TIDMPAX
RNS Number : 2238P
Pacific Alliance Asia Opp Fd Ld
30 September 2013
30 September 2013
Pacific Alliance Asia Opportunity Fund Limited
Unaudited interim results for the six months ended 30 June
2013
Pacific Alliance Asia Opportunity Fund Limited ("PAX" or the
"Company") (AIM: PAX), an AIM traded feeder fund for Pacific
Alliance Asia Opportunity Fund L.P. (the "Master Fund"), has today
announced its unaudited interim financial results for the six
months ended 30 June 2013.
Financial Highlights
-- Net asset value as at 30 June 2013 was US$163.3 million,
representing US$1.533 per share, a 3.25% increase from 31 December
2012 (US$168.8 million, representing US$1.485 per share). Retained
earnings as at 30 June 2013 were US$76.4 million (US$70.9 million
as at 31 December 2012).
-- The Master Fund generated an unaudited return of 3.44% for
the first six months ended 30 June 2013. During the same period,
the Shanghai Composite Index lost 12.78%, the Eureka Hedge Asian
Hedge Fund Index added 6.62% and the MSCI AC Far East Ex-Japan was
down 6.84%.
Portfolio Developments
-- The Investment Manager continues to focus the portfolio on
dislocations and inefficiencies in the market, and is finding the
majority of these opportunities in the credit space. At the end of
June, credit strategies, including Bridge Financing, the majority
of the Distressed/Secondary investments, and Convertible Bond
("CB") strategies, accounted for almost 70% of the portfolio and
were the key drivers of returns.
-- Bridge Financing remains the largest exposure in the Master
Fund comprising approximately 40% at the end of June. A surge in
the number of Wealth Management Products (trust loans) in China in
late 2012, a key market for our primary lending, slightly reduced
this strategy's opportunity set in the first half of this year.
However, a government cap introduced in April 2013 on the amount of
Wealth Management Products that banks could hold has contributed to
a reduction in available credit onshore and strengthened the Master
Fund's Bridge Financing pipeline.
-- In the Distressed/Secondary strategy, the Master Fund
currently has several secondary credit portfolios that are tracking
above underwriting expectations and should generate attractive
returns going forward. The majority of the assets purchased
recently are in Australia and New Zealand, though the Master Fund
is also seeing a pick up in sales activity in Japan.
-- CB Financing is the newest credit strategy and was just over
10% of the portfolio at June end. The Master Fund has added several
new investments since the category was created in April and the
performance has been encouraging. The Master Fund is targeting to
bring the allocation up to approximately 15-20% of the portfolio by
year end, adding more optionality to the portfolio.
-- In June 2013, the Company announced a 6% distribution by way
of a tender offer. The Company plans to announce the next 6%
distribution in Q4 2013.
Chris Gradel, PAG Managing Partner, Absolute Returns, said that
pervasive economic uncertainty in some quarters continues to
generate market dislocations and inefficiencies which underpin the
Master Fund's strategy and focus, primarily in the credit space.
Moreover, early signs of recovery and greater stability in many
markets are also driving new opportunities for the Master Fund.
"While the portfolio remains heavily weighted towards credit
strategies, emerging market conditions over the first half of the
year have generated significant new opportunities in primary
financing, particularly CB financing. As such, we have created a
dedicated strategy within the Master Fund, which now makes up just
over 10% of the portfolio, to pursue short term asset lending
delivering a combination of fixed returns and equity upside. We
believe that given where market valuations currently are for the
equities market, this is a good time to add some equity optionality
to the book."
"We remain cautiously optimistic about the outlook for the rest
of the year, and will continue to manage the portfolio
conservatively with a focus on risk management and downside
protection to ensure we generate consistent income and attractive
gains for investors."
A full copy of the Interim Report will be distributed by email
to all shareholders and will be available on the Company's website:
www.pax-fund.com.
For further information please contact:
MANAGER: LEGAL COUNSEL:
Chris Gradel, Managing Jon Lewis, General Counsel
Partner PAG
PAG T: (852) 2918 0088
T: (852) 2918 0088 jlewis@pagasia.com
cgradel@pagasia.com
BROKER: NOMINATED ADVISER:
Hiroshi Funaki Philip Secrett
LCF Edmond de Rothschild Grant Thornton Corporate
Securities Finance
T: (44) 20 7845 5960 T: (44) 20 7383 5100
funds@lcfr.co.uk Philip.J.Secrett@uk.gt.com
MEDIA RELATIONS:
Stephanie Barry
PAG
T: (852) 3719 3375
sbarry@pagasia.com/
About Pacific Alliance Asia Opportunity Fund Limited
Pacific Alliance Asia Opportunity Fund Limited (AIM: PAX) serves
as a feeder fund for Pacific Alliance Asia Opportunity Fund L.P.
(the "Master Fund"), a Cayman Islands exempted limited partnership.
