TIDMPACL
RNS Number : 5674V
Pacific Alliance China Land Limited
19 April 2016
19 April 2016
Pacific Alliance China Land Limited
Full year results for the period ended 31 December 2015
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 full year audited results to 31 December
2015.
Highlights
-- Net asset value as at 31 December 2015 was US$234.80 million,
representing US$2.2601 per share, a 13.6% decrease from 30 June
2015 (US$2.6163 per share) and a 13.1% decrease year-on-year (31
December 2014; US$2.6017 per share).
-- The Company's share price closed at US$1.925, a 6.2% increase
year-on-year and a 14.8% discount to the audited NAV per share.
-- 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.
Company Developments
-- The Company repurchased US$25 million of PACL's ordinary
shares in 2015 pursuant to the Share Purchase programs announced in
February 2015.
Portfolio and Fund Developments
-- Project Malls: The Company has successfully completed the
listing and auction process with the Shanghai United Asset and
Equity Exchange in September 2015 to sell its minority stake in
Shanghai Land with gross cash sale proceeds of RMB105 million. The
Company also completed the listing and auction process for the
Walmart shares, with gross cash proceeds of approximately RMB248
million.
-- Project Diplomat: The Company has successfully executed a
binding Sale and Purchase Agreement in December 2015 to sell its
40% stake in Project Diplomat. The Company is expected to receive
gross RMB cash proceeds equal to US$100.8 million in 2016.
Patrick Boot, Managing Partner, Pacific Alliance Real Estate
Limited commented that:
"Thanks to government stimulus measures, property sales and
prices improved across the board in the second half of 2015 despite
China recording its slowest GDP growth in six years. The company
successfully made progress in realizing the portfolios of Project
Malls and Project Diplomat and is on track to return the proceeds
to our investors. Looking forward to 2016, we believe that we will
continue to benefit from improving market sentiment in the China
property sector."
For further information please contact:
MANAGER: LEGAL COUNSEL:
Patrick Boot, Managing Partner Jon Lewis, General Counsel
Pacific Alliance Real Estate PAG
Limited T: (852) 2918 0088
T: (852) 2918 0088 jlewis@pagasia.com
pboot@pagasia.com
BROKER: NOMINATED ADVISER:
Andrew Davies Philip Secrett
Tom Fyson/Rob Johnson Grant Thornton UK LLP
Liberum Capital Limited T: (44) 20 7383 5100
T: (44) 20 3100 2000 Philip.J.Secrett@uk.gt.com
www.liberum.com
MEDIA RELATIONS:
Tim Morrison
PAG
T: (852) 3719 3375
tmorrison@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 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 managed by a member of
PAG, the Asian alternative investment fund management group. PAG is
one of the region's largest Asia-focused alternative investment
managers, with funds under management across private equity, real
estate and absolute return strategies. Founded in 2002, PAG
currently has US$15 billion in assets under management, with 380
staff across offices in Hong Kong, Shanghai, Tokyo, Beijing,
Sydney, Singapore and Seoul.
For more information about PAG, please visit:
www.pagasia.com
Chairperson's Statement
As of 31 December 2015, Pacific Alliance China Land Limited (the
"Company" or "PACL") reported a net asset value (NAV) of US$234.8
million or US$2.2601 per share. This represented a 13.1% decrease
on a per share basis year-on-year, and the Company's share price
increased 6.2% year on year.
China's 2015 full year GDP growth came in at 6.9%, slightly
under the official target of seven percent. This marked the
country's slowest rate of expansion since 2009, largely due to
slowing momentum in the manufacturing, investment and export
sectors. To stabilize the economy and boost growth, the Chinese
government implemented a series of accommodative monetary and
fiscal policies, as well as property stimulus measures. These
government efforts included cuts in bank lending rates and a
reduction in certain banks' deposit-reserve requirement ratios;
easier access to housing loans; reduction of minimum down-payment
requirements for both first- and second-time home buyers; loosening
restrictions for second home purchases; promoting the urbanization
of migrants and rural farmers; and switching to a two-child policy.
As a result, the second half of 2015 saw property sales and prices
improve across the country, particularly in tier-one and tier-two
cities. It is widely expected that further government monetary and
fiscal policy easing and more housing stimulus measures will be
seen in 2016. We believe that the property market should benefit
from these stimulus measures, making a gradual recovery and
hopefully achieving steady growth in 2016.
