TIDMPACL
RNS Number : 2216L
Pacific Alliance China Land Limited
29 September 2016
29 September 2016
Pacific Alliance China Land Limited
Unaudited results for the six months ended 30 June 2016
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
2016.
Highlights
-- Net asset value as at 30 June 2016 was US$133.69 million,
representing US$2.1704 per share, a 3.97% decrease from 31 December
2015 (US$234.8 million).
-- On 30 June 2016, the Company's share price closed at US$1.88,
representing a 2.3% decrease from 31 December 2015 and a 13.4%
discount to the unaudited 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.
Portfolio and Fund Developments
-- The Company successfully exited two projects in the first of
half of 2016. In the first quarter of 2016, the Company sold its
40% interest in Project Diplomat, together with its co-investor, to
a local fund managed by CITIC Private Equity Fund Management Co.,
Ltd. The Company received net proceeds of US$84 million net of
China taxes and transaction fees, representing a net IRR of 15.2%.
The holdback of RMB35 million, of which the Company is entitled to
40%, is expected to be recovered by the end of 2016.
-- In the first quarter of 2016, the Company also received gross
cash proceeds of RMB248 million from the sale of its Walmart shares
(one of the remaining assets of Project Malls), which are currently
held by a joint venture owned by the Fund and China Resources,
which is currently in liquidation. Once this is completed, the
upper level joint venture will also be liquidated and the
repatriation process can begin.
-- With the proceeds from the two realizations, the Company
announced a mandatory share repurchase with a total amount of US$96
million in June 2016. The Investment Manager will continue to
manage the Company's remaining investment in order to maximize the
Company's NAV.
Patrick Boot, Managing Director, Pacific Alliance Real Estate
Limited commented that:
In the second half of 2016, we expect China's economy to further
stabilize. We also expect the property market to continue to
improve at a more measured pace, supported by favorable government
policies. The Investment Manager will focus its efforts on
realizing the Company's only remaining investment, Project Auspice
(domestic shares of Wanda), to maximize value to shareholders.
For further information please contact:
MANAGER: LEGAL COUNSEL:
Patrick Boot, Managing Jon Lewis, General Counsel
Partner PAG
Pacific Alliance Real T: (852) 2918 0088
Estate Limited jlewis@pagasia.com
T: (852) 2918 0088
pboot@pagasia.com
BROKER: NOMINATED ADVISER:
Andrew Davies / Henry Philip Secrett
Freeman / Rob Johnson Grant Thornton UK LLP
Liberum Capital Limited T: (44) 20 7383 5100
T: (44) 20 (0) 20 3100 Philip.J.Secrett@uk.gt.com
2000
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 with net assets of US$133.69 million
as at 30 June 2016. PACL was admitted to trading on the AIM Market
of the London Stock Exchange in November 2007. PACL is focused on
investing in a portfolio of existing properties, new developments,
distressed projects and real estate companies in Greater China.
For more information about PACL, please visit:
www.pacl-fund.com
Pacific Alliance China Land Limited is 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$16 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 30 June 2016, the net asset value (NAV) of Pacific
Alliance China Land Limited (the "Company") was US$133.69 million,
or US$2.1704 per share, representing a 3.97% decrease from 31
December 2015. The decrease was mainly due to additional tax on the
realization proceeds from Project Diplomat and foreign exchange
losses driven by recent renminbi ("RMB") depreciation.
China's GDP recorded 6.7% year-on-year growth in the first half
of 2016, the lowest since 2009. Economic growth remains weak due to
the overhang of excess capacity in the manufacturing sector. In
order to meet its target annual GDP growth rate of 6.5% to 7% for
2016, the Chinese government continued its supportive efforts,
implementing a series of accommodative monetary and fiscal
policies, as well as property stimulus measures to boost the
housing market which accounts for approximately 15% of the economy.
We expect monetary policy easing to continue in the coming months,
helping China maintain adequate liquidity and boosting consumer
spending and capital investment, which in turn should help the
economy stabilize in the second half of 2016.