PAX was admitted to trading on the AIM Market of the London Stock
Exchange in September 2006.
The principal investment objective of both PAX and the Master
Fund is to provide their respective investors with capital
appreciation through value, arbitrage and special situations
investments in Asian markets. Target investments include distressed
credit, private equity secondaries, activist investments and other
opportunities offering the possibility of unlocking the underlying
value of a company or asset.
For more information about PAX, please visit:
www.pax-fund.com
Pacific Alliance Asia Opportunity Fund Limited is managed by PAG
(formerly known as Pacific Alliance Group), which is one of the
region's largest Asia-focussed alternative investment managers,
with funds under management across Private Equity, Real Estate and
Absolute Return strategies. Founded in 2002, PAG now has a presence
across Asia with over 320 staff working in the region.
For more information about PAG, please visit:
www.pagasia.com
Chairman's Statement
Pacific Alliance Asia Opportunity Fund Limited (the "Company")
generated an unaudited net return of 3.25% for the six months ended
30 June 2013 with the NAV per share at US$1.533.
During the period the Company announced a 6% distribution in
June 2013 by way of a tender offer. The Company plans to announce
the next 6% distribution in Q4 2013.
The Pacific Alliance Asia Opportunity Fund L.P. - General
Partner's Report
The Pacific Alliance Asia Opportunity Fund L.P. (the "Master
Fund") achieved a net return of +3.44% for the first six months of
2013.During this period, the Shanghai Composite Index lost 12.78%,
the Eureka Hedge Asian Hedge Fund Index added 6.62% and the MSCI AC
Asia Ex-Japan was down 6.84%. Given the markets and environment
over this period, The Investment Manager acknowledges that the
performance year to date for the Master Fund is slightly behind
target, but as the portfolio reallocation takes effect, the
Investment Manager remains optimistic that the Master Fund's
returns will increase. Below please find details on the portfolio
and its performance.
Performance in the first two quarters was driven primarily by
gains in the Bridge Financing, Convertible Bond ("CB"), and
Japanese Long/Short strategies. Those gains were partially offset
by losses in the Distressed/Secondary book.
The Investment Manager continues to focus the portfolio on
dislocations and inefficiencies in the market, and is finding the
majority of those opportunities in the credit space. As of the end
of June, credit strategies accounted for almost 70% of the
portfolio and were the key driver of returns. The credit strategies
include Bridge Financing, the majority of the Distressed/Secondary
investments, and the CB Financing.
Bridge Financing continued to be the largest exposure in the
Master Fund, comprising approximately 40% at the end of June. As a
reminder, these are short-term asset backed loans originated
primarily in China and Australia. China has always been a key
market for our primary lending, as the commercial banks face
persistent policy restrictions on lending by the government.
Despite these constraints on the commercial banks, a surge in the
Wealth Management Products (trust loans) in late 2012 slightly
reduced the Bridge Financing opportunity set. However, the Chinese
government, wary of the surge in trust loans, enacted a cap on the
amount of Wealth Management Products that the banks could hold in
April this year. This cap, combined with the SHIBOR spike in June,
has once again reduced the available credit onshore, and results in
a stronger pipeline for Bridge Financing.
The Distressed/Secondary strategy is the next largest exposure
of the book at approximately 23%. In this strategy, we are
currently focused on buying secondary credit portfolios from
non-economic sellers such as European commercial banks, investment
bank prop desks, and even some hedge funds. Thus far, everything
the Master Fund has purchased in this space has been on a
negotiated basis, as opposed to auction. The Master Fund currently
has several portfolios that are tracking above underwriting
expectations and should generate attractive returns going forward.
The majority of the assets purchased recently are in Australia and
New Zealand, though we are also seeing a pick up in sales activity
in Japan. Although the Investment Manager has already seen
significant sales of these non-core assets, we expect the pace of
sales to increase over the next several years as banks continue to
rationalize balance sheets and look to comply with Basel III. In
addition to the secondary credit portfolios in this book, we also
have an equity position, Project Wine, which was a block trade we
purchased at a
significant discount to market. The seller was distressed and
therefore the pricing was very attractive. As we have noted in the
monthly letters, Project Wine traded down with the market during
the first six months of the year, and is the Master Fund's largest
detractor year to date. The losses year to date are derived from
the mark to market with a partial offset from downside protection
and preferred return option, thus we are optimistic that there is
upside in this position from here.
Convertible Bond Financing is the newest credit strategy and was
just over 10% of the portfolio at June end. The strategy grew out
of the Bridge Financing book and was separated out as a new
category in April. These investments are very similar to the Bridge
Financing discussed above, though structured with a lower fixed
return component combined with an equity upside. Given where market
valuations currently are for the equities market, we are willing to
give up a little fixed return to add some equity optionality to the
book. So far, the Master Fund has added several new investments and
the performance is encouraging. The Investment Manager is targeting
to bring the allocation up to approximately 15-20% of the portfolio
by year end, adding more optionality to the portfolio.
