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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Pacific Alliance China Land Limited | LSE:PACL | London | Ordinary Share | KYG6846Y1035 | ORD USD0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.18 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMPACL
RNS Number : 6367R
Pacific Alliance China Land Limited
25 September 2017
25 September 2017
Pacific Alliance China Land Limited
Unaudited results for the six months ended 30 June 2017
Pacific Alliance China Land Limited ("PACL" or the "Company"), an AIM-traded, closed-end investment company, has today announced its financial results for the six months to 30 June 2017.
Highlights
-- Net asset value as at 30 June 2017 was US$174.5 million, representing US$2.8327 per share, a 1.3% decrease from 31 December 2016 (US$176.8m).
-- On 30 June 2017, the Company's share price closed at US$2.295, representing a 10.5% increase from 31 December 2016 and a 19% 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 (F3REAES) and the FTSE AIM All-Share Index (AXX) since inception.
Portfolio and Fund Developments
-- The Company announced a mandatory share repurchase with a total amount of US$12 million in August 2017. The Investment Manager will continue to try and speed up the process where possible, however there are still many steps to be completed in the repatriation process and numerous approvals required.
Patrick Boot, Managing Director, Pacific Alliance Real Estate Limited commented that:
In the second half of 2017, we expect both China's economy and the property market to further stabilize. The Manager will continue to focus on the timely repatriation of RMB and distribution of repatriation proceeds to shareholders.
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
For further information please contact:
MANAGER: LEGAL COUNSEL: Patrick Boot, Managing Jon Lewis, General Counsel Partner PAG Pacific Alliance Real T: (852) 2918 0088 Estate Limited jlewis@pagasia.com T: (852) 2918 0088 pboot@pagasia.com BROKER: NOMINATED ADVISER: Andrew Davies / Tom Fyson Philip Secrett / Rob Johnson Grant Thornton UK LLP Liberum Capital Limited T: (44) 20 7383 5100 T: (44) 20 (0) 20 3100 Philip.J.Secrett@uk.gt.com 2000 www.liberum.com MEDIA RELATIONS: Stephanie Barry PAG T: (852) 3719 3375 sbarry@pagasia.com
Notes to Editors:
About Pacific Alliance China Land Limited
Pacific Alliance China Land Limited ("PACL") (AIM: PACL) is a closed-end investment company with net assets of US$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 a member of PAG (formerly known as Pacific Alliance Group), the Asian alternative investment fund management group. Founded in 2002, PAG is now one of the region's largest Asia-focused alternative investment managers with funds under management across Private Equity, Real Estate and Absolute Return strategies.
For more information about PAG, please visit: www.pagasia.com
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
Chairperson's Statement
As of 30 June 2017, the net asset value (NAV) of Pacific Alliance China Land Limited (the "Company" or "PACL") was US$174.5 million, or US$2.8327 per share, representing a 1.3% decrease from 31 December 2016.
China's GDP grew at 6.9% year-on-year in the first half of 2017, which was higher than the Government's target of 6.5%, reflecting an upward trend in China's economy. This was largely due to continued State investment in infrastructure on the back of regional development initiatives including the Belt and Road development programme. The service sector, which accounts for 54.1% of the overall economy, expanded 7.7% year-on-year in the first half, outpacing a 3.5% increase in primary industries and a 6.4% increase in secondary industries. As a result, the government is likely to maintain a stable monetary policy and support reasonable fiscal expansion that should allow China to continue to achieve a moderate and sustainable level of growth.
Most tier-one and tier-two cities saw moderate growth in terms of both price and transaction volumes, given the Chinese government's stricter property tightening measures. The Manager expects that the central Government will continue to adopt differentiated housing policies for different cities. The Government will continue to tighten controls in tier-one and tier-two cities where housing inventories are low, and continue to loosen controls in lower-tier cities in order to boost demand and help facilitate a reduction of inventory in those oversupplied markets.
As all of the Company's investments have been exited we will continue to focus all our efforts on the timely repatriation of RMB and distribution of repatriation 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 2017, the Company's share price closed at US$2.295, representing a 10.5% increase from 31 December 2016 and a 19% 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 (F3REAES) and the FTSE AIM All-Share Index (AXX) on a consistent basis since inception.
Portfolio Summary
As at 30 June 2017, the Company held cash of US$170.0 million (of which US$166.6 million was held onshore in RMB, pending repatriation), as well as investments with a cost of approximately US$3.5 million and a fair value of US$1.7 million.
Investments Fair value Type % of and Cash (gross) US$ total ------------- -------------- ------------ -------- FX Hedging 1,714,515 Derivatives 1.00% Cash 170,047,280 Cash (1,2) 99.00% ------------- -------------- ------------ -------- TOTAL 171,761,795 100.00% ------------- -------------- ------------ --------
Note
(1) The gross investment value includes an amount attributable to the PACL II shareholders. (2) Of the total cash of US$170.0 million, US$166.6 million was held as RMB in PRC banks.