China's housing market continued its recovery during the first
half of 2016 across much of the country, particularly in the four
tier-one cities (Beijing, Shanghai, Guangzhou and Shenzhen) and the
major tier-two cities (Nanjing, Suzhou, Hangzhou, Hefei and
Xiamen), where both transaction volumes and prices increased
significantly. However, the recovery remains uneven as many smaller
tier-three cities still face large inventories of unsold homes. We
expect market sentiment to improve moderately during the second
half of 2016, and the housing recovery to continue in tier-one and
tier-two cities while many tier-three cities remain burdened with
large inventory overhangs.
Since the Company's inception in November 2007, our investment
strategy has delivered compound annual NAV growth of 9.5%. As most
of the Company and its subsidiaries' (collectively, the "Fund")
investments have been substantially realized, with only the
domestic shares of Wanda remaining (Project Auspice), we will focus
our efforts on exiting the last remaining asset to optimize its
value and distribute all repatriated proceeds to shareholders. On
behalf of the Board of Directors, I would like to thank you for
your continued commitment and support.
Margaret Brooke
Chairperson
Investment Manager's Report
On 30 June 2016, the Company's share price closed at US$1.88,
representing a 2.3% decrease from 31 December 2015 and a 13.4%
discount to the unaudited NAV per share. The Company's NAV and
share price have both outperformed major benchmark indices
including the FTSE 350 Real Estate Index and the FTSE AIM All-Share
Index on a consistent basis since inception.
30 June 31 December
2016 2015
US$ US$
Realized Gain
Investment income 81,324,196 4,356,789
Dividend income - 7,473,706
Deposit interest 393,844 582,850
------------------ ------------------
81,718,040 12,413,345
Change in Unrealized Gain/(Loss)
Other real estate investments (83,074,985) (40,906,895)
Listed stock 4,556,479 (17,758,509)
Derivatives (89,544) -
Share of (gains payable to)/losses
receivable from PACL II (69,868) 3,097,747
Foreign exchange (1,625,192) (3,584,103)
------------------ ------------------
(80,303,110) (59,151,760)
------------------ ------------------
1,414,930 (46,738,415)
Portfolio Summary
As at 30 June 2016, the Company held cash of US$74 million (of
which US$68.6 million was held in RMB onshore pending
repatriation), as well as investments with a cost of approximately
US$30.2 million and a fair value of US$124.6 million.
Attributable
to PACL
Fair value II Limited
Investments (gross) % of ("PACL
and cash US$ Type Total Location II")
----------------- ------------ -------------------- ------- --------- -------------
Project Auspice 82,824,714 Listed Stock 41.18% China -
Project Malls 41,804,900 Platform Investment 20.79% China -
FX Hedging 2,492,718 Derivatives 1.24%
Cash 73,986,143 Cash(1,2) 36.79% 1,163,464
----------------- ------------ -------------------- ------- --------- -------------
TOTAL 201,108,475 100% 1,163,464
----------------- ------------ -------------------- ------- --------- -------------
(1) The gross investment value includes an amount attributable
to the PACL II shareholders.
(2) Of the total cash of US$73.99 million, US$68.6 million of
which are held as RMB in China banks.
Realisation and return of capital
The Company successfully exited two projects in the first of
half of 2016. In the first quarter of 2016, the Company sold its
40% interest in Project Diplomat, together with its co-investor, to
a local fund managed by CITIC Private Equity Fund Management Co.,
Ltd. The Company received net proceeds of US$84 million net of
China taxes and transaction fees, representing a net IRR of 15.2%.
The holdback of RMB35 million, of which the Company is entitled to
40%, is expected to be recovered by the end of 2016.
In the first quarter of 2016, the Company also received gross
cash proceeds of RMB248 million from the sale of its Walmart shares
(one of the remaining assets of Project Malls), which are currently
held by a joint venture owned by the Fund and China Resources,
which is currently in liquidation. Once this is completed, the
upper level joint venture will also be liquidated and the
repatriation process can begin.