In addition to Project Wine, the Master Fund's high level of
cash was a drag on returns through June. The Master Fund had
successfully exited several large investments during the first two
quarters, and that combined with a slower Bridge Financing pipeline
(until May) led to a higher than target level of cash. However, the
Investment Manager believes that the opportunity set for rest of
the year remains encouraging and cash should be down towards target
levels by the year end.
On an organization level, the team remains stable and the
Investment Manager will selectively add resources to assist with
the execution and monitoring of investments where appropriate.
Rigorous risk management and strong downside protection remain the
principles when structuring investments. Despite cautious optimism
for the remainder of the year, the portfolio is positioned
conservatively, though with more equity optionality than in the
past 18 months.
John Alexander
Chairman
Investment Manager's Report
Portfolio Performance
As at 30 June 2013, the Company's unaudited net asset value
("NAV") per share was US$1.533, a 3.25% increase from the 31
December 2012 audited financial statements. The Company's share
price closed on 30 June 2013 at US$1.305, a 3.16% increase from 31
December 2012.
The Company invests substantially all of its assets in Pacific
Alliance Asia Opportunity Fund L.P., a Cayman Islands exempted
limited partnership via Pacific Alliance Asia Opportunity Feeder
Fund III Limited (the "Feeder Fund").
Realized and Unrealized Income
Total income for the period from 1 January 2013 to 30 June 2013
was US$5,817,863.
Realized Income/ (Loss) US$
Deposit Interest 60
Foreign Exchange 813
------------------
Total 873
Unrealized Appreciation US$
Investment in Master Fund 5,816,990
------------------
Total 5,816,990
Master Fund Portfolio and Performance as at 30 June 2013
As at 30 June 2013, the Master Fund's unaudited net asset value
("NAV") was US$1.679 per US$1.00 capital contributed, a 3.44%
increase from the 31 December 2012 audited financial
statements.
Realized and Unrealized Income for the Master Fund
Total income for the period from 1 January 2013 to 30 June 2013
was US$111,749,223.
Realized Income/(Losses) US$
Bridge Financing Income 30,233,173
Distressed 28,833,018
Equity Long/Short 17,615,111
Closed-end Funds 2,758,705
Deposit Interest 2,639,440
CB Financings (30,213)
Pre-IPO Investments (1,500,091)
Event Driven, Relative
Value/Arbitrage (9,946,833)
Total 70,602,310
Unrealized Appreciation/(Depreciation) US$
Bridge Financing Income 30,930,301
CB Financings 14,585,660
Event Driven, Relative
Value/Arbitrage 14,266,369
Foreign Exchange 1,807,858
Equity Long/Short (2,300,336)
Closed-end Funds (5,394,107)
Pre-IPO Investments (5,418,281)
Distressed (7,330,551)
Total 41,146,913
Master Fund Portfolio Summary
As at 30 June 2013, the Master Fund held investments and cash
with a carrying value of US$2,006 million. The Master Fund
portfolio is diversified across several strategies including Bridge
Financing, Distressed/Secondary, CB Financings, Event Driven,
Relative Value/Arbitrage, Pre-IPO Investment, Equity Long/Short,
and Cash.
Fair Value
of Investment
Type of Investment (US$) % of Total
Bridge Financing (1) 884,192,247 44.08%
Distressed/ Secondary 510,900,852 25,47%
CB Financings (1) 210,548,088 10.50%
Event Driven, Relative
Value/ Arbitrage 135,495,860 6.76%
Pre-IPO Investment 80,044,761 3.99%
Equity Long/Short 13,377,991 0.67%
Cash (2) 171,141,143 8.53%
Total 2,005,700,942 100.00%
(1) The allocation by strategy as per the GP's report differs
from the Master Fund's interim report investment schedule. The cost
of the loans receivable disclosed in the interim report investment
schedule represents the cost of investments for accounting
purposes, which are higher than the respective cost of the loans
according to the terms under the loan agreements.
Collection/Repayment of loans receivable is calculated based upon
the effective interest method in the interim report investment
schedule, whereas in the GP's report and newsletter, the cost is
reduced prior to a reduction of interest in accordance with the
definitive agreements.
(2) The cash balance as per the GP report represents cash
available for investment, which is net of committed investment
funding and upcoming redemptions.