Thanks to improving market sentiment in the second half of 2015,
the Company successfully completed the listing and auction process
for the sale of the remaining assets of Project Malls (Shanghai
Land and Walmart shares) in Q4 2015. In addition, the Company also
successfully executed a binding Sale and Purchase Agreement for the
realization of its investment in Project Diplomat on 31 December
2015.
The Board of Directors would like to thank you for your
continued commitment and support in 2015. Our investment strategy
has delivered compound annual NAV growth of 10.61% since the
Company's inception in November 2007. As we continue to realize
investments and return proceeds to investors, we will remain
focused on maximizing value to shareholders.
Margaret Brooke
Chairperson
Investment Manager's Report
On 31 December 2015, the Company's share price closed at
US$1.925, a 6.2% increase year-on-year and a 14.8% discount to the
audited NAV per share. PACL's NAV and share price have both
outperformed major benchmark indices including the FTSE 350 Real
Estate Index and the FTSE AIM All-Share Index on a consistent basis
since inception.
31 December 2015 31 December 2014
US$ US$
Realized Gain
Investment income 4,356,789 23,159,474
Dividend income 7,473,706 1,571,644
Deposit interest 582,850 734,308
------------------ ------------------
12,413,345 25,465,426
Change in Unrealized Gain/(Losses)
Pre-IPO financing - (670,959)
Other real estate investments (40,906,895) (2,282,124)
Listed stock (17,758,509) 15,624,628
Bridge financing - (17,871,308)
Share of losses receivable from
PACL II 3,097,747 1,859,247
Foreign exchange (3,584,103) (1,955,372)
------------------ ------------------
(59,151,760) (5,295,888)
------------------ ------------------
(46,738,415) 20,169,538
Portfolio Summary
As at 31 December 2015, the Company held cash of US$56.3 million
and investments with a cost of approximately US$46.8 million and
fair value of US$222.9 million. The Company's portfolio is
diversified across four strategies including Unlisted Stock,
Platform Investment, Asset Acquisition and Derivatives.
Attributable
Fair value to PACL
Investments (gross) II Limited
and Cash US$ Type % of total Location ("PACL II")
US$
Project Diplomat 99,554,984 Asset Acquisition 35.65% China (Beijing) -
Project Malls 41,804,900 Platform investment 14.97% China -
Project Auspice 78,815,093 Unlisted Stock 28.23% China -
FX Hedging 2,710,066 Derivatives 0.97% -
Cash 56,337,382 Cash (1, 2) 20.18% 2,320,842
TOTAL 279,222,425 100.00% 2,320,842
Note
(1) The gross investment value includes an amount attributable
to the PACL II shareholders.
(2) Of the total cash of US$56.34 million, US$53 million of
which is held as RMB in PRC banks.
Realization and return of capital
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Following an affirmative vote at the EGM in July 2014, the Board
announced that the Company will cease making new investments,
realize the portfolio in an orderly manner and return proceeds to
investors.
Project Malls
In August 2009, the Company acquired a 30% stake in Project
Malls for US$12.5 million. At that time the core asset of Project
Malls was a shopping mall developer that owned minority stakes in a
portfolio of more than 60 shopping malls across China. The
Investment Manager helped consolidate 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 a
minority interest in Walmart China's retail joint venture business
("Walmart JV") and a minority stake in a large parcel of
residential land near the Shanghai Disneyland development
("Shanghai Land").
The Company has successfully completed the listing and auction
process with the Shanghai United Asset and Equity Exchange in
September 2015 to sell its minority stake in a large parcel of land
in Shanghai ("Project Malls - Shanghai Land") which is near to the
future Disneyland location. The Company has already received gross
cash sale proceeds of RMB105 million (equivalent to US$16.4
million). The realization proceeds of the Shanghai Land exit will
be repatriated and distributed to shareholders after the
realization of the Walmart Shares.
The Company also completed the listing and auction process for
the remaining asset of Project Malls ("Project Malls - Walmart
shares") and signed an agreement with Walmart China Holdings
through its JV partner, China Resources in November 2015. It is
expected to receive gross cash proceeds of approximately RMB248
million (equivalent to US$ 38.9 million). The sale proceeds will be
repatriated through a dividend distribution and return of share
capital, pending statutory audit and tax clearance which takes
approximately six to twelve months to be finalized.
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. Its
value at 31 December 2015 was US$99.55 million.
The Company has successfully executed a binding Sale and
Purchase Agreement in December 2015 for the realization of its
investment in Project Diplomat. The Company has agreed to sell its
40% in Project Diplomat, together with its co-investor, to a local
fund managed by CITIC Private Equity Fund Management Co., Ltd., one
of the top private equity firms in China. The Company is expected
to receive gross RMB cash proceeds equal to US$100.8 million in the
first quarter of 2016.
