TIDMPACL
RNS Number : 7473S
Pacific Alliance China Land Limited
26 September 2014
26 September 2014
Pacific Alliance China Land Limited
Unaudited results for the six months ended 30 June 2014
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
2014.
Highlights
-- Net asset value as at 30 June 2014 was US$295.63 million or
US$2.2657 per share, representing an 8.0% decrease from 31 December
2013 (US$319.64 million, or US$2.4628 per share) and a 2.1%
decrease year-on-year (30 June 2013; US$304 million, or US$2.3145
per share).
-- The Company's share price closed at US$1.715, a 1% increase
year-on-year and a 32% discount to the unaudited NAV per share as
at 30 June 2013.
-- The decrease in NAV predominantly reflects the unrealized
marked-to-market decline in the asset valuation of Project Auspice
and Project Malls due largely to falling valuations of China
property stocks and weaker stock market sentiment in the first half
of 2014.
-- 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 since inception.
-- PACL was rated among Top 3 best performing China Real Estate
Fund by Morningstar in April 2014.
Fund Developments
Following the unanimous vote of Shareholders at the
Extraordinary General Meeting held in July 2014, PACL will cease
making new investments and focus on realizing existing investments,
maximizing the value of its portfolio and returning realization
proceeds to Shareholders. PACL will continue to develop and invest
additional funds to complete existing investments in the best
interests of Shareholders.
The majority of PACL's investments are expected to be realized
within two years from July 2014, with the remaining investments to
be realized within three to five years.
Portfolio Developments
-- PACL successfully exited Project Speed in the first half of
2014, and received total consideration of US$35 million with a
profit of US$13.9 million, representing a gross IRR of 10.2% and a
cash multiple of 1.7 times.
-- Project Auspice has filed an application for its IPO on the
Hong Kong Stock Exchange to raise funds to support the development
of its commercial property business. As at 30 June, the company's
assets included 89 shopping centers, 48 hotels and a land bank with
an approximate gross floor area of 76.7 million square meters
across China according to its prospectus. Auspice is expected to
list in late 2014 or early 2015.
Patrick Boot, Managing Director, Pacific Alliance Real Estate
Limited commented that:
"Despite continued speculation on the direction of the China
economy, GDP growth was 7.4% year-on-year in the first half of
2014. Many economists expect the economy to continue on a similar
path in the second half of the year. The commercial property market
is a more balanced sector and continues to enjoy positive growth
and PACL's portfolio will be a beneficiary of this continued growth
as its investments remain heavily weighted toward this sector.
Since its inception in November 2007, PACL has delivered
compound annual NAV growth. As we begin realizing the portfolio and
returning capital to shareholders, we will continue to seek
profitable exit opportunities and maximize the value for
shareholders."
For further information please contact:
MANAGER: NOMINATED ADVISER:
Patrick Boot, Managing Partner Philip Secrett
Pacific Alliance Real Estate Limited Grant Thornton UK LLP
T: (852) 2918 0088 T: (44) 20 7383 5100
pboot@pagasia.com Philip.J.Secrett@uk.gt.com
BROKER: MEDIA RELATIONS:
Hiroshi Funaki Stephanie Barry
Edmond de Rothschild Securities PAG
T: (44) 20 7845 5960 T: (852) 3719 3375
funds@lcfr.co.uk 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 with net assets of US$295.63 million
as at 30 June 2014. PACL was admitted to trading on the AIM Market
of the London Stock Exchange in November 2007. PACL holds 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 are part of PAG, one of the
region's largest Asia-focused alternative investment managers with
funds under management across Private Equity, Real Estate and
Absolute Return strategies. PAG has a presence across Asia with
over 300 staff working in the region.
For more information about PAG, please visit:
www.pagasia.com
Chairperson's Statement
Pacific Alliance China Land Limited's ("the Company") net asset
value (NAV) was US$295.63 million or US$2.2657 per share as of 30
June 2014, representing an 8.0% decrease from 31 December 2013 and
a 2.1% decrease from 30 June 2013.
The decrease in NAV predominantly reflects the unrealized
marked-to-market decline in the asset valuation of the platform
investments due largely to falling valuations of China property
stocks and weaker stock market sentiment in the first half of 2014.
On a positive note, there are more recent signs of stabilization in
both the physical residential property market and in stock market
conditions, including a significant rebound in Chinese property
stock valuations as at 31 July 2014, especially amongst top tier
developers which we consider comparable to those involved in our
investments.