Breakdown of Investment Breakdown of Investment
Holdings by Cash and Holdings by Cash and
Industry Geography
-------------------------------------- --------------------------------
Cash and Industry % of Total Cash and Geography % of Total
------------------------- ----------- ------------------- -----------
Property - Commercial 51.41% Greater China 72.16%
------------------------- ----------- ------------------- -----------
Cash 8.53% Cash 8.53%
------------------------- ----------- ------------------- -----------
Food 7.82% Australia 8.39%
------------------------- ----------- ------------------- -----------
Property - Residential 7.39% Japan 5.68%
------------------------- ----------- ------------------- -----------
Manufacturing 6.30% Korea 2.63%
------------------------- ----------- ------------------- -----------
Financial Services 5.23% India 1.16%
------------------------- ----------- ------------------- -----------
Agriculture 2.14% Indonesia 0.47%
------------------------- ----------- ------------------- -----------
Transportation 2.04% Vietnam 0.46%
------------------------- ----------- ------------------- -----------
Materials 1.78% New Zealand 0.32%
------------------------- ----------- ------------------- -----------
ETF 1.75% North America 0.16%
------------------------- ----------- ------------------- -----------
Information Technology 1.67% Singapore 0.02%
------------------------- ----------- ------------------- -----------
Health Care 1.28% Taiwan 0.01%
------------------------- ----------- ------------------- -----------
Energy 0.79% Thailand 0.01%
------------------------- ----------- ------------------- -----------
Utilities 0.77% 100.00%
------------------------- ----------- ------------------- -----------
Industrials 0.67%
------------------------- -----------
Index Hedges 0.63%
------------------------- -----------
Media 0.40%
------------------------- -----------
Mining 0.34%
------------------------- -----------
Aviation 0.10%
------------------------- -----------
Travel Services 0.03%
------------------------- -----------
Advisory 0.01%
------------------------- -----------
Consumer Staples* -0.23%
------------------------- -----------
Consumer Discretionary* -0.85%
------------------------- -----------
100.00%
------------------------- -----------
*represents listed securities
sold short
CONSOLIDATED UNAUDITED STATEMENT OF ASSETS AND LIABILITIES
Note 30 June 31 December
2013 2012
US$ US$
Assets
Investments in Pacific Alliance
Asia Opportunity Fund L.P.
through Pacific Alliance
Asia Opportunity Feeder Fund
III Limited, at fair value
(Cost: US$127,037,648; 2012:
US$127,037,648) 4 174,588,805 168,771,815
Cash and cash equivalents 128,364 323,005
Other receivables 22,093 55,175
-------------------- --------------------
Total assets 174,739,262 169,149,995
----------------- -----------------
Liabilities
Directors' fee payable 8(e) 126,000 252,000
Accrued expenses and other
payables 304,213 77,087
Provision for repurchase
of shares 6 11,000,000 -
-------------------- --------------------
Total liabilities 11,430,213 329,087
----------------- -----------------
Net assets 163,309,049 168,820,908
Analysis of net assets
Share capital 6 1,617,398 1,617,398
Share premium 6 160,614,136 160,614,136
Tendered shares 6 (75,349,046) (64,349,046)
Retained earnings 76,426,561 70,938,420
-------------------- --------------------
Net assets (equivalent to
US$1.533 per share based
on 113,689,591 outstanding
shares) (2012: US$1.485 per
share based on 113,689,591
outstanding shares) 163,309,049 168,820,908
Approved by the Board of Directors
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED UNAUDITED STATEMENT OF OPERATIONS
Period Period
Note end end
30 June 30 June
2013 2012
US$ US$
Income
Bank interest income 61 271
----------------- -----------------
Expenses
Directors' fees 8(e) 126,000 126,000
Other expenses 203,723 198,434
------------------ ------------------
Total expenses from fund specific
activities 329,723 324,434
----------------- -----------------
Income and expenses allocated
from Pacific Alliance Asia
Opportunity Feeder Fund III
Limited
Income allocated from Pacific
Alliance Asia Opportunity
Feeder Fund III Limited 4 1,178,750 1,106,059
Expenses allocated from Pacific
Alliance Asia Opportunity
Feeder Fund III Limited (including
performance fee allocation
of US$1,451,892; 2012: US$1,933,210) 4 (5,251,607) (10,115,577)
------------------ ------------------
Net investment loss allocated
from Pacific Alliance Asia
Opportunity Feeder Fund III
Limited (4,072,857) (9,009,518)
------------------ -----------------
Net investment loss (4,402,519) (9,333,681)
------------------ -----------------
Realized and unrealized gains/(losses)
from investments allocated
from Pacific Alliance Asia
Opportunity Feeder Fund III
Limited and foreign currencies
Net realized gains from investments
allocated from Pacific Alliance
Asia Opportunity Feeder Fund
III Limited 4 5,493,808 5,890,602
Net change in unrealized gains
on investments allocated from
Pacific Alliance Asia Opportunity
Feeder Fund III Limited 4 4,396,039 12,409,726
Net foreign exchange gains/(losses) 813 (131)
------------------ ------------------
Net realized and unrealized
gains from investments allocated
from Pacific Alliance Asia
Opportunity Feeder Fund III
Limited and foreign currencies 9,890,660 18,300,197
------------------ -----------------
Net increase in net assets
from operations 5,488,141 8,966,516
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED UNAUDITED STATEMENT OF CHANGES IN NET ASSETS
Share
capital
and share Retained
Note premium earnings Tendered shares Total