Project Auspice
At the time of investment, Project Auspice was a private equity
investment in Dalian Wanda Commercial Properties Ltd ("Wanda"), one
of the largest listed property developers in China. The developer
derives around 60% of its revenues from commercial real estate
development. This focus has resulted in more stable revenues and
profits which have grown by 35% and 18% per annum respectively over
the past five years.
Wanda has a plan to raise up to RMB 12 billion (equivalent USD
1.9 billion) within the year 2016 in an offering of shares in
China. According to a statement that Wanda made to the Hong Kong
Stock Exchange, Wanda expects to sell up to 250 million RMB
denominated A-shares, which would then be listed in Shanghai Stock
Exchange. This should provide an exit opportunity for PACL's
domestic shares in Wanda subject to certain lock-up provisions.
Project Beijing Olympic
The Company recorded a full write-down of Beijing Olympic in Q4
2015 after a third party valuer's determination that any recovery
from a title transfer of apartment units was highly unlikely due to
a lack of cooperation from the counterparty.
Conclusion
In 2016, we expect to see China's economy grow at a slower but
more sustainable pace. We also expect the property market to
continue to improve supported by favorable government policy. The
Investment Manager will focus on repatriating cash from its 2015
exits and look to make distributions as soon as possible. The
Investment Manager will also focus on making an optimal exit of its
last remaining asset Project Auspice (domestic shares of Dalian
Wanda).
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 31 DECEMBER 2015
Note 2015 2014
US$ US$
Assets
Investments, at fair value (Cost:
US$46,824,161; 2014: US$54,249,875) 3,4 220,174,977 286,080,394
Derivative contracts, at fair value 5 2,710,066 -
Amounts due from PACL II Limited 10(a) 242,923 -
Prepayment and other receivables 897,134 608,274
Cash and bank balances 56,337,382 79,253,082
-------------------- --------------------
Total assets 280,362,482 365,941,750
------------------- -------------------
Liabilities
Provision for taxation 7 43,136,160 59,147,076
Amounts due to PACL II Limited 10(a) - 6,145,323
Performance fee payable 8 - 1,016,628
Provision for investment agency fees 9 2,115,585 4,156,055
Accrued expenses and other payables 311,929 177,374
-------------------- --------------------
Total liabilities 45,563,674 70,642,456
------------------- -------------------
Net assets 234,798,808 295,299,294
Analysis of net assets
Share capital 6 1,038,874 1,898,339
Share premium 6 66,039,620 187,935,554
Capital surplus 6 1,816,917 1,816,917
Tendered shares 6 - (97,755,406)
Retained earnings 165,903,397 201,403,890
-------------------- --------------------
Net assets (equivalent to US$2.2601
per share based on 103,887,384 outstanding
shares; 2014: US$2.6017 per share
based on 113,502,766 outstanding
shares) 234,798,808 295,299,294
Approved by the Board of Directors
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED CONDENSED SCHEDULE OF INVESTMENTS
AS AT 31 DECEMBER 2015
2015 2014
% of % of
effective effective
% of equity % of equity
Investments - net interest Cost Fair net interest Cost
Assets assets held / principal value assets held / principal Fair value
US$ US$ US$ US$
UNLISTED EQUITY
Real Estate,
China 93.77% 94.80%
Beijing Hines
Jing Sheng Real
Estate Development
Co Ltd ("Project
Diplomat")
- 110,324,259
shares and a
shareholder loan
of US$16,479,960
(1) 42.40% 40.00% 16,480,000 99,554,984 32.16% 40.00% 16,480,000 94,967,379
SCP Management
Co Ltd ("Project
Malls")
- Share capital
of RMB 6,000,000 17.80% 30.00% 5,548,341 41,804,900 29.57% 30.00% 5,548,341 87,299,400
Dalian Wanda
Commercial Real
Estate Co Ltd
("Project Auspice")
- 18,000,000
domestic shares 33.57% 0.48% 22,414,500 78,815,093 33.07% 0.48% 22,414,500 97,667,856
LOANS RECEIVABLE
Real Estate,
China 0.00% 2.08%
Others (2) 0.00% - - 2.08% 9,807,034 6,145,759
DERIVATIVES
1.15% 0.00%
Others 1.15% 2,381,320 2,710,066 0.00% - -
------------ ---------- -------------- ------------
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46,824,161 222,885,043 54,249,875 286,080,394
Note
(1) Certain equity investments of the Fund were in the form of
share capital and shareholder's loan.