China's GDP recorded 7.4% year-on-year growth in the first half
of 2014, with second quarter growth at 7.5%, up from 7.4% in the
first quarter and many economists expect this robust rate of growth
to continue over the course of the year. We believe the continuing
transition towards the consumption and service-led economic model
that is driving this strong growth will also deliver significant
benefits to the commercial property market, which is good news for
our portfolio which remains heavily weighted toward this sector.
Within the portfolio, the Company successfully exited Project Speed
in the first half of 2014. The Company received total consideration
of US$35 million with a profit of USD$13.9 million, representing a
gross IRR of 10.2% and a cash multiple of 1.7 times.
Since its inception in November 2007, our investment strategy
has delivered compound annual NAV growth of 13.2%. We will continue
to seek to maximize the value to shareholders as we work to realize
the investments and, on behalf of the Board of Directors, I would
like to thank you for your continued commitment and support in our
endeavours.
Margaret Brooke
Chairperson
Investment Manager's Report
On 30 June 2014, the Company's share price closed at US$1.715,
representing a 1% increase year-on-year and a 32% discount to the
unaudited NAV per share. PACL's NAV and share price have both
outperformed major benchmark indices including the FTSE 350 Real
Estate Index and the FTSE AIM All-Share Index on a consistent basis
since inception.
30 June 2014 31 December 2013
US$ US$
Realized Gain
Investment income 16,901,903 14,516,276
Dividend income 1,565,141 3,301,007
Other income - -
Deposit interest 396,401 620,143
------------------ ------------------
18,863,445 18,437,426
Change in Unrealized Gain/(Losses)
Pre-IPO financing (21,005,394) 3,012,158
Other real estate investments (4,200,734) 17,937,526
Listed stock (4,642,733) 6,053,853
Bridge financing (17,798,011) 7,843,958
Co-development - (6,928,172)
Share of losses/ (profits) payable
to PACL II 1,472,740 (6,803,006)
Foreign exchange (1,256,095) 3,467,965
------------------ ------------------
(47,430,227) 24,584,282
------------------ ------------------
(28,566,782) 43,021,708
Portfolio Summary
As at 30 June 2014, the Company held cash of US$99 million and
investments with a cost of approximately US$68 million and fair
value of US$258 million. The Company's portfolio is diversified
across five strategies including Listed Stock, Bridge Financing,
Pre-IPO Financing, Platform Investment and Asset Acquisition.
Attributable
to PACL
Investments Fair value II Limited
and Cash (gross) US$ Type % of total Location ("PACL II")
Project Crystal 15,565,779 Listed Stock 4.36% Singapore -
Project Diplomat 94,726,469 Asset Acquisition 26.55% China (Beijing) -
Project Malls 85,621,700 Platform investment 24.00% China -
Project Auspice 55,438,175 Pre-IPO Financing 15.54% China -
Bridge Financing
Project Olympic 6,271,535 (1) 1.76% China (Beijing) 3,156,752
Cash 99,147,200 Cash (1, 2) 27.79% 10,679,601
TOTAL 356,770,858 100.00% 13,836,353
(1) The gross investment value includes an amount attributable
to the PACL II shareholders.
(2) Of the total cash of US$99.15 million, US$59.79 million of
which are held as RMB in PRC banks.
Realisation and return of capital
With the affirmative vote at the recent EGM in July, 2014, the
Board announced that the Company will cease making new investments,
realise the portfolio and return proceeds to investors. The
Investment Manager will continue to actively manage our existing
investments to improve performance and seek the right exit
opportunities to maximize the Company's NAV.
The Investment Manager anticipates that the majority of the
assets will be realised within two years from July 2014, with the
realisation of the Company's remaining portfolio within three to
five years.
Project Malls
In August 2009, the Company acquired a 30% stake in Project
Malls for US$12.5 million. At that time, Project Malls consisted of
a number of minority stakes in shopping malls across China. The
Investment Manager consolidated these minority stakes into 100%
ownership of 16 different shopping malls. The Company's 30% stake
in the resulting 16 mall portfolio was subsequently sold for
US$58.6 million, or 4.7 times the entire initial investment. As
part of the original transaction, the Company also acquired an
interest in Walmart China and a minority stake in a large parcel of
residential land near the Shanghai Disneyland development, which is
scheduled to open in late 2015. These two holdings were retained
and are currently valued at US$85.6 million.
Walmart China
Walmart China is a minority stake in one of Walmart's Chinese
joint venture partners that controls approximately 25% of all
Walmart stores in China. The Company's partner in both Project
Malls and Walmart China is the state-owned enterprise, China
Resources.
Shanghai Land
This refers to an undeveloped plot of land close to Shanghai
Disneyland, which is scheduled to open in late 2015.