US$ US$ US$ US$
At 1 January 2013 162,231,534 70,938,420 (64,349,046) 168,820,908
Provision for repurchase of
shares 6 - - (11,000,000) (11,000,000)
Net increase in net assets
from operations - 5,488,141 - 5,488,141
------------------ ---------------- ------------------ ------------------
At 30 June 2013 162,231,534 76,426,561 (75,349,046) 163,309,049
At 1 January 2012 162,231,534 55,623,285 (42,864,339) 174,990,480
Repurchase of shares 6 - - - -
Net increase in net assets
from operations - 8,966,516 - 8,966,516
---------------- ---------------- ---------------- ----------------
At 30 June 2012 162,231,534 64,589,801 (42,864,339) 183,956,996
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED UNAUDITED STATEMENT OF CASH FLOWS
Period Period
end end
--------------------------------------- ------------------- -------------------
30 June 30 June
--------------------------------------- ------------------- -------------------
2013 2012
--------------------------------------- ------------------- -------------------
US$ US$
--------------------------------------- ------------------- -------------------
Net increase in net assets from
operations 5,488,141 8,966,516
--------------------------------------- ------------------- -------------------
Adjustments
--------------------------------------- ------------------- -------------------
Income allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited (1,178,750) (1,106,059)
--------------------------------------- ------------------- -------------------
Expenses allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited 5,251,607 10,115,577
--------------------------------------- ------------------- -------------------
Net realized gains from investments
allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited (5,493,808) (5,890,602)
--------------------------------------- ------------------- -------------------
Net unrealized gains from investments
allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited (4,396,039) (12,406,726)
--------------------------------------- ------------------- -------------------
Other receivables 33,082 33,003
--------------------------------------- ------------------- -------------------
Increase/(decrease) in operating
liabilities
--------------------------------------- ------------------- -------------------
Accrued expenses and other payables 101,126 (215,836)
--------------------------------------- ------------------- -------------------
------------------ ------------------
--------------------------------------- ------------------- -------------------
Net cash used in operating activities (194,641) (507,127)
--------------------------------------- ------------------- -------------------
----------------- -----------------
--------------------------------------- ------------------- -------------------
Cash flows from financing activities
--------------------------------------- ------------------- -------------------
Repurchase of shares - -
--------------------------------------- ------------------- -------------------
------------------ ------------------
--------------------------------------- ------------------- -------------------
Net cash used in financing activities - -
--------------------------------------- ------------------- -------------------
----------------- -----------------
--------------------------------------- ------------------- -------------------
Net decrease in cash and cash
equivalents (194,641) (507,127)
--------------------------------------- ------------------- -------------------
Beginning balance 323,005 1,007,683
--------------------------------------- ------------------- -------------------
------------------ ------------------
--------------------------------------- ------------------- -------------------
Ending balance, representing cash
and bank balances 128,364 500,556
--------------------------------------- ------------------- -------------------
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO THE CONSOLIDATED UNAUDITED INTERIM FINANCIAL
STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2013
1 Organization
Pacific Alliance Asia Opportunity Fund Limited (the "Company")
was incorporated on 4 May 2006 in the Cayman Islands as a
closed-end Cayman Islands registered exempted company. The
Company's ordinary shares are traded on the AIM market of the
London Stock Exchange Plc. The Company can raise additional capital
up to the authorized share capital as disclosed in Note 6. The
Company's registered office is PO Box 472, 2nd Floor, Harbour
Place, Grand Cayman, Cayman Islands.
Since the reconstruction approved by an extraordinary general
meeting held on 7 May 2009 (the "Reconstruction") (See Note 4
below), the Company invests substantially all its assets in Pacific
Alliance Asia Opportunity Fund L.P. (the "Master Fund"), a Cayman
Islands exempted limited partnership, through a 12.67% (2012:
13.81%) interest in Pacific Alliance Asia Opportunity Feeder Fund
III Limited (the "Feeder Fund"). As at 30 June 2013, the Company
indirectly held approximately a 8.56 % (2012: 8.23%) interest in
the Master Fund.
The Company's investment activities are managed by Pacific
Alliance Investment Management Limited (the "Investment Manager").
The Company has appointed Butterfield Trust (Bermuda) Limited to
act as custodian of certain assets of the Company and Butterfield
Fulcrum Group (Ireland) Limited to act as the Company's
administrator pursuant to the custodian agreement and
administration services agreement, respectively.
The consolidated financial statements were approved by the Board
of Directors on 30 September 2013.