(2)The principal above represents the principal calculated
according to the Fund's accounting policy, which is different from
the loan principal calculated in accordance with the legal
agreements whereby the cost is paid prior to the repayment of
interest component.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED 31 DECEMBER 2015
Note 2015 2014
US$ US$
Income
Dividend income 7,473,706 1,571,644
Interest income 582,850 734,308
Other gains 45,927 -
------------------ ------------------
Total income 8,102,483 2,305,952
----------------- -----------------
Expenses
(Reversal of)/tax expense 7 15,112,533 (7,691,653)
Performance fees 8 - (1,016,628)
Management fees 8 (5,261,227) (5,851,236)
Investment agency fees reversal 9 2,040,470 137,935
Legal and professional fees (206,749) (335,940)
Other expenses (987,125) (1,345,505)
------------------ ------------------
Total expenses 10,697,902 (16,103,027)
----------------- -----------------
Net investment gain/(loss) 18,800,385 (13,797,075)
----------------- -----------------
Realized and unrealized (loss)/gain
from investments and foreign currency
Net realized gain from investments
and foreign currency transactions 4,356,789 23,159,474
Net change in unrealized loss from
investments and loss on translation
of assets and liabilities in foreign
currencies 4 (61,755,414) (7,155,135)
Net decrease in payable to PACL II
Limited from gain attributable to
PACL II Limited 10(a) 3,097,747 1,859,247
------------------ ------------------
Net realized and unrealized (loss)/gain
from investments and foreign currency (54,300,878) 17,863,586
----------------- -----------------
Net (decrease)/increase in net assets
from operations (35,500,493) 4,066,511
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED 31 DECEMBER 2015
Share capital
and share Capital Tendered Retained
Note premium surplus shares earnings Total
US$ US$ US$ US$ US$
At 1 January 2014 189,833,893 1,816,917 (69,347,170) 197,337,379 319,641,019
Repurchase of
tendered
shares 6 - - (29,999,998) - (29,999,998)
Reissue of
tendered
shares 6 - - 1,591,762 - 1,591,762
Net increase in
net assets from
operations - - - 4,066,511 4,066,511
---------------- -------------- ---------------- ---------------- ----------------
At 31 December
2014 and 1
January
2015 189,833,893 1,816,917 (97,755,406) 201,403,890 295,299,294
Repurchase of
tendered
shares 6 - - (25,208,223) - (25,208,223)
Reissue of
tendered
shares 6 - - 208,230 - 208,230
Cancellation of
tender shares 6 (122,755,399) - 122,755,399 - -
Net increase in
net assets from
operations - - - (35,500,493) (35,500,493)
---------------- -------------- ---------------- ---------------- ----------------
At 31 December
2015 67,078,494 1,816,917 - 165,903,397 234,798,808
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
Note 2015 2014
US$ US$
Net (decrease)/increase in net assets
from operations (35,500,493) 4,066,511
Adjustments to reconcile net change
in net assets from operations to
net cash generated from operating
activities
Purchase of investments (2,381,320) -
Disposal of investments 10,502,548 36,915,028
Net realized and unrealized loss/(gain)
from investments 55,074,123 (16,964,412)
Payable from loss attributable to
PACL II Limited (3,097,747) (1,859,247)
Change in prepayment and other receivables (288,860) (129,126)
Change in amounts due to PACL II
Limited (3,290,499) (14,697,704)
Change in performance fees payable 6, 8 (1,016,628) (3,758,658)
Change in provision for taxation (16,010,916) 4,327,042
Change in provision for investment
agency fees (2,040,470) (137,935)
Change in accrued expenses and other
payables 134,555 (6,820)
-------------------- --------------------
Net cash generated from operating
activities 2,084,293 7,754,679
------------------ ------------------
Cash flows from financing activities
Repurchase of shares 6 (24,999,993) (29,999,998)
-------------------- --------------------
Net cash used in financing activities (24,999,993) (29,999,998)
------------------ ------------------
Net decrease in cash and cash equivalents (22,915,700) (22,245,319)
Beginning balance 79,253,082 101,498,401
-------------------- --------------------
Ending balance, representing cash
and bank balances 56,337,382 79,253,082
Supplementary information to statement of cash flows
Interest income received 528,316 734,308
Dividend income received 7,473,706 1,571,644
Non-cash transaction:
Part of the performance fee payable to the Investment Manager
was settled by the Company's shares. Please refer to Note 6 and 8
for details.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
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 6.