With the proceeds from the two realizations, the Company
announced a mandatory share repurchase with a total amount of US$96
million in June 2016. The Investment Manager will continue to
manage the Company's remaining investment in order to maximize the
Company's NAV.
Portfolio Summary
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
and a minority stake in a large parcel of residential land near the
Shanghai Disneyland development. The Company has completed the
divestment of the two remaining assets in the second half of 2015
and the first half of 2016. The repatriation process has yet to be
completed but two further distributions are planned for the fourth
quarter of 2016 and first half of 2017.
Project Auspice
On 18 May 2016, Wanda Group, the controlling shareholder of
Dalian Wanda Commercial Properties Co., Ltd. informed the Wanda
Board that the Financial Advisor (on behalf of the Joint Offerors)
would make a voluntary conditional general offer to acquire all of
Wanda's issued H shares. The offer price was HK$52.80 per H share
and the Joint Offerors indicated that they would not increase the
offer price.
On 30 June 2016, Wanda also announced that an extraordinary
general meeting (the "EGM") would be held on 15 August 2016 in
Beijing for the purpose of voting on the special resolutions in
relation to the privatization and delisting of Wanda from the Hong
Kong Stock Exchange. The relevant resolutions in relation to the
privatization (voluntary withdrawal of the listing of the H Shares
of Wanda from the Hong Stock Exchange, etc.) were passed by way of
poll at the EGM. Wanda is currently waiting for regulatory approval
for its A share offering or backdoor listing, which should
facilitate the realization of Company's investment in Wanda's
domestic shares.
Conclusion
In the second half of 2016, we expect China's economy to further
stabilize. We also expect the property market to continue to
improve at a more measured pace, supported by favorable government
policies. The Investment Manager will focus its efforts on
realizing the Company's only remaining investment, Project Auspice
(domestic shares of Wanda), to maximize value to shareholders.
UNAUDITED CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 30 JUNE 2016
As at As at
30 June 31 December
Note 2016 2015
US$ US$
Assets
Investments, at fair value
(Cost: US$30,216,357;
2015: US$46,824,161) 3,4 124,629,614 220,174,977
Derivative contracts, at
fair value 5 2,492,718 2,710,066
Amounts due from PACL II
Limited 10(a) - 242,923
Prepayment and other receivables 2,987,120 897,134
Cash and bank balances 73,986,143 56,337,382
-------------------- --------------------
Total assets 204,095,595 280,362,482
------------------- -------------------
Liabilities
Provision for taxation 7 34,328,598 43,136,160
Amounts due to PACL II Limited 10(a) 170,945 -
Provision for investment
agency fees 9 1,415,585 2,115,585
Accrued expenses and other
payables 9 34,488,679 311,929
-------------------- --------------------
Total liabilities 70,403,807 45,563,674
------------------- -------------------
Net assets 133,691,788 234,798,808
Analysis of net assets
Share capital 6 615,967 1,038,874
Share premium 6 - 66,039,620
Capital surplus 6 1,816,917 1,816,917
Retained earnings 131,258,904 165,903,397
-------------------- --------------------
Net assets (equivalent to
US$ 2.1704 per share based
on 61,596,638 outstanding
shares; 2015: US$2.2601 per
share based on 103,887,384
outstanding shares) 133,691,788 234,798,808
Approved by the Board of Directors
UNAUDITED CONSOLIDATED CONDENSED SCHEDULE OF INVESTMENTS
AS AT 30 JUNE 2016
As at 30 June 2016 As at 31 December 2015
%
of % of
effective effective
% of equity % of equity
net interest Fair net interest Fair
Investments - Assets assets held Cost/principal value assets held Cost/principal value
US$ US$ US$ US$
UNLISTED EQUITY
Real Estate, China 93.22% 93.77%
Dalian Wanda Commercial
Real Estate Co
Ltd ('Project Auspice")
* 18,000,000 domestic shares 61.95% 0.48% 22,414,500 82,824,714 33.57% 0.48% 22,414,500 78,815,093
Beijing Hines Jing
Sheng Real Estate
Development Co
Ltd ('Project Diplomat") 0.00% - - - 42.40% 40.00% 16,480,000 99,554,984
SCP Management
Co Ltd (Project
Malls)
* Share capital of RMB 6,000,000 31.27% 30.00% 5,548,341 41,804,900 17.80% 30.00% 5,548,341 41,804,900