2 Summary of significant accounting policies
The following significant accounting policies are in conformity
with accounting principles generally accepted in the United States
of America ("US GAAP"). The Company applies the provisions of
Financial Accounting Standards Board ("FASB") ASC 946-10, Financial
Services - Investment Companies (the "Guide"). Such policies are
consistently followed by the Company in the preparation of its
consolidated financial statements.
(a) Principles of consolidation
These consolidated financial statements include the financial
statements of the Company and its subsidiaries (collectively, the
"Fund"). Subsidiaries are fully consolidated from the date on which
control is transferred to the Fund and deconsolidated from the date
that control ceases. Inter-company transactions between group
companies are eliminated upon consolidation.
The Fund uses wholly and partially owned special purpose
vehicles ("SPV") to hold and transact in certain investments and
lending. 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) for fair value measurement).
(b) Use of estimates
The preparation of 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 2013 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 consolidated financial statements are
disclosed in Note 2(h).
(c) Investments
(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.
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 statement
of operations.
(ii) Fair value measurement
Fund is an investment company under the Guide. As a result, the
Fund records and re-measures its investment in the Feeder Fund on
the consolidated statement of assets and liabilities at fair value.
The fair value of the Fund's investment in the Feeder Fund is based
on the net asset value ("NAV") of the Feeder Fund as determined by
its administrator and investment manager. The Feeder Fund is open
to subscription on a monthly basis and redemption on a quarterly
basis, based on the NAV calculated by its administrator and the
Investment Manager considers that it is an appropriate basis for
the fair value of the Fund's investment in the Feeder Fund.
The Fund records its proportionate interest in the net assets of
the Feeder Fund. The Fund records and reflects its proportionate
share of the Feeder Fund's income, expenses, and realized and
unrealized gains and losses from investments in the consolidated
statement of operations. As a result, no realized and unrealized
gains or losses from investment in the Feeder Fund are recognized.
In addition, the Fund accrues its own income and expenses. The
performance of the Fund is directly affected by the performance of
the Master Fund. Attached are the unaudited interim consolidated
financial statements of the Feeder Fund and the Master Fund,
including the consolidated schedule of investments, valuation
policy and period end investment valuation, which should be read in
conjunction with these consolidated financial statements.
(d) 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 and highly liquid
investments that are readily convertible to known amounts of cash
and have original maturities of three months or less.
(e) 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 rate as at financial reporting date, while income and
expenses are translated at the exchange rates in effect during the
period.
Gains and losses attributed to changes in the value of foreign
currencies for investments, cash balances and other assets and
liabilities are reported as foreign exchange gain and loss in the
consolidated statement of operations.
(f) 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/or gains earned. Taxes are accrued and applied to net
investment income, net realized gains and net unrealized gains, as
applicable, when the income and/or 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 FASB ASC
740 described in Note 5.
The Fund uses the asset and liability method to provide for
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.
(g) Recognition of income and expenses
Interest income on bank balances is accrued as earned using the
effective interest method.
Expenses are recorded on an accrual basis.
The Fund also records its proportionate share of the Feeder
Fund's income and expenses. Please refer to note 2(c)(ii) for
details.
(h) 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.
(i) Fair value of investment in the Feeder Fund
As discussed in note 2(c)(ii), the fair value of the Fund's
investment in the Feeder Fund is based on the NAV of the Feeder
Fund as determined by its administrator and investment manager. The
Feeder Fund invests substantially all its assets in the Master
Fund. The fair value of unlisted or unquoted securities in the
Master Fund is determined by using valuation techniques. The
valuation committee of the Master Fund ("Valuation Committee"),
with assistance from independent valuers, uses their judgment 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 Valuation Committee uses their best judgment 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 Fund's consolidated financial statements.
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 in
which 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) "Master-feeder" structure
Since the Reconstruction, the Fund operates a "master-feeder"
structure and invests solely in the Master Fund through the Feeder
Fund. The "master-feeder" structure presents certain risks to the
Fund. The Feeder Fund will incur expenses and liabilities that will
be paid prior to making distributions to the Fund. The Fund may be
materially affected by the actions of other investors in the Master
Fund and the Feeder Fund. Consequently, if other investors redeem
from the Master Fund and the Feeder Fund, the Fund may experience
higher pro-rata operating expenses. The financial risks of the Fund
are associated with those of the Master Fund and the Feeder Fund
which are discussed in Note 3 of the Master Fund's and the Feeder
Fund's consolidated financial statements.
(b) Market risk
Market risk represents the potential loss in value of financial
instruments caused by movements in market variables, such as equity
prices.
The market risk that the Fund is exposed to is from the
investments in the Master Fund, of which the investments are
typically made with a focus onGreater China. Political or economic
conditions and the possible imposition of adverse laws or currency
exchange restrictions in that region could cause the Master Fund's
investments and the respective markets to become less liquid and
also the prices to become more volatile.