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.
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The consolidated financial statements were approved by the Board
of Directors on 15 April 2016.
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"). The Fund is an investment company under
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 31 December 2015 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(k).
(c) Investments
The Fund may hold both listed securities and unlisted
securities, which by nature have limited marketability. The Fund
also engages in secured lending transactions.
(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. Judgment 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 the fair value 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 take 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.
Currency options are valued by the Investment Manager using
observable inputs, such as quotations received from the
counterparty, dealers or brokers, whenever available and considered
reliable.
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 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) 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.
(g) 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
year.
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.
(h) 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 7.
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.
(i) 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.
(j) Critical accounting estimates and assumptions
Estimates and judgments 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.
(k) Critical accounting estimates and assumptions
(Continued)
(i) Fair value of investments
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The fair value of unlisted or unquoted securities and loans
receivable is determined by using valuation techniques. Judgment 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 judgment 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 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, and loans receivable 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$, the functional currency. The Fund is therefore
exposed to currency risk as the value of assets and liabilities
denominated in other currencies may fluctuate due to changes in
exchange rates. The Fund has the following net currency
exposures:
2015 2014
US$ US$
Renminbi 186,236,562 188,827,996
United States Dollars 48,630,760 106,539,880
Pounds Sterling (11,686) (11,686)
Singapore Dollars 68 -
Hong Kong Dollars (56,896) (56,896)
-------------------- --------------------
234,798,808 295,299,294
The Investment Manager manages the Fund's currency exposure
through use of currency options.
(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
judgment 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 judgment.
As at 31 December 2015, investments in loans receivable and
bonds of US$Nil (2014: US$6,145,759) were borrowed/issued by
counterparties which are currently unrated by any rating
agency.
(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 31 December 2015 and 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).
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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:
2015
Significant
Investment unobservable
assets Fair value Valuation technique(s) inputs Inputs/range
US$
Unlisted Equity 141,359,884 Indicative offer N/A N/A
Last traded price
of H-shares listed
78,815,093 in Hong Kong Liquidity discount 25%
Loans receivable - Impairment Discount rate 100%
220,174,977
2014
Significant
Investment unobservable
assets Fair value Valuation technique(s) inputs Inputs/range
US$
Unlisted Equity 94,967,379 Income approach Average monthly RMB 213
(1) rent per sq.m.
Capitalization
rate 6%
87,299,400 Market comparables Land transaction RMB 12,840
(2) price per sq.m.
P/E multiple 13.8X
Marketability
discount 20% - 25%
Discounted
Loans receivable 6,145,759 cash flow (3) Discount rate 78.6%
--------------
188,412,538
Note
(1) The significant unobservable inputs used in the fair value
measurement included the average monthly rent and capitalization
rate of the underlying properties.
(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.
(3) The valuation is determined by considering the value of the
loan's collateral, which is real estate property. The significant
unobservable inputs used in the fair value measurement include
sales price per square meter of those real estate properties
directly or indirectly held by investees.
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 31 December 2015
Investments - equity - - 220,174,977 220,174,977
Investments - loans
receivable - - - -
Investments - derivatives - 2,710,066 - 2,710,066
---------------- ------------------ ------------------ ------------------
- 2,710,066 220,174,977 222,885,043
As at 31 December 2014
Investments - equity - 97,667,856 182,266,779 279,934,635
Investments - loans
receivable - - 6,145,759 6,145,759
---------------- ------------------ ------------------ ------------------
- 97,667,856 188,412,538 286,080,394
As at 31 December 2015, investments of US$222,885,043 (2014:
US$279,934,635) were held directly by the Fund and investments of
US$Nil (2014: US$6,145,759) were held through jointly owned
entities with Pacific Alliance Asia Opportunity Fund L.P. ("PAX
LP"), an open-end fund organized in the Cayman Islands managed by
fellow subsidiary of the Investment Manager.
The following table summarizes the movements in fair value of
the Fund's Level 3 instruments.