Derivatives 1.86% 1.15%
Others(1) 1.86% 2,253,516 2,492,718 1.15% 2,381,320 2,710,066
30,216,357 127,122,332 46,824,161 222,885,043
(1) 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.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODED 30 JUNE 2016
Period Period
from from
1 January 1 January
to to
30 June 30 June
Note 2016 2015
US$ US$
Income
Interest income 393,844 306,554
-------------------- --------------------
Total income 393,844 306,554
------------------ ------------------
Expenses
Tax (expense)/credit 7 (3,383,090) 1,444,297
Performance fees 8 - (318,507)
Management fees 8 (2,278,591) (2,702,328)
Legal and professional fees (79,405) (73,582)
Other expenses (780,872) (339,917)
-------------------- --------------------
Total expenses (6,521,958) (1,990,037)
------------------ ------------------
Net investment losses (6,128,114) (1,683,483)
------------------ ------------------
Realized and unrealized gain
from investments and foreign
currency
Net realized gains from investments
and foreign currency transactions 81,324,196 60,363
Net change in unrealized
(losses)/gains from investments
and (losses)/gains on translation
of assets and liabilities
in foreign currencies 4 (80,233,241) 3,056,924
Net (increase)/decrease in
payable to PACL II Limited
from (losses)/gains attributable
to PACL II Limited 10(a) (69,868) 69,857
-------------------- --------------------
Net realized and unrealized
gain from investments and
foreign currency 1,021,087 3,187,144
------------------ ------------------
Net (decrease)/increase in
net assets from operations (5,107,027) 1,503,661
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIODED 30 JUNE 2016
Share
capital
and share Capital Tendered Retained
Note premium surplus shares earnings Total
US$ US$ US$ US$ US$
At 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)
Net increase
in net
assets
from
operations - - - (35,500,493) (35,500,493)
------------------ ------------------ ------------------ ------------------ ------------------
At 31
December
2015 and
1 January
2016 67,078,494 1,816,917 - 165,903,397 234,798,808
Repurchase of
tendered
shares 6 (66,462,527) - - (29,537,466) (95,999,993)
Net increase
in net
assets
from
operations - - - (5,107,027) (5,107,027)
------------------ ------------------ ------------------ ------------------ ------------------
At 30 June
2016 615,967 1,816,917 - 131,258,904 133,691,788
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODED 30 JUNE 2016
Period Period
from from
1 January 1 January
to to
30 June 31 December
Note 2016 2015
US$ US$
Net increase in net assets
from operations (5,107,027) (35,500,493)
Adjustments to reconcile
net increase in net assets
from operations to net cash
generated from operating
activities
Purchase of investments (1,736,596) (2,381,320)
Disposal of investments 99,668,596 10,502,548
Net realized and unrealized
(losses)/gains from investments (2,169,289) 55,074,123
Net increase/(decrease) in
payable to PACL II Limited
from losses/(gains) attributable
to PACL II Limited 69,868 (3,097,747)
Change in other receivables (2,185,737) (288,860)
Change in other assets 95,750 -
Change in amounts due to
PACL II Limited 344,000 (3,290,499)
Change in performance fees 6,
payable 8 - (1,016,628)
Change in provision for taxation (8,807,562) (16,010,916)
Change in provision for investment
agency fees (700,000) (2,040,470)
Change in accrued expenses
and other payables 34,176,751 134,555
-------------------- --------------------
Net cash generated from operating
activities 113,648,754 2,084,293
------------------ ------------------
Cash flows from financing
activities
Repurchase of shares 6 (95,999,993) (24,999,993)
-------------------- --------------------
Net cash used in financing activities (95,999,993) (24,999,993)
------------------ ------------------
Net increase/(decrease) in
cash and cash equivalents 17,648,761 (22,915,700)
Beginning balance 56,337,382 79,253,082
-------------------- --------------------
Ending balance, representing
cash and bank balances 73,986,143 56,337,382
Supplementary information to statement
of cash flows
Interest income received 393,844 528,316
Dividend income received - 7,473,706
Non-cash transaction:
Part of the performance fee payable to the Investment Manager
was settled by the Company's shares. Please refer to Note 8 for
details.