Distribution
The timeline below is the Manager's best estimate of amounts and timing regarding future distributions to shareholders, subject to repatriation expectations.
The Manager will continue to expedite the process where possible, however notes there are still many steps to be completed in the repatriation process and numerous approvals required.
Hot Features
Premium
Project Source Estimated Estimated
distribution Timing
amount
---------- --------------- -------------- ----------
Malls* The original US$18 million Feb 2018
invested
capital from
Shanghai
Land and
the Walmart
Shares
---------- --------------- -------------- ----------
Auspice** The net profit US$74 million June 2018
from sale
of the Wanda
shares
---------- --------------- -------------- ----------
Auspice** The original US$61 million Dec 2018
invested
capital for
Auspice and
other onshore
projects.
---------- --------------- -------------- ----------
Estimated US$153
Total million
---------- --------------- -------------- ----------
* Due to the longer time for the tax liquidation audit, the profit component for Project Malls was repatriated in July and the invested capital component is expected to be repatriated by Q1 of 2018.
**Currently there are four levels of special purpose vehicles (SPVs) under the holding chain for Project Auspice: the joint venture that held the Wanda shares is immediately owned by the Tibet SPV which is 100% owned by a Tianjin SPV, which in turn is 100% owned by a Tianjin Wholly Foreign Owned Enterprise (WFOE). A statutory tax and liquidation audit is required for all the SPVs. Usually the liquidation process takes at least six months and the dividend repatriation for a WFOE can only be completed after the statutory audit is completed, therefore all these regulations and practices result in a longer time frame for repatriation and distribution. The process is generally sequential but some steps will be taken in parallel where possible.
Conclusion
In the second half of 2017, we expect both China's economy and the property market to further stabilize. The Manager will continue to focus on the timely repatriation of RMB and distribution of repatriation proceeds to shareholders.
30 June 31 December
2017 2016
US$ US$
Realized Gain
Investment income 241,486 214,592,216
Dividend income - 2,848,531
Deposit interest 979,993 859,366
------------------ ------------------
1,221,479 218,300,113
Change in Unrealized Gain/(Losses)
Derivatives (3,986,550) 1,903,639
Other real estate investments (1,513,834) (117,817,710)
Listed stock - (55,253,795)
Share of (gains payable to)/losses
receivable from PACL II 112,734 (138,678)
Foreign exchange 4,643,003 (5,737,148)
------------------ ------------------
(744,647) (177,043,692)
------------------ ------------------
476,832 41,256,421
UNAUDITED CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 30 JUNE 2017
As at As at
30 June 31 December
Note 2017 2016
US$ US$
Assets
Derivative contracts, at
fair value (Cost: US$3,468,680;
2016: US$4,106,660) 5 1,714,515 6,339,045
Prepayment and other receivables 6 17,554,071 29,107,982
Cash and bank balances 170,047,280 164,657,215
-------------------- --------------------
Total assets 189,315,866 200,104,242
------------------- -------------------
Liabilities
Provision for taxation 8 10,121,852 20,244,692
Amounts due to PACL II Limited 11(a) 125,021 237,755
Performance fee payable 9 611,581 611,581
Provision for investment
agency fees 10 1,415,585 1,415,585
Accrued expenses and other
payables 2,559,002 848,996
-------------------- --------------------
Total liabilities 14,833,041 23,358,609
------------------- -------------------
Net assets 174,482,825 176,745,633
Analysis of net assets
Share capital 7 615,967 615,967
Retained earnings 173,866,858 176,129,666
-------------------- --------------------
Net assets (equivalent to
US$2.8327 per share based
on 61,596,638 outstanding
shares; 2016: US$2.8694 per
share based on 61,596,638
outstanding shares) 174,482,825 176,745,633
UNAUDITED CONSOLIDATED CONDENSED SCHEDULE OF INVESTMENTS
AS AT 30 JUNE 2017
AS AT 30 JUNE 2017 AS AT 31 DECEMBER
2016
Investments % % Cost/principal Fair % % Cost/principal Fair
- Assets of of value of of value
net effective net effective
assets equity assets equity
interest interest
held held
US$ US$ US$ US$
Derivatives 0.98% 3.59%
Others 0.98% 3,468,680 1,714,515 3.59% 4,106,660 6,339,045
-------------------- -------------------- -------------------- --------------------
3,468,680 1,714,515 4,106,660 6,339,045
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODED 30 JUNE 2017
Period Period
from from
1 January 1 January
to to
30 June 30 June
Note 2017 2016
US$ US$
Income
Interest income 979,993 393,844
------------------ ------------------
Total income 979,993 393,844
----------------- -----------------
Expenses
Tax expense 8 (203,680) (3,383,090)
Management fees 9 (1,877,219) (2,278,591)
Legal and professional fees - (79,405)
Other expenses (658,741) (780,872)
------------------ ------------------
Total expenses (2,739,640) (6,521,958)
----------------- -----------------
Net investment losses (1,759,647) (6,128,114)
----------------- -----------------