The owners are close to completing terms for restructuring the
ownership of the land titles and once complete, the Investment
Manager plans to partner with a leading local developer to develop
the land.
Project Diplomat
Project Diplomat is a luxury residential block in the Second
Embassy district of Beijing. Built by an international developer,
it has been operated as serviced apartments since 2002. The Company
acquired a 40% equity stake for US$33 million in November 2009,
which is currently valued at US$94.7 million. Occupancy rates are
high at 94% (February 2014), which together with rising rents has
resulted in an increase in operating income.
Project Auspice
Project Auspice is a private equity investment in one of the
largest unlisted property developers in China, with over US$2
billion in annual net profits. The Company acquired a 0.5% stake
for US$24 million in August 2009.
Unlike many of its listed residential-focused peers, the
developer derives around 60% of its revenues from commercial real
estate development. This focus has resulted in more stable revenues
and profits which have grown by 64% and 44% per annum,
respectively, over the past five years.
The position is valued at a 20% discount to its listed
comparable peers. These fell sharply in the first half of this
year, and as a result the valuation of Project Auspice fell 27.5%
in Q2 2014 to US$55.4 million. This values Auspice at approximately
6.1 times last year's earnings.
Project Crystal
Project Crystal is a Singapore listed closed-end Chinese
property fund. The Company invested in Crystal in 2012 at a 75%
discount to published NAV when it was going through a bankruptcy
and transfer of management. Crystal is currently trading at a 57%
discount.
Crystal owns three buildings in Shanghai, the largest of which
is currently being renovated and expanded. Once this renovation is
complete (expected Q1 2015), the Investment Manager believes cash
flows should improve, enabling Crystal to distribute the resulting
income. This should lead to a better rating / narrower discount on
Crystal.
Beijing Olympic Park
The Company has a residual holding in three Beijing residential
units on which the Company is working towards receiving the
titles.
Conclusion
With China's economy developing at a sustainable and healthy
pace, the property sector is expected to make a soft landing. The
Investment Manager is primarily focused on realizing the maximum
value of the investments held by the Company.
UNAUDITED CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 30 JUNE 2014
As at As at
30 June 31 December
Note 2014 2013
US$ US$
Assets
Investments, at fair value (Cost:
US$68,005,431;
31 December 2013: US$68,005,431) 3,4 257,623,658 306,031,010
Other receivables 731,238 479,149
Cash and bank balances 99,147,200 101,498,401
-------------------- --------------------
Total assets 357,502,096 408,008,560
------------------- -------------------
Liabilities
Provision for taxation 6 44,764,080 54,820,034
Amounts due to PACL II Limited 9(a) 12,773,321 22,702,274
Performance fee payable 7 - 6,367,049
Provision for investment agency fees 8 4,293,990 4,293,990
Advance receipt 1,237 -
Accrued expenses and other payables 35,908 184,194
-------------------- --------------------
Total liabilities 61,868,536 88,367,541
------------------- -------------------
Net assets 295,633,560 319,641,019
Analysis of net assets
Share capital 5 1,898,339 1,898,339
Share premium 5 187,935,554 187,935,554
Capital surplus 5 1,816,917 1,816,917
Tendered shares 5 (67,755,407) (69,347,170)
Retained earnings 171,738,157 197,337,379
-------------------- --------------------
Net assets (equivalent to US$2.2657
per share based on 130,484,379 outstanding
shares; 2013: US$2.4628 per share
based on 129,787,948 outstanding
shares) 295,633,560 319,641,019
Approved by the Board of Directors on 26 September 2014
The accompanying notes are an integral part of these
consolidated financial statements.
UNAUDITED CONSOLIDATED CONDENSED SCHEDULE OF INVESTMENTS
AS AT 30 JUNE 2014
AS AT 30 JUNE 2014 AS AT 31 DECEMBER 2013
% of % of
effective effective
% of equity % of equity
Investments - net interest net interest Cost/
Assets assets held Cost/principal Fair value assets held principal Fair value
US$ US$ US$ US$
LISTED STOCKS
Real Estate,
China 5.27% 6.32%
Forterra Trust 5.27% N/A 13,755,556 15,565,779 6.32% N/A 13,755,556 20,208,512
UNLISTED EQUITY
Real Estate,
China 79.75% 81.66%
Beijing Hines
Jing
Sheng Real
Estate
Development Co
Ltd
- 110,324,259
shares
and a
shareholder
loan of
US$16,479,960(1) 32.04% 40.00% 16,480,000 94,726,469 29.55% 40.00% 16,480,000 94,457,603
SCP Management Co
Ltd
- Share capital
of
RMB 6,000,000 28.96% 30.00% 5,548,341 85,621,700 28.19% 30.00% 5,548,341 90,091,300
Dalian Wanda
Commercial
Real Estate Co
Ltd
- 18,000,000
shares 18.75% 0.48% 22,414,500 55,438,175 23.92% 0.48% 22,414,500 76,465,089
LOANS RECEIVABLE
Real Estate,
China 2.12% 2.26%
Others(2) 2.12% N/A 9,807,034 6,271,535 2.26% N/A 9,807,034 7,235,644
OTHER DEBT
INSTRUMENTS
Real Estate,
China 0% 5.29%
Times Property
Holdings
Co. Ltd 0% N/A - - 5.29% N/A - 16,901,903
(Note 13)
DERIVATIVES
Aviation, China 0% 0.21%
Others 0% N/A - - 0.21% N/A - 670,959
---------------- ---------------- ---------------- ----------------
68,005,431 257,623,658 68,005,431 306,031,010
(1) Certain equity investments of the Fund were in the form of
share capital and shareholder's loan.