The accompanying notes on pages 10 to 27 are an integral part of
these consolidated financial statements.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2016
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.
The consolidated financial statements were approved by the Board
of Directors on 28 September.
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 30 June 2016 and the reported amounts of income
and expenses for the period then ended. The areas involving a
higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the financial statements are
disclosed in Note 2(j).
(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.
(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
valued 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 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 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 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) 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 ("USD"), which is also the functional currency.
Assets and liabilities, both monetary and non-monetary, denominated
in foreign currencies are translated into USD 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 gains and losses 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 the 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 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. 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 the 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, 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 USD, 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 31December
2016 2015
US$ US$
Renminbi 62,762,879 186,236,562
United States Dollars 70,928,837 48,630,760
Pounds Sterling - (11,686)
Singapore Dollars 72 68
Hong Kong Dollars - (56,896)
-------------------- --------------------
133,691,788 234,798,808
(d) Credit risk
The Fund is exposed to default risk by the counterparties of the
loans receivable. While 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 30 June 2016, investments in loans receivable and bonds of
US$ Nil (31 December 2015: US$ Nil) 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 to Note 3(c) above for
the Fund's exposure to RMB.
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 2016.
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:
2016
Investment Fair value Valuation Significant Inputs/range
assets technique(s) unobservable
inputs
US$
Unlisted 41,804,900 Indicative N/A N/A
Equity offer
Last traded
price of
H-shares
listed in Liquidity
82,824,714 Hong Kong discount 25%
--------------------
124,629,614
2015
Investment Fair value Valuation Significant Inputs/range
assets technique(s) unobservable
inputs
US$
Unlisted 141,359,884 Indicative N/A N/A
Equity offer
Last traded
price of
H-shares
listed in Liquidity
78,815,093 Hong Kong discount 25%
--------------------
220,174,977
Notes:
-- The significant unobservable inputs used in the fair value
measurement included the average monthly rent and capitalization
rate of the underlying properties.
-- Market comparables included average sales price of properties
and land as well as P/E multiples of comparable companies or recent
transaction of investee.
-- 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 Level Level
1 2 3 Total
US$ US$ US$ US$
As at 30 June
2016
Investments -
equity - - 124,629,614 124,629,614
Investments -
derivatives - 2,492,718 - 2,492,718
-------------------- -------------------- -------------------- --------------------
- 2,492,718 124,629,614 127,122,332
As at 31 December
2015
Investments -
equity - - 220,174,977 220,174,977
Investments -
derivatives - 2,710,066 - 2,710,066
-------------------- -------------------- -------------------- --------------------
- 2,710,066 220,174,977 222,885,043
As at 30 June 2016, investments of US$127,122,332 (31 December
2015: US$222,885,043) were held directly by the Fund.
The following table summarizes the movements in fair value of
the Fund's Level 3 instruments
Investments Investments Investments
- unlisted - loans - other Investments
equity receivable debt instruments - derivatives Total
US$ US$ US$ US$ US$
At 1 January
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
2015 and 1
January
2016 220,174,977 - - - 220,174,977
Sale of
investments (16,480,000) - - - (16,480,000)
Net realized
gain/(loss) - - - - -
Net change
in
unrealized
gain/(loss) (78,518,506) - - - (78,518,506)
FX-gain (546,857) - - - (546,857)
-------------------- ------------------ ------------------ ------------------ --------------------
At 30 June
2016 124,629,614 - - - 124,629,614
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 30 June
2016.