Realized and unrealized gains/(losses)
from investments and foreign
currency
Net realized gains from investments
and foreign currency transactions 241,486 81,324,196
Net change in unrealized
losses from investments and
losses on translation of
assets and liabilities in
foreign currencies 5 (857,381) (80,233,241)
Net decrease/(increase) in
payable to PACL II Limited
from gains/(losses) attributable
to PACL II Limited 11(a) 112,734 (69,868)
------------------ ------------------
Net realized and unrealized
(losses)/gains from investments
and foreign currency (503,161) 1,021,087
----------------- -----------------
Net decrease in net assets
from operations (2,262,808) (5,107,027)
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIODED 30 JUNE 2017
Share
capital
and
share Capital Retained
Note premium surplus earnings Total
US$ US$ US$ US$
At 1 January 2016 67,078,494 1,816,917 165,903,397 234,798,808
Repurchase of
tendered shares 7 (66,462,527) (1,816,917) (27,720,549) (95,999,993)
Net increase in
net assets from
operations - - 37,946,818 37,946,818
-------------------- ------------------ -------------------- --------------------
At 31 December
2016 and
1 January 2017 615,967 - 176,129,666 176,745,633
Net decrease in
net assets from
operations - - (2,262,808) (2,262,808)
-------------------- ------------------ -------------------- --------------------
At 30 June 2017 615,967 - 173,866,858 174,482,825
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODED 30 JUNE 2017
Period Period
from from
1 January 1 January
to to
30 June 31 December
Note 2017 2016
US$ US$
Net (decrease)/increase in net
assets from operations (2,262,808) 37,946,818
Adjustments to reconcile net
(decrease)/increase in net assets
from operations to net cash generated
from operating activities
Purchase of investments - (5,843,256)
Disposal of investments 637,980 260,768,710
Change in unrealized gain/(loss) 3,986,550 (38,379,456)
Receivable/(payable) from gain/(loss)
attributable to PACL II Limited (112,734) 138,678
Change in prepayment and other
receivables 11,553,911 (28,210,848)
Change in amounts due to PACL
II Limited - 342,000
8,
Change in performance fees payable 9 - 611,581
Change in provision for taxation (10,122,840) (22,891,468)
Change in accrued expenses and
other payables 1,710,006 (162,933)
-------------------- --------------------
Net cash generated from operating
activities 5,390,065 204,319,826
------------------ ------------------
Cash flows from financing activities
Repurchase of shares 7 - (95,999,993)
-------------------- --------------------
Net cash used in financing activities - (95,999,993)
------------------ ------------------
Net increase in cash and cash
equivalents 5,390,065 108,319,833
Beginning balance 164,657,215 56,337,382
-------------------- --------------------
Ending balance, representing
cash and bank balances 170,047,280 164,657,215
Supplementary information to statement of cash flows
Interest income received 979,993 859,366 Dividend income received - 2,848,531
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2017
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 7.
The principal investment objective of the Company and its subsidiaries (collectively, the "Company") 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 Company's investment activities are managed by Pacific Alliance Real Estate Limited ("PARE" or the "Investment Manager"). The Company appointed Sanne Fiduciary Services Limited to act as the custodian of certain assets of the Company, and as the administrator and registrar pursuant to the Administration Custodian and Registrar Agreement.
On 25 July 2014, the Company's investment policy was changed to (a) restrict new investments solely to supporting existing investments, (b) allow the use of renminbi cash assets (which are subject to exchange controls) for low risk short-term investments, and (c) focus future investment management efforts on the realization of the portfolio and the return of net realization proceeds to shareholders.
As of 30 June 2017, all investments under management were realized and most of the sale proceeds had been received by underlying special purpose vehicles. For project Malls, the invested capital is expected to be repatriate by first quarter of 2018. For project Auspice, the profit and invested capital is expected to be repatriated by second quarter of 2018 and fourth quarter of 2018 respectively. For project Diplomat, the remaining sales proceeds were received in the second quarter of 2017. The Company will not be liquidated until the repatriation process is fully completed.
The consolidated financial statements were approved by the Board of Directors on 25 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 Company applies the provisions of Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 946-10, Financial Services - Investment Companies (the "Guide"). The Company is an investment company under 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. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and deconsolidated from the date that control ceases. Inter-company transactions between group companies are eliminated upon consolidation.