(2) The principal above represents the principal calculated
according to the Fund's accounting policy, which is different from
the loan principal calculated in accordance with the legal
agreements whereby the cost is paid prior to the repayment of
interest component.
The accompanying notes are an integral part of these
consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED 30 JUNE 2014
Period from Period from
1 January 1 January
to to
Note 30 June 2014 30 June 2013
US$ US$
Income
Dividend income 1,565,141 1,548,032
Interest income 396,401 188,321
------------------ ------------------
Total income 1,961,542 1,736,353
----------------- -----------------
Expenses
Tax expense 6 6,656,283 708,938
Performance fees 7 - (1,793,893)
Management fees 7 (3,036,472) (2,981,720)
Investment agency fees 8 - -
Legal and professional fees (177,065) (431,502)
Other expenses (475,186) (376,437)
------------------ ------------------
Total expenses 2,967,560 (4,874,614)
----------------- -----------------
Net investment gain/(loss) 4,929,102 (3,138,261)
----------------- -----------------
Realized and unrealized loss from
investments and foreign currency
Net realized gain from investments
and foreign currency transactions 16,901,903 -
Net change in unrealized (loss)/gain
from investments and translation of
assets and liabilities in foreign
currencies 4 (48,902,967) 11,838,333
Net decrease/(increase) in payable
to PACL II Limited from loss/(gain)
attributable to PACL II Limited 9(a) 1,472,740 (1,524,501)
------------------ ------------------
Net realized and unrealized (loss)/gain
from investments and foreign currency (30,528,324) 10,313,832
----------------- -----------------
Net (decrease)/increase in net assets
from operations (25,599,222) 7,175,571
The accompanying notes are an integral part of these
consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED 30 JUNE 2014
Share capital
and share Capital Tendered Retained
Note premium surplus shares earnings Total
US$ US$ US$ US$ US$
At 1 January
2013 189,833,893 1,816,917 (65,785,456) 171,869,181 297,734,535
Repurchase of
tendered
shares 5 - - (4,778,501) - (4,778,501)
Reissue of
tendered
shares 5 - - 1,216,787 - 1,216,787
Net increase in
net assets
from
operations - - - 25,468,198 25,468,198
---------------- -------------- ---------------- ---------------- ----------------
At 31 December
2013
and 1 January
2014 189,833,893 1,816,917 (69,347,170) 197,337,379 319,641,019
Reissue of
tendered
shares 5 - - 1,591,763 - 1,591,763
Net decrease in
net assets
from
operations - - - (25,599,222) (25,599,222)
---------------- ---------------- ---------------- ---------------- ----------------
At 30 June 2014 189,833,893 1,816,917 (67,755,407) 171,738,157 295,633,560
The accompanying notes are an integral part of these
consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 JUNE 2014
Period from Period from
1 January 1 January
to to
30 June 31 December
Note 2014 2013
US$ US$
Net (decrease)/increase in net assets
from operations (25,599,222) 25,468,198
Adjustments to reconcile net decrease
in net assets from operations to net
cash used in operating activities
Disposal of investments 16,901,903 71,541,321
Net realized and unrealized loss/(gain)
from investments 31,505,449 (44,832,627)
Net (decrease)/increase in payable
from (loss)/gain attributable to PACL
II Limited (1,472,740) 6,803,006
(Increase)/decrease in other receivables (252,089) 55,088
Decrease in amounts due to PACL II
Limited (8,456,213) (19,429,156)
(Decrease)/increase in performance 5,
fees payable 7 (4,775,286) 2,716,687
(Decrease)/increase in provision for
taxation (10,055,954) 658,767
Increase in provision for investment
agency fees - 244,552
Decrease in accrued expenses and other
payables (148,286) (205,588)
Increase in advanced receipt 1,237 -
-------------------- --------------------
Net cash (used in)/generated from operating
activities (2,351,201) 43,020,248
------------------ ------------------
Cash flows from financing activities
Repurchase of shares 5 - (4,778,501)
-------------------- --------------------
Net cash used in financing activities - (4,778,501)
------------------ ------------------
Net increase/(decrease) in cash and
cash equivalents (2,351,201) 38,241,747
Beginning balance 101,498,401 63,256,654
-------------------- --------------------
Ending balance, representing cash and
bank balances 99,147,200 101,498,401
Supplementary information to statement of cash flows
Interest income received 396,401 675,231
Dividend income received 1,565,141 3,301,007
Non-cash transaction:
Part of the performance fee payable to the Investment Manager
was settled by the Company's shares.