Net change in unrealized gains/(losses)
on existing investments as at 30 June,
2016 (78,518,506)
Net change in unrealized gains/(losses)
on existing investments as at 31 December,
2015 (40,906,895)
As at 31 December 2015, Project Diplomat was fully disposed and
had realized a net gain of US$82,127,996. The net change in
unrealized loss on unlisted equity investments amounted to
US$78,518,506 (2015: US$40,906,895).
The Fund wrote down the remaining value of the secured loans
receivable to nil in 2015 due to the failure of the transfer of the
title for three luxury apartments. There has been no other
significant developments of the Fund's investment as of 30 June
2016.
5. Derivative instruments
The Fund transacts in derivative instruments including options
with each instrument's primary risk exposure being equity, credit
and foreign exchange. The Fund enters into currency options to
hedge itself against foreign currency exchange rate risk for its
foreign currency denominated assets and liabilities due to adverse
foreign currency fluctuations against the USD.
The fair value of these derivative instruments is included
within the investments line item with changes in fair value
reflected as net realized gains/(losses) from investments or net
change in unrealized gains/(losses) from investments within the
consolidated statement of operations. The Fund does not designate
derivatives as hedging instruments under FASB ASC 815.
As at 30 Fair Value Contractual/notional
June 2016 amounts
Assets Liabilities Assets Liabilities
US$ US$ US$ US$
Currency
options 2,492,718 - 49,400,000 -
2,492,718 - 49,400,000 -
The following table indicates the gains and losses on
derivatives, by contract type, as included in the consolidated
statement of operations.
Period ended 30 June 2016
Purchased Sold Gains/(losses)
Notional notional
US$ US$ US$
Currency options 189,400,000 (140,000,000) (564,598)
189,400,000 (140,000,000) (564,598)
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
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 and 1
January 2016 103,887,384 1,038,874 66,039,620 1,816,917 - 68,895,411
Re-purchase
of tendered
shares (42,290,746) (422,907) (66,039,620) - - (66,462,527)
-------------------- ---------------- ------------------ ---------------- -------------------- --------------------
As at 30 June
2016 61,596,638 615,967 - 1,816,917 - 2,432,884
As at 30 June 2016, the total number of authorized ordinary
shares was 10,000,000,000 (2015: 10,000,000,000) with par value of
US$0.01 (2015: US$0.01) per share. As at 30 June 2016, the Company
had 61,596,638 (2015: 103,887,384) ordinary shares in issue.
Movement of tendered shares is as follows:
Number of Repurchase/
shares repurchased/ reissue
(reissued) price Total
US$ US$
At 1 January 2016 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
and 30 June 2016 - -
7. 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 special purpose
vehicles ("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 2016, the Investment Manager has analysed the open
tax years of all jurisdictions subject to tax examination and the
provision deferred tax and uncertain tax amounted to US$33,585,265
(2015: US$33,838,744) and US$743,333 (2015: US$9,297,416)
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 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
period ended 30 June 2016, total management fees amounted to
US$2,278,591 (30 June 2015: US$2,702,328) payable amounted to US$
Nil (31 December 2015: 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 2016, total performance fees
amounted to US$ Nil (30 June 2015: US$318,507). As at 30 June 2016,
performance fees payable amounted to US$ Nil (31 December 2015: US$
Nil).
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.
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 period ended 30 June 2016, investment agency fee of
US$1,415,585(2015: US$2,115,585) was accrued based on the realized
and unrealized gain on the investment net of certain expenses and
tax attributable to the investment.
10. Related party transactions
The Fund had the following significant related-party
transactions.