Investments Investments Investments
- unlisted - loans - other Investments
equity receivable debt instruments - derivatives Total
US$ US$ US$ US$ US$
At 1 January 2014 261,013,992 7,235,644 16,901,903 670,959 285,822,498
Investment
reclassification (76,465,089) - - - (76,465,089)
Proceeds from
sale
of investments - - (16,901,903) - (16,901,903)
Net realized gain - - 16,901,903 - 16,901,903
Net change in
unrealized
gain/loss (2,282,124) (1,089,885) (16,901,903) (670,959) (20,944,871)
-------------------- ------------------ ------------------ ------------------ --------------------
At 31 December
2014
and 1 January
2015 182,266,779 6,145,759 - - 188,412,538
Sale of
investments (10,442,185) (60,363) - - (10,502,548)
Net realized
gain/(loss) 10,442,185 (6,085,396) - - 4,356,789
Net change in
unrealized
gain/loss (40,906,895) - - - (40,906,895)
Transfer from
level
2 78,815,093 - - - 78,815,093
-------------------- ------------------ ------------------ ------------------ --------------------
At 31 December
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2015 220,174,977 - - - 220,174,977
Investments classified within Level 3 have significant
unobservable inputs. Level 2 instruments in 2014 included Project
Auspice.
As at 1 January 2014, the Fund's investment in Project Auspice
was classified within Level 3 of the fair value hierarchy. The
investment was reclassified from Level 3 to Level 2 of the fair
value hierarchy during the year ended 31 December 2014 following
the listing of the investee's common shares in Hong Kong. Following
the listing, the fair value of this investment, which is in the
unlisted domestic shares of the investee, was assessed by the Fund
based on a marketability discount applied to the price of
investee's common share listed in Hong Kong. The price of
investee's common share listed in Hong Kong represents an
observable input.
The marketability discount applied by the Fund within the
valuation of this investment is considered to be an unobservable
input, as disclosed in Note 4. Although there are no changes to the
terms of the investment in Project Auspice, the Fund has reassessed
the classification of this investment and concluded that it should
be classified within Level 3 given the significance of this
unobservable input. As such, during the year ended 31 December
2015, Project Auspice has been reclassified from Level 2 to Level
3. For the purpose of preparing the above reconciliation, these
transfers are deemed to have occurred at the end of the reporting
period.
Apart from as noted above in relation to Project Auspice there
were no transfers between the different levels within the fair
value hierarchy during the years ended 31 December 2015 and
2014.
Total net change in unrealized gain on Level 3 instruments as
shown above are presented in the consolidated statement of
operations.
Net change in unrealized gains/(losses) on
existing investments as at 31 December, 2015 (40,906,895)
Net change in unrealized gains/(losses) on
existing investments as at 31 December, 2014 (3,372,009)
As at 31 December 2015, the Fund had received part of the sales
proceeds from its investment projects and had realized a net gain
of US$10,442,185. The net change in unrealized loss on unlisted
equity investments amounted to US$40,906,895 (2014:
US$2,282,124).
The Fund wrote down the remaining value of the secured loan
receivable to US$Nil (2014: US$6,145,759) due to the failure of the
transfer of the title for three luxury apartments. There have been
no other significant developments of the Fund's investment as of 31
December 2015.
5. Derivative instruments
The Fund transacts in derivative instruments including options
with each instrument's primary risk exposure being equity, credit
and foreign exchange. The Fund enters into currency options to
hedge itself against foreign currency exchange rate risk for its
foreign currency denominated assets and liabilities due to adverse
foreign currency fluctuations against the US dollar.
The fair value of these derivative instruments is included
within the investments line item with changes in fair value
reflected as net realized gains/(losses) from investments or net
change in unrealized gains/(losses) from investments within the
consolidated statement of operations. The Fund does not designate
derivatives as hedging instruments under FASB ASC 815.
The Partnership held Level 2 derivative contracts as
follows:
Contractual/
Fair value notional amounts
As at 31 December 2015 Assets Liabilities Assets Liabilities
US$ US$ US$ US$
Currency options 2,710,066 - 125,600,000 -
-------------------- -------------------- -------------------- --------------------
2,710,066 - 125,600,000 -
The following table indicates the gains and losses on
derivatives, by contract type, as included in the consolidated
statement of operations.
Period ended 31 December 2015
Purchased Sold Gains/
notional notional (losses)
US$ US$ US$
Currency options 125,600,000 - 328,746
-------------------- -------------------- ------------------
125,600,000 - 328,746
The above gains/losses on derivatives are included in
realized/change in unrealized gains from investments in the
consolidated statement of operations.