(c) 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 as well as the Master Fund's investments
that expose the Fund to interest rate risk.
(d) Currency risk
Foreign currency risk arises as the value of future
transactions, recognised monetary assets and monetary liabilities
denominated in other currencies, fluctuates due to changes in
foreign exchange rates.
As at 30 June 2013 and 31 December 2012, the majority of the
Fund's assets and liabilities are denominated in US$, the
functional currency. As such, the Fund is not subject to material
currency risk.
(e) Credit risk
The main credit risk to which the Fund is exposed arises from
the Fund's indirect investment in the Master Fund which is closely
monitored by the Investment Manager.
(f) Liquidity risk
As the Company is closed-ended, it is not exposed to redemptions
of shares by its shareholders.
The Fund is exposed to liquidity risk as the Fund's investments
in the Feeder Fund are largely illiquid. Redemptions of interest in
the Feeder Fund are subject to a 12 months lock up in the first
year of investment and an additional notice period of 180 days.
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.
4 Investments in Pacific Alliance Asia Opportunity Fund L.P.
As at 30 June 2013, the Feeder Fund was 12.67% (2012: 13.81%)
held by the Fund and 87.33% (2012: 86.19%) held by unrelated
investors. As at 30 June 2013, the Feeder Fund held 67.58% in the
Master Fund (2012: 59.55%).
In accordance with FASB ASC 820-10, Fair Value Measurement and
Disclosures, the Fund categorizes the fair value of its investments
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). FASB ASC 820-10-35-39 to 55 provides three levels of
the fair value hierarchy 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 to measure fair values are quoted prices in markets that
are not active, quoted prices for similar assets in active markets
or prices or valuations for which all significant inputs are
observable, either directly or indirectly. Inputs other than quoted
prices included within Level 1 that are observable for the asset or
liability either directly or indirectly, including quoted prices
for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are
not considered to be active, inputs other than quoted prices that
are observable for the asset or liability, and inputs that are
derived principally from or corroborated by observable market data
by correlation or other means; and
Level 3
Inputs that are unobservable and significant to the overall fair
value measurement.
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 Investment Manager 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 Investment
Manager's perceived risk of that asset or liability.
In determining an instrument's placement within the hierarchy,
the Investment Manager follows the following guidance for
investments held by the Fund:
Level 1
Investments in listed stocks, bonds and derivatives are valued
using quoted prices in active markets and are therefore classified
within Level 1 of the fair value hierarchy.
As at 30 June 2013 and 31 December 2012, the Fund did not have
any investments that were categorized as Level 1 within the fair
value hierarchy.
Level 2
It may be possible that the NAV of unlisted investment funds
represents their fair value based on observable inputs such as
ongoing subscription and/or redemption activities. In these cases,
the NAV is considered as a Level 2 input.
The NAV of the Feeder Fund is used to value the Fund's
investment in the Feeder Fund as the Investment Manager believes it
represents the fair value based on observable data such as ongoing
redemption and/or subscription activities. As at 30 June 2013 and
31 December 2012, the Fund's investment in the Feeder Fund is
included in Level 2.
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. As at 30 June 2013 and 31 December 2012, the
Fund had no investments that were categorized as Level 3 within the
fair value hierarchy. The investments within the Master Fund range
from Level 1 to Level 3.
The Fund accounts for and reflects in the consolidated financial
statements the proportionate share of the investment in the Feeder
Fund. The table below summarizes the investment income allocated
from the Master Fund through the Feeder Fund during the period
ended 30 June 2013 and 30 June 2012, respectively:
30 June 30 June
2013 2012
US$ US$
Loan origination income 15,666 11,500
Interest income 197,352 762,576
Bank interest income 203,875 129,630
Dividend income 676,643 202,350
Other income 85,214 3
---------------- ----------------
Income allocated from the
Master Fund through the Feeder
Fund 1,178,750 1,106,059
5 Taxation
The Fund adopted the authoritative guidance contained in FASB
ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which requires the Investment Manager 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. The Investment Manager has analyzed the tax positions
and tax years in the jurisdictions that the Fund may be subject to.
For tax positions meeting the more likely than not threshold, the
tax amount recognized in the consolidated 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 Investment Manager have reviewed the operation and
investment structure of the Fund and considered there is no
material uncertain tax position at 30 June 2013.
Under current Cayman Islands legislation applicable to an
exempted company, the Fund is not subject to income tax, capital
gains or withholding tax, estate duty, or inheritance tax.