(a) Restructuring with PACL II Limited
On 2 March 2009, the Company held an EGM to approve a tender
offer that allowed shareholders to exchange all or part of their
shares for shares in PACL II Limited ("PACL II"), a Cayman Islands
private vehicle that will be used to realize and distribute cash
from exited investments based on the investment and asset positions
held by the Fund as at 31 December 2008 ("Tender Offer Portfolio").
PACL II is also managed by the Investment Manager. It will, without
any further action on the part of its shareholders, automatically
wind up and dissolve in three years upon when its ordinary shares
were first issued. On 5 January 2012, the duration of PACL II was
extended by one 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 two years to 4 March 2015 upon the
written election by the Investment Manager and a majority of the
shareholders. On 30 January 2015, the Investment Manager made an
election to extend the duration of PACL II by one year to 4 March
2016.
As part of this restructuring, the Company repurchased
180,166,107 shares at a tender price of US$1.01 per share in
exchange for holders of these shares receiving the same number of
shares in PACL II.
Under the terms of the tender offer, PACL II is entitled to
receive 50.33% of the proceeds from the Tender Offer Portfolio,
which reflects a 5% discount of its proportionate share of the
Tender Offer Portfolio. As such, the amount due to PACL II is
recorded as a payable by the Fund, adjusted at each period end
based on the movement in the fair value of the underlying assets
and the income and expense attributable to the Tender Offer
Portfolio. The amount is unsecured, non-interest bearing. The
following table summarizes the movements in amount due from/ (to)
PACL II.
As at As at
30 31 December
June 2016 2015
US$ US$
At 1 January 242,923 (6,145,323)
Distributions to PACL II (344,000) 3,290,499
Net (increase)/decrease in
payable from (losses)/gains
attributable to PACL II (69,868) 3,097,747
------------------ --------------------
At 30 June/31 December (170,945) 242,923
(b) Directors' remuneration
The Company pays each of its directors an annual fee of
US$30,000 (2015: 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$5,000. During the
period ended 30 June 2016, Jon-Paul Toppino agreed to waive his
directors' fees and committee fees.
(c) Share capital held by funds managed by fellow subsidiaries
of the Investment Manager
In June 2016, PAX LP sold 5,709,379 (2015: 1,298,106) ordinary
shares of the Company as part of the Company's share repurchase
transaction (see Note 6) which closed on the same date. PAX LP's
interest in the Company remains unchanged at 13.5%. As at 30 June
2016, PAX LP held 8,315,732 (2015: 14,025,111) shares of the
Company, representing 13.5% (2015:13.5%) of total outstanding
shares of the Company.
PAX LP is managed by a fellow subsidiary of the Investment
Manager.
11. Financial highlights
Net asset value per share at the end of the period is as
follows:
2016 2015
US$ US$
Per share data (for a share
outstanding throughout the
year)
Net asset value at 1 January 2.2601 2.6017
Net investment loss (0.0995) (0.0162)
Net realized and unrealized
gains from investments 0.0098 0.0308
-------------- --------------
Net asset value at 30 June 2.1704 2.6163
The following represents the ratios to average net assets and
other supplemental information:
From 1
From 1 January January
to to
30 June 30 June
2016 2015
Total return before performance
fees (1) (3.97%) 0.70%
Performance fees 0.00% (0.14%)
Total return after performance
fees (1) (3.97%) 0.56%
Ratios to average net assets
(2)
Total expenses (3.08%) (0.73%)
Net investment loss (2.89%) (0.62%)
(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 2016, the average net
assets amounted to US$212,057,004 (2015: US$261,922,782).
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.
13. Subsequent events
Management has performed a subsequent events review from 1 July
2016 through to 30 September 2016, being the date that the
financial statements were available to be issued, and has
determined there were no subsequent events requiring adjustment or
disclosure in the financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLMMTMBATBFF
(END) Dow Jones Newswires
September 29, 2016 06:59 ET (10:59 GMT)
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