6. 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
2014 129,787,948 1,898,339 187,935,554 1,816,917 (69,347,170) 122,303,640
Re-purchase
of tendered
shares (16,981,613) - - - (29,999,998) (29,999,998)
Re-issue of
tendered
shares 696,431 - - - 1,591,762 1,591,762
------------------ -------------- ------------------ -------------- ------------------ ------------------
As at 31
December
2014 and 1
January 2015 113,502,766 1,898,339 187,935,554 1,816,917 (97,755,406) 93,895,404
Re-purchase
of tendered
shares (9,711,785) - - - (25,208,223) (25,208,223)
Cancellation
of tender
shares - (859,465) (121,895,934) - 122,755,399 -
Re-issue of
tendered
shares 96,403 - - - 208,230 208,230
------------------ -------------- ------------------ -------------- ------------------ ------------------
As at 31
December
2015 103,887,384 1,038,874 66,039,620 1,816,917 - 68,895,411
As at 31 December 2015, the total number of authorized ordinary
shares was 10,000,000,000 (2014: 10,000,000,000) with par value of
US$0.01 (2014: US$0.01) per share. The Company had 103,887,384
(2014: 189,833,893) ordinary shares, 85,946,509 of tendered shares
were cancelled in February 2015.
Movement of tendered shares is as follows:
Number of
shares
repurchased/ Repurchase/
(reissued) reissue price Total
US$ US$
At 1 January 2014 60,045,945 69,347,170
Reissued in May 2014 (Note
8) (696,431) 2.2856 (1,591,762)
Repurchased in August 2014 11,363,636 1.7600 19,999,999
Repurchased in November
2014 5,617,977 1.7800 9,999,999
------------------ ------------------
At 31 December 2014 and
1 January 2015 76,331,127 97,755,406
Repurchased in February
2015 9,615,382 2.6000 24,999,993
Cancelled in February 2015 (85,946,509) - -
Repurchased in May 2015
(Note 8) 96,403 2.1600 208,230
Reissued in May 2015 (Note
8) (96,403) 2.1600 (208,230)
------------------ ------------------
At 31 December 2015 - -
In February 2015 the Company repurchased 9,615,382 of the
Company's ordinary shares and cancelled the 85,946,509 ordinary
shares of the Company's capital that were held by its wholly-owned
subsidiary, PACL Trading Limited, to replicate a treasury share
facility. As the Company is now in realization mode, there was no
longer a need for a treasury share facility and as such, the
Treasury shares have been cancelled for no consideration.
7. Taxation
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The Fund adopted the authoritative guidance contained in FASB
ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which require 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 31 December 2015, the Investment Manager has analyzed the
open tax years of all jurisdictions subject to tax examination and
the provision for deferred tax and uncertain tax amounted to
US$33,838,744 (2014: US$52,187,005) and US$9,297,416 (2014:
US$6,960,071) respectively. The Investment Manager has reviewed the
structure of the investment portfolio and assessed the potential
withholding tax implications and considered adequate provision for
China tax has been made on the Fund's consolidated financial
statements
However, given the uncertainty of China tax, the Investment
Manager would like to highlight that there is a possibility that
some or all of the tax provided as at 31 December 2015 will not be
payable and may be released. The Investment Manager is regularly
monitoring the position.
The Investment Manager has reviewed the structure of the Fund's
investment portfolio and considered the Fund's exposure to
countries in which it invests to be properly reflected in the
Fund's consolidated financial statements.
Under current Cayman Islands legislation applicable to an
exempted company, there is no income tax, capital gains or
withholding tax, estate duty, or inheritance tax payable by the
Fund in the Cayman Islands.
8. Management fees and performance fees
Pursuant to the Investment Management Agreement dated 20
November 2007, the Investment Manager was appointed to manage the
investments of the Fund. The Investment Manager will receive an
aggregate management fee of 2% per annum of the quarterly Net Asset
Value ("NAV"). The management fee is paid quarterly in advance
based on the NAV at the first day of each fiscal quarter. For the
year ended 31 December 2015, total management fees amounted to US$
5,261,227 (2014: US$5,851,236). There was management fee payable of
US$49,889 as at 31 December 2015 (2014: US$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 year ended 31 December 2015, total (reversal
of)/performance fees amounted to US$(45,927) (2014: US$1,016,628).
As at 31 December 2015, performance fees payable amounted to US$Nil
(2014: US$1,016,628).
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 year ended 31 December 2015, the Company purchased a
total of 96,403 of company's ordinary shares, for a total of
US$208,230 at a price per share of US$2.16 on 20 May 2015. The
purchased shares were transferred to the Investment Manager for the
settlement of 25% of performance fees payable incurred as at 31
December 2014 amounting to US$254,157 and a gain of US$45,927 is
recognised as other gains for the year ended 31 December 2015 in
the consolidated statement of operations.
