Source - RNS
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:
Patrick Boot, Managing Partner
Pacific Alliance Real Estate Limited
T: (852) 2918 0088
[email protected]

 

LEGAL COUNSEL:
Jon Lewis, General Counsel
PAG
T: (852) 2918 0088
[email protected]

BROKER:
Andrew Davies / Henry Freeman / Rob Johnson
Liberum Capital Limited
T: (44) 20 (0) 20 3100 2000
www.liberum.com

NOMINATED ADVISER:
Philip Secrett
Grant Thornton UK LLP
T: (44) 20 7383 5100
[email protected]

 

MEDIA RELATIONS:
Tim Morrison
PAG
T: (852) 3719 3375
[email protected]


 

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

 2016

  31 December 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.

Investments and cash

Fair value (gross) US$

Type

% of Total

Location

Attributable to PACL II Limited ("PACL 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

 


Note

As at

30 June

2016

As at

31 December

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

Investments - Assets

% of net assets

% of

effective equity

interest

held

Cost/principal

Fair value

% of net assets

% of

effective equity

interest

held

Cost/principal

Fair 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 PERIOD ENDED 30 JUNE 2016

 


Note

Period from

1 January to

30 June 2016

Period from

1 January to

30 June 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 PERIOD ENDED 30 JUNE 2016

 

 


Note

Share capital

 and share

premium

Capital

surplus

Tendered

shares

Retained

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 PERIOD ENDED 30 JUNE 2016


Note

Period from

1 January to

30 June

2016

Period from

1 January to

31 December 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 payable

6, 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 PERIOD ENDED 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

30 June  

2016

As at

31December 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 assets


Fair value


Valuation technique(s)

Significant unobservable inputs

Inputs/range




US$






Unlisted Equity


41,804,900


Indicative offer

N/A

N/A




82,824,714


Last traded price of H-shares listed in Hong Kong

Liquidity discount

25%




 ──────────








124,629,614






 

 


══════════





 

2015

 


Investment assets


Fair value


Valuation technique(s)

Significant unobservable inputs

Inputs/range




US$






Unlisted Equity

 


141,359,884


Indicative offer

N/A

N/A




78,815,093


Last traded price of H-shares listed in Hong Kong

Liquidity 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 1

Level 2

Level 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

- unlisted

 equity

Investments

- loans

receivable

Investments

- other debt instruments

Investments

- 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 June 2016

Fair Value

Contractual/notional 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

Notional

Sold

notional

Gains/(losses)


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

 outstanding

Share

capital

Share

 premium

Capital

 surplus

Tendered

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

shares repurchased/

(reissued)

Repurchase/

reissue 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 30

June 2016

As at 31 December 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 January to

30 June 2016

From 1 January to

30 June 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
 
 
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