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2014
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 5.
The principal investment objective of the Company and its
subsidiaries (collectively, the "Fund") 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 Fund's investment activities are managed by Pacific Alliance
Real Estate Limited ("PARE" or the "Investment Manager"). The Fund
appointed Sanne Fiduciary Services Limited to act as the custodian
of certain assets of the Fund, and as the administrator and
registrar pursuant to the Administration Custodian and Registrar
Agreement.
The consolidated financial statements were approved by the Board
of Directors on 26 September 2014.
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 Fund applies the provisions of
Financial Accounting Standards Board ("FASB") Accounting Standard
Codification ("ASC") 946-10, Financial Services - Investment
Companies (the "Guide"). Such policies are consistently followed by
the Fund in the preparation of its consolidated financial
statements.
(a) Principles of consolidation
These consolidated financial statements include the financial
statements of 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 ("SPVs") to hold and transact in certain investments. The
Fund's policy is to consolidate, as appropriate, those SPVs 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) 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 2014 and the reported amounts of income
and expenses for the year 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(l).
(c) Investments
The Fund holds both listed securities and unlisted securities,
which by nature 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.
Investments in securities traded on a recognized exchange are
value at the traded price on the exchange in which such security
was traded on the last business day of the period.
The fair values 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. Judgement is used to adjust
valuation 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.
The Fund's secured loan transactions are recorded at fair value,
which is determined based on discounted cash flow analyses. Those
analyses consider the position size, liquidity, current financial
condition of the borrowers, the third-party financing environment,
reinvestment rates, recovery lags, discount rates, and default
forecasts.
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.
The Fund buys exchange-traded and OTC put and call options. The
buyer of an option has the right to purchase (in the case of a call
option) or sell (in the case of a put option) a specified quantity
of a specific financial instrument at a specified price prior to or
on a specified expiration date. The maximum loss exposure of a buy
put and call option is the premium paid by the buyer.
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 is disclosed in Note 4.
(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 the Fund
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$"), which is also the functional currency.
Assets and liabilities, both monetary and non-monetary, denominated
in foreign currencies are translated into US$ by using prevailing
exchange rates as at financial reporting date, 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 in the
consolidated statement of operations.
(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 described
in Note 6.
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 is made as if the investments are liquidated and realized
at value stated as the year-end.
(l) 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 recognizes 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 condensed 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.
Please refer to 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 deposits, 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.
(c) Currency risk
The Fund has assets and liabilities denominated in currencies
other than the US$, the functional currency. The Fund is therefore
exposed to currency risk as the value of assets and liabilities
denominated in other currencies may fluctuate due to changes in
exchange rates. The Fund has the following net currency
exposures:
As at As at
30 June 2014 31 December 2013
US$ US$
Renminbi 212,251,388 227,910,544
United States Dollars 83,450,760 91,799,050
Pounds Sterling (11,686) (11,686)
Hong Kong Dollars (56,902) (56,889)
-------------------- --------------------
295,633,560 319,641,019
(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 2014, investments in loans receivable and bonds of
US$6,271,535 (31 December 2013: US$24,137,547) were borrowed/issued
by counterparties which are currently unrated by any rating agency.
The Fund managed credit risk through reviewing loan repayment and
collateral values of loans on an on-going basis.
(e) Liquidity risk
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 4 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 are closely monitored by the Investment Manager.
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. Please refer its Note 3(c) above for
the Fund's exposure to Renminbi.
The Fund has the ability to borrow in the short term but 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. The Fund has no outstanding
borrowings as at 30 June 2014.
The Company is closed-end and, thus, not exposed to redemptions
of shares by its shareholders.
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.
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.