6 Share capital, share premium and tendered shares
Share Share Tendered
Number of capital premium shares Total
shares US$ US$ US$ US$
At 1
January
2013 113,689,591 1,617,398 160,614,136 (64,349,046) 97,882,488
Provision
for
repurchase
of shares (11,000,000) (11,000,000)
-------------------- -------------------- -------------------- -------------------- --------------------
At 30 June
2013 113,689,591 1,617,398 160,614,136 (75,349,046) 86,882,488
At 1
January
and 30
June 2012 128,666,354 1,617,398 160,614,136 (42,864,339) 119,367,195
As at 30 June 2013, the total authorised number of ordinary
shares was 5,000,000,000 (2012: 5,000,000,000) shares with a par
value of US$0.01 (2012: US$0.01) per share.
As at 30 June 2013, the Company had 161,739,827 (2012:
161,739,827) ordinary shares in issue, of which 48,050,236 (2012:
48,050,236) were held as tendered shares.
7 Dividends
The directors do not recommend the payment of a dividend for the
period ended 30 June 2013 and 30 June 2012.
8 Related-party transactions
The Fund had the following significant related-party
transactions.
(a) Investment in Pacific Alliance Asia Opportunity Fund
L.P.
The Fund invests in the Master Fund via the Feeder Fund, both of
which are managed by the Investment Manager. Please refer to Note 4
for details.
(b) Company's shares held by the Investment Manager and its
subsidiary
During the period ended 30 June 2013, the Investment Manager and
its subsidiary entered into the following transactions in the
Company's shares:
-- transferred 1,249,218 shares of the Company to directors or
management of the Investment Manager and its subsidiaries.
During the year ended 31 December 2012, the Investment Manager
and its subsidiary entered into the following transactions in the
Company's shares:
-- tendered 954,267 shares of the Company at US$1.420 for
repurchase by the Company in July 2012;
-- tendered 911,073 shares of the Company at US$1.450 for
repurchase by the Company in November 2012;
-- purchased 47,104, 1,146,700 and 1,052,682 shares of the
Company at US$1.140, US$1.173 and US$1.250 respectively from the
market; and
-- transferred 2,093,241 shares of the Company to directors or
management of the Investment Manager and its subsidiaries.
As at 30 June 2013, the Investment Manager and its subsidiary
held 6,220,946 (2012: 7,470,164) shares of the Company,
representing 5.5% (2012: 6.6%) of the Company's total issued
shares.
(c) Company's shares held by the Master Fund
During the period ended 30 June 2013, the Master Fund purchased
nil shares of the Company on open market (for the period ended 30
June 2012: 8,391,910 shares at US$8,630,905). As at 30 June 2013,
the Master Fund held 7,641,910 (2012: 7,641,910) shares of the
Company, representing 6.7% (2012: 6.7%) of the Company's total
issued shares.
(d) Management fees and performance allocations to the
Investment Manager
Before the Reconstruction, the Fund paid management fees and
performance allocations directly to the Investment Manager. The
Investment Manager is no longer entitled to receive management fees
or performance allocations from the Fund.
(e) Directors' fees and expenses
The Company pays each of its directors an annual fee of
US$70,000 (2012: US$70,000) plus out-of-pocket expenses and each of
its valuation committee and audit committee members an annual fee
of US$14,000 (2012: US$14,000). During the period ended 30 June
2013, two directors of the Company, Christopher Marcus Gradel and
Anthony Murray Miller, agreed to waive their annual fees.
9 Financial highlights
NAV per share at the end of the period is as follows:
Period end Period end
30 June 30 June
2013 2012
US$ US$
Per share data
(for a share outstanding throughout
the period):
NAV at beginning of period 1.485 1.360
Net investment loss (0.039) (0.072)
Net realized and unrealized
gains from investments 0.087 0.142
------------ ------------
NAV at end of period 1.533 1.430
The following represents the ratios to average net assets and
other supplemental information:
Period end Period end
30 June 30 June
2013 2012
Total return (1) 3.23% 4.99%
Ratios to average net assets
(2)
Total expenses (6.57%) (11.62%)
Net investment loss (2.59%) (5.19%)
(1)Total return represents the change in NAV, adjusted for cash
flows in relation to capital transactions for the period.
(2)Average net assets is derived from the beginning and ending
monthly NAV, adjusted for cash flows related to capital
transactions for the period. For the period ended 30 June 2013, the
average net assets amounted to US$168,876,492 (for the period ended
30 June 2012: US$179,707,453).
10 Commitment and contingency
In the normal course of business, the Fund, the Master Fund and
the Feeder Fund may enter into arrangements that contain a variety
of representations and warranties that provide general
indemnification under certain circumstances. The Fund, the Master
Fund and the Feeder Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that
may be made against the Fund, the Master Fund and the Feeder Fund
that have not yet occurred. However, based on experience, the
Investment Manager expects the risk of loss to be remote and,
therefore, no provision has been recorded.
11 Subsequent events
The Investment Manager has performed a subsequent events review
from 1 July 2013 through to 30 September 2013, being the date that
the consolidated financial statements were authorized for
issuance.
Share repurchases amounting to US$10,436,704 were settled by 31
July 2013.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR URRWROBAKORR
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