACL II.
Under the terms of the tender offer, PACL II is entitled to
receive 50.33% of the proceeds from the Tender Offer Portfolio,
which reflects a 5% discount of its proportionate share of the
Tender Offer Portfolio. As such, the amount due to PACL II is
recorded as a payable by the Fund, adjusted at each period end
based on the movement in the fair value of the underlying assets
and the income and expense attributable to the Tender Offer
Portfolio. The amount is unsecured, non-interest bearing.
The following table summarizes the movements in payable to PACL
II.
As at As at
30 June 31 December
2012 2011
US$ US$
At beginning of the period/year 55,890,197 101,159,458
Distributions to PACL II (19,740,568) (44,142,178)
Net (loss)/gain on loan related
expense allocated to PACL
II (228,173) 1,256,155
Net decrease in payable from
(gain)/loss attributable to
PACL II (1,396,274) (2,383,238)
-------------------- --------------------
At end of the year/period 34,525,182 55,890,197
(b) Management fees and performance fees to the Investment
Manager
The Investment Manager is entitled to management fees and
performance fees. See Note 11 for details.
(c) Directors' remuneration
The Company pays each of its director annual fees of US$30,000
(2011: US$30,000). If a director is a member of the Valuation
Committee or Audit Committee, the director also receives an
additional fee of US$5,000, or US$10,000 if they are Chairman of
either Committee. For the period ended 30 June 2012, Horst Geicke
and Jon-Paul Toppino agreed to waive their directors' fees and
committee fees.
(d) Bank loan arrangement with PACL II
The Fund previously entered an arrangement with PACL II. See
Note 7 for details.
13 Financial highlights
Net asset value per share at the end of the period is as
follows:
1 January 1 January
to to
30 June 30 June
2012 2011
US$ US$
Per share data (for a share
outstanding throughout the
year)
Net asset value at beginning
of period 2.1073 1.7480
Net investment loss (0.0235) (0.1068)
Net realized and unrealized
gains from investments 0.0715 0.1706
-------------- --------------
Net asset value at end of
period 2.1553 1.8118
The following represents the ratios to average net assets and
other supplemental information:
1 January 1 January
to to
30 June 30 June
2012 2011
Total return before performance
fees (1) 2.85% 4.55%
Performance fees 0.57% 0.90%
Total return after performance
fees (1) 2.28% 3.65%
Ratios to average net assets
(2)
Total expenses (2.08%) (6.13%)
Net investment loss (1.11%) (6.08%)
(1) Total return represents the change in NAV (before and after
performance fees), adjusted for cash flows in relation to capital
transactions for the period.
(2) Average net assets is derived from the beginning and ending
NAV, adjusted for cash flows in relation to capital transactions
for the period. For the period ended 30 June 2012, the average net
assets amounted to US$295,649,286 (from 1 January 2011 to 30 June
2011: US$245,493,863).
14 Commitment and contingency
In the normal course of business, the Fund may enter into
arrangements that contain a variety of representations and
warranties that provide general indemnification under certain
circumstances. The Fund's maximum exposure under these arrangements
is unknown, as this would involve 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,
and, therefore, no provision has been recorded.
15 Subsequent events
Management has performed a subsequent events review from 1 July
2012 through to 19 September 2012, being the date that the
financial statements were available to be issued.
16 New accounting pronouncements
In 2011, the FASB issued an Accounting Standards Update ("ASU")
No. 2011-04 relating to Topic 820 "Fair Value Measures and
Disclosures". This ASU generally provides clarifications to Topic
820, but also include some instances where a particular principle
or requirement for measuring fair value or disclosing information
about fair value measurements has changed. This ASU results in
common principles and requirements for measuring fair value and for
disclosing information about fair value measurements in accordance
with US GAAP and International Financial Reporting Standards. The
amendments are effective for periods beginning after 15 December
2011 and will be adopted by the Fund for the year-ended 31December
2012. The directors of the Fund considered the adoption of this ASU
will not materially impact the Fund's consolidated financial
statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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