Level 2
Investments in illiquid listed stocks 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, bonds, derivatives 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 following table summarizes quantitative information about
the valuation techniques and the significant unobservable inputs
used for Level 3 investments:
2014
Investment assets Fair value Valuation technique(s)
US$
Unlisted Equity 94,726,469 Income approach (1)
141,059,875 Market comparables (2)
Loans receivable 6,271,535 Discounted Cash Flow(3)
----------------
242,057,879
2013
Investment assets Fair value Valuation technique(s)
US$
Unlisted Equity 94,457,603 Income approach (1)
166,556,389 Market comparables (2)
Loans receivable 7,235,644 Discounted Cash Flow (3)
Other debt instruments 16,901,903 Expected proceeds (4)
Derivatives 670,959 Option pricing model (5)
----------------
285,822,498
Note (1) The significant unobservable inputs used in the fair
value measurement included the average monthly rent and
capitalization rate of the underlying properties.
Note (2) Market comparables included average sales price of
properties and land as well as P/E multiples of comparable
companies or recent transaction of investee.
Note (3) The valuation is determined by considering the value of
the loan's collateral, which is real estate property.
Note (4) The valuation of other debt instruments is based on the
expected proceeds as at 31 December 2013, which was subsequently
settled on 6 January 2014.
Note (5) The significant unobservable inputs used in the option
pricing model include the volatility of the underlying asset of the
option.
The following table summarizes the fair value of all instruments
within the fair value hierarchy:
Level 1 Level 2 Level 3 Total
US$ US$ US$ US$
As at 30 June 2014
Investments - equity 15,565,779 - 235,786,344 251,352,123
Investments - loans
receivable - - 6,271,535 6,271,535
------------------ ------------------ -------------------- --------------------
15,565,779 - 242,057,879 257,623,658
As at 31 December
2013
Investments - equity 20,208,512 - 261,013,992 281,222,504
Investments - other
debt instruments - - 16,901,903 16,901,903
Investments - loans
receivable - - 7,235,644 7,235,644
Investments - derivatives - - 670,959 670,959
------------------ ------------------ -------------------- --------------------
20,208,512 - 285,822,498 306,031,010
As at 30 June 2014, investments of US$251,352,123 (2013:
US$298,124,407) were held directly by the Fund and investments of
US$6,271,535 (2013: US$7,906,603) were held through jointly owned
entities with Pacific Alliance Asia Opportunity Fund L.P.
The following table summarizes the movements in fair value of
the Fund's Level 3 instruments.
Investments Investments Investments
- unlisted - loans - other Investments
equity receivable debt instruments - derivatives Total
US$ US$ US$ US$ US$
At 1 January
2013 272,464,724 7,432,344 38,541,312 146,665 318,585,045
Proceeds
from sale
of
investments (36,961,184) - (34,580,137) - (71,541,321)
Net realized
gain 9,836,184 - 4,680,092 - 14,516,276
Net change
in
unrealized
gain/(loss) 15,674,268 (196,700) 8,260,636 524,294 24,262,498
-------------------- ------------------ ------------------ ------------------ ------------------
At 31
December
2013 and 1
January
2014 261,013,992 7,235,644 16,901,903 670,959 285,822,498
Proceeds
from sale
of
investments - - (16,901,903) - (16,901,903)
Net realized
gain - - 16,901,903 - 16,901,903
Net change
in
unrealized
loss (25,227,648) (964,109) (16,901,903) (670,959) (43,764,619)
-------------------- ------------------ ------------------ ------------------ ------------------
At 30 June
2014 235,786,344 6,271,535 - - 242,057,879
Total net change in unrealized gain on Level 3 instruments as
shown above are presented in the consolidated statement of
operations.
The Fund had a secured loan receivable carried at US$6,271,535
(2013: US$7,235,644). The borrower will transfer the title deed of
three residential units to the investor consortium as
payment-in-kind, in which the Fund is entitled to 30% of the value
of these three residential units.
For the period ended 30 June 2014, net realized gain/ (loss) and
change in unrealized gain/(loss) recognized for the loan receivable
amounted to US$ Nil (2013: US$ Nil) and US$(964,109) (2013:
US$(196,700)), respectively.
During the period ended 30 June 2014, the Fund received
US$16,901,903 from the realization of a debt instrument. Net
realized gain/ (loss) and change in unrealized gain/ (loss) of US$
16,901,903 and US$ (16,901,903) amounted respectively.