During the year ended 31 December 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$1,591,762.
9. Investment agency fees
To facilitate the disposal of an investment, 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 year ended 31 December 2015, investment agency fees of
US$2,040,470 (2014: US$137,935) were reversed based on the
reduction of the unrealized gain on the investment net of certain
expenses and tax attributable to the investment.
10. Related party transactions
Apart from the related party transactions disclosed in Note 8,
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 would 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 was due to, without any further action on
the part of its shareholders, automatically wind up and dissolve 3
years after 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. On 28
February 2013, the duration of PACL II was further extended by 2
years to 4 March 2015 upon the written election by the Investment
Manager and a major of the shareholders. On 30 January 2015, the
Investment Manager made an election to extend the duration of PACL
II by 1 year to 4 March 2016.
As part of this restructuring, the Company repurchased
180,166,107 shares at a tender price of US$1.01 per share in
exchange for holders of these shares receiving the same number of
shares in PACL II.
Under the terms of the tender offer, PACL II is entitled to
receive 50.33% of the proceeds from the Tender Offer Portfolio,
which reflects a 5% discount of its proportionate share of the
Tender Offer Portfolio. As of 31 December 2015, the amount due to
PACL II is recorded as a receivable by the Fund, adjusted at each
period end based on the movement in the fair value of the
underlying assets and the income and expense attributable to the
Tender Offer Portfolio. The amount is unsecured, non-interest
bearing. The following table summarizes the movements in amount due
from/(to) to PACL II.
2015 2014
US$ US$
At 1 January (6,145,323) (22,702,274)
Distributions to PACL II 3,290,499 14,697,704
Net decrease in payable from gain attributable
to
(MORE TO FOLLOW) Dow Jones Newswires
April 19, 2016 02:00 ET (06:00 GMT)
PACL II 3,097,747 1,859,247
------------------ ------------------
At 31 December 242,923 (6,145,323)
(b) Directors' remuneration
The Company pays each of its directors an annual fee and the
total fees incurred amounts to US$30,000 (2014: 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$5,000. During the year 2015, Jon-Paul Toppino agreed to
waive his directors' fees and committee fees.
(c) Share capital held by funds managed by fellow subsidiaries
of the Investment Manager
On 13 February 2015, PAX LP sold 1,298,106 (2014: purchase
5,037,298) ordinary shares of the Company as part of the Company's
share repurchase transaction (see Note 6) which closed on the same
date. PAX LP's interest in the Company remains unchanged at 13.5%.
As at 31 December 2015, PAX LP held 14,025,111 (2014: 15,323,217)
shares of the Company, representing 13.5% (2014: 13.5%) of total
outstanding shares of the Company.
PAX LP is managed by a fellow subsidiary of the Investment
Manager.
11. Financial highlights
Net asset value per share at the end of the year is as
follows:
2015 2014
US$ US$
Per share data (for a share outstanding
throughout the year)
Net asset value at 1 January 2.6017 2.4628
Net investment gain/(loss) 0.1810 (0.1216)
Net realized and unrealized (losses)/gains
from investments (0.5226) 0.2605
-------------- --------------
Net asset value at 31 December 2.2601 2.6017
The following represents the ratios to average net assets and
other supplemental information:
2015 2014
Total return before performance fees
(1) (13.13%) 6.00%
Performance fees - (0.36%)
Total return after performance fees
(1) (13.13%) 5.64%
Ratios to average net assets (2)
Total expenses 4.08% (5.49%)
Net investment gain/(loss) 7.18% (4.70%)
(1) Total return represents the change in NAV (before and after
performance fees), adjusted for cash flows in relation to capital
transactions for the year.
(2) Average net assets is derived from the beginning and ending
NAV, adjusted for cash flows in relation to capital transactions
for the year. For the year ended 31 December 2015, the average net
assets amounted to US$261,922,782 (2014: US$293,492,626).
12. 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.
For the years ended 31 December 2014 and 2015, there is no
unfunded commitment in investments.
13. Subsequent events
Management has performed a subsequent events review from 1
January 2016 through to 15 April 2016, being the date that the
financial statements were available to be issued.
(a) Realization of Project Diplomat
The Fund announced that on 4 January 2016 it executed a binding
Sale and Purchase Agreement for the realization of its investment
in Project Diplomat. The Fund has agreed to sell its entire
interest in Project Diplomat to an unrelated third party. The Fund
is expected to receive gross RMB cash proceeds equal to US$100.8
million in the first half of 2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DVLFFQZFXBBD
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