The Fund held a call option that was not exercised before the
expired date due to the share price of investment is close to
exercise price. During the period ended 30 June 2014, the Fund's
recognized change in unrealized gain/(loss) of the option amounted
to US$(670,959) (2013: US$524,294)
5. Share capital, share premium, capital surplus and tendered
shares
Number of
shares Share Share Capital Tendered
outstanding capital premium surplus shares Total
US$ US$ US$ US$ US$
As at 1
January
2013 132,080,573 1,898,339 187,935,554 1,816,917 (65,785,456) 125,865,354
Re-purchase
of
tendered
shares (2,823,139) (4,778,501) (4,778,501)
Re-issue of
tendered
shares 530,514 - - - 1,216,787 1,216,787
------------------ -------------- ------------------ -------------- ------------------ ------------------
As at 31
December
2013 and 1
January
2014 129,787,948 1,898,339 187,935,554 1,816,917 (69,347,170) 122,303,640
Re-purchase
of
tendered
shares - - -
Re-issue of
tendered
shares 696,431 - - - 1,591,763 1,591,763
------------------ -------------- ------------------ -------------- ------------------ ------------------
As at 30
June
2014 130,484,379 1,898,339 187,935,554 1,816,917 (67,755,407) 123,895,403
As at 30 June 2014, the total number of authorized ordinary
shares was 10,000,000,000 (2013: 10,000,000,000) with par value of
US$0.01 (2013: US$0.01) per share. The Company had 189,833,893
(2013: 189,833,893) ordinary shares in issue, of which 59,349,514
(2013: 60,045,945) were held as tendered shares.
Movement of tendered shares is as follows:
Number of
shares
repurchased/ Repurchase/
(reissued) reissue price Total
US$ US$
At 1 January 2013 57,753,320 65,785,456
Repurchased in May 2013 1,282,307 1.6900 2,167,099
Reissued in May 2013 (530,514) 2.2936 (1,216,787)
Repurchased in October 2013 1,540,832 1.6948 2,611,402
------------------ ------------------
At 31 December 2013 and
1 January 2014 60,045,945 69,347,170
Reissued in May 2014 (Note
7) (696,431) 2.2856 (1,591,763)
------------------ ------------------
At 30 June 2014 59,349,514 67,755,407
In May 2014, the Company reissued 696,431 tendered shares at US$
2.2856 per share (net asset value per share as at 30 April 2014) to
a wholly owned subsidiary of the Investment Manager to settle its
obligation in respect of the share portion of the 2013 performance
fees. See Note 7 below for details.
6. 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 CIT 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 Investment Manager has assessed that the Fund and its
offshore SPVs are not TREs in China and do not have any
establishment or place of business 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
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 an 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 2014, the Investment Manager has analyzed the open
tax years of all jurisdictions subject to tax examination and had
the provision for current tax, deferred tax and uncertain tax
amounted to US$Nil (2013: US$1,992,245), US$37,828,100 (2013:
US$45,918,700) and US$6,935,980(2013: US$6,909,089) respectively.
The Investment Manager has 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 consolidated financial statements. 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 2014 will not be payable and may be
released. The Investment Manager is regularly monitoring the
position.
The Investment Manager has reviewed the structure of the Fund's
investment portfolio and considered the Fund's exposure to
countries in which it invests to be 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 in the Cayman Islands.
7. 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 2014, total management fees amounted to
US$3,036,472 (2013: US$6,126,735) payable amounted to US$ Nil
(2013: US$ Nil).
The Investment Manager is also entitled to receive performance
fees from the Fund in the event that the year-end NAV is greater
than the higher of (a) the year-end NAV for the last year in which
a performance fee was payable ("High Water Mark"); and (b) the NAV
on Admission increased by a non-compound annual hurdle rate of 8%
("Hurdle").
The performance fees 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 a non-compound annual rate of 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 2014, total performance fees
amounted to US$Nil (2013: US$6,367,049). As at 30 June 2014,
performance fees payable amounted to US$Nil (2013:
US$6,367,049).
Under the Investment Management Agreement, the performance fees
earned by the Investment Manager shall be paid 75% in cash and 25%
in the Company's ordinary shares ("share portion"). The Company may
elect to meet its share obligation either by issuing new shares at
NAV or purchasing the equivalent number of shares in the
market.
During the period ended 30 June 2014, the Investment Manager
agreed to receive 696,431 tendered shares valued at US$ 2.2856 per
share, the Fund's NAV per share as at 30 April 2014, from the Fund
to settle its obligation in respect of the share portion of the
2013 performance fees of US$1,591,763.
During the year ended 31 December 2013, the Investment Manager
agreed to receive 530,514 tendered shares at US$ 2.2936 per share,
the Fund's NAV per share as at 30 April 2013, from the Fund to
settle its obligation in respect of the share portion of the 2012
performance fees of US$1,216,787.
8. Investment agency fees
During the period ended 31 December 2011, to facilitate the
disposal of Project Malls, the Fund entered into a consulting
agreement with an unrelated third party (the "Consultant"). Under
the agreement, the Fund is obligated to pay an investment agency
fee to the Consultant based on a percentage of the net realized
gain of the investment earned by the Fund upon realization.
For the period ended 30 June 2014, investment agency fee of
US$Nil (2013: US$244,552) was incurred based on the realized and
unrealized gain on the investment net of certain expenses and tax
attributable to the investment.
9. Related party transactions
Apart from the related party transactions disclosed in Note 7,
the Fund also 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 3 years
after the date on which its ordinary shares were first issued. On 5
January 2012, the duration of PACL II was extended by 1 year to 2
March 2013 upon the written election by the Investment Manager. By
EGM held on 28 February 2013, the duration of PACL II was further
extended by 2 years to 4 March 2015.
As part of this restructuring, the Company repurchased
180,166,107 shares at a tender price of US$1.01 per share in
exchange for holders of these shares receiving the same number of
shares in PACL II.
Under the terms of the tender offer, PACL II is entitled to
receive 50.33% of the proceeds from the Tender Offer Portfolio,
which reflects a 5% discount of its proportionate share of the
Tender Offer Portfolio. As such, the amount due to PACL II is
recorded as a payable by the Fund, adjusted at each period end
based on the movement in the fair value of the underlying assets
and the income and expense attributable to the Tender Offer
Portfolio. The amount is unsecured, non-interest bearing. The
following table summarizes the movements in payable to PACL II.
2014 2013
US$ US$
At 1 January 22,702,274 35,328,424
Distributions to PACL II (8,456,213) (19,429,156)
Net (decrease)/increase in payable from
(loss)/gain attributable to PACL II (1,472,740) 6,803,006
------------------ --------------------
At 30 June / 31 December 12,773,321 22,702,274
(b) Directors' remuneration
The Company pays each of its directors an annual fee of
US$30,000 (2013: US$30,000). If a director is a member of the
Valuation Committee or Audit Committee, the director also receives
an additional annual fee of US$10,000, and the Chairman of either
Committee receives an additional annual fee of US$5,000. During the
period 30 June 2014, Jon-Paul Toppino agreed to waive his
directors' fees and committee fees.
(c) Share capital held by funds managed by fellow subsidiaries
of the Investment Manager
During the period ended 30 June 2014, Pacific Alliance Asia
Opportunity Fund L.P. ("PAX LP"), an open-end fund organized in the
Cayman Islands, purchased Nil (2013: 1,678,634) ordinary shares of
the Company. As at 30 June 2014, PAX LP held 10,285,919
(2013:10,285,919) shares of the Company, representing 7.9% (2013:
7.9%) of total outstanding shares of the Company.
During the period ended 30 June 2014, Pacific Alliance Asia
Special Situations Fund L.P. ("PASS"), a close-end fund
incorporated in the Cayman Islands purchased Nil (2013: Nil) and
sold 6,879,629 (2013: 300,000) ordinary shares of the Company. As
at 30 June 2014, PASS held Nil (2013: 6,879,629) shares of the
Company, representing 0.0% (2013: 5.3%) of total outstanding shares
of the Company.
PAX LP and PASS are managed by fellow subsidiaries of the
Investment Manager.
10. Financial highlights
Net asset value per share at the end of the period is as
follows:
2014 2013
US$ US$
Per share data (for a share outstanding
throughout the period)
Net asset value at 1 January 2.4628 2.2542
Net investment gain/(loss) 0.0378 (0.0239)
Net realized and unrealized (loss)/gain
from investments (0.2349) 0.0842
-------------- --------------
Net asset value at 30 June 2.2657 2.3145
The following represents the ratios to average net assets and
other supplemental information:
From 1 January From 1 January
to to
30 June 2014 30 June 2013
Total return before performance
fees (1) (8.00%) 3.28%
Performance fees 0.00% 0.61%
Total return after performance
fees (1) (8.00%) 2.68%
Ratios to average net assets (2)
Total expenses 0.98% (1.62%)
Net investment gain/(loss) 1.63% (1.04%)
(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 2014, the average net
assets amounted to US$302,935,057 (from 1 January 2013 to 30 June
2013: US$300,589,159).
11. 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.
12. Subsequent events
Management has performed a subsequent events review from 1 July
2014 to 26 September, 2014, being the date that the financial
statementswere available to be issued.
On 15 August 2014, the Company purchased 11,363,636 shares at a
price of $1.76 per share for a total of US$20 million.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FQLFLZKFEBBE
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