The Company uses wholly and partially owned special purpose vehicles ("SPVs") to hold and transact in certain investments. The Company's policy is to consolidate, as appropriate, those SPVs in which the Company has control over significant operating, financial or investing decisions of the entity.
Except when an operating company provides services to the Company, 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 Company'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 2017 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(k).
(c) Investments
The Company may hold both listed securities and unlisted securities, which by nature have limited marketability. The Company 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 Company 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 Company is an investment company under the Guide. As a result, the Company 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 Company, 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 Company's valuation models, including earnings multiples (based on the budgeted earnings or historical earnings of the issuer and earnings multiples of comparable listed companies) and discounted cash flows. The Valuation Committee also considers the relevant developments since acquisition of the investments, the original transaction price, recent transactions in the same or similar instruments, completed third-party transactions in comparable instruments, reliable indicative offers from potential buyers and rights in connection with realization. Judgement is used to adjust valuation as necessary for factors such as non-maintainable earnings, tax risk, growth stage, and cash traps. Cross-checks of primary techniques are made against other secondary valuation techniques.
The Company'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 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 Company 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 Company are maintained in United States Dollars ("US$"), which is also the functional currency. Assets and liabilities, both monetary and non-monetary, denominated in foreign currencies are translated into US$ by using prevailing exchange rates as at financial reporting date, while income and expenses are translated at the exchange rates in effect during the period.
Gains and losses attributed to changes in the value of foreign currencies for investments, cash balances and other assets and liabilities are reported as foreign exchange gain and loss in the consolidated statement of operations.
(h) Taxation
The Company 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 Company 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 8.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company 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 Company 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.
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 at the year-end.
(j) Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
(k) Critical accounting estimates and assumptions (i) Fair value of investments
The fair value of unlisted or unquoted securities and loans receivable is determined by using valuation techniques. Judgement is used to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.
Although best judgment is used in estimating fair value, there are inherent limitations in any valuation technique. Estimated fair value may differ significantly from the value that would have been used had a readily available market for such investments existed and these differences could be material to the consolidated statement of assets, liabilities and partners' capital. Additional information about the level of market observability associated with investments carried at fair value is disclosed in Note 4 below.
(ii) Fair value of investments
The fair value of unlisted or unquoted securities and loans receivable is determined by using valuation techniques. Judgement is used to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.
Although best judgment is used in estimating fair value, there are inherent limitations in any valuation technique. Estimated fair value may differ significantly from the value that would have been used had a readily available market for such investments existed and these differences could be material to the consolidated statement of assets, liabilities and partners' capital. Additional information about the level of market observability associated with investments carried at fair value is disclosed in Note 4 below.
(iii) Taxation
The Company may be subject to income taxes in jurisdictions it invests and operates. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company 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 were 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 Company's investments and the respective markets to become less liquid and also the prices to become more volatile.
The Company's investments had concentration in a particular industry or sector and performance of that particular industry or sector had a significant impact on the Company.
The Company's concentration of investments in a particular industry or sector is presented on the consolidated condensed schedule of investments.
The Company's investments were subject to the risk associated with investing in private equity securities. Investments in private equity securities were illiquid and subject to various restrictions on resale and there can be no assurance that the Company will be able to realize the value of such investments in a timely manner.
(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 Company has bank deposits, restricted cash, loans receivable and bank loans that expose the Company to interest rate risk. The Company 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 Company has assets and liabilities denominated in currencies other than the US$, the functional currency. The Company is therefore exposed to currency risk as the value of assets and liabilities denominated in other currencies may fluctuate due to changes in exchange rates. The net assets of the Company before the impact of currency hedging are denominated in the following currencies:
As at As at
30 June 31 December
2017 2016
US$ US$
Renminbi 151,219,191 145,786,802
Pounds Sterling (1,234,793) (1,234,793)
Singapore Dollars 70 67
Hong Kong Dollars (96,686) (96,686)
The Investment Manager manages the Company's currency exposure through use of currency options. Refer to Note 5.
(d) Credit risk
The Company is exposed to credit risk, which is the risk that a counterparty to or an issuer of a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. As at 30 June 2017 the main concentrations of credit risk to which the Company is exposed arise from derivative contracts, prepayments and other receivables, and cash and bank balances.
Whilst the loans receivable are structured to provide the Company 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 Company for default losses. In an attempt to mitigate the losses, the Company, 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 Company 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 Company invests varies, thus the Company (or any entity in which the Company holds a direct or secondary interest) may have difficulty in successfully pursuing claims in the courts of such countries. To the extent that the Company or an entity in which the Company holds a direct or secondary interest has obtained a judgement but is required to seek its enforcement in the courts of the countries in which the Company invests, there can be no assurance that the court will enforce such judgement.
As at 30 June 2017, the Company has cash and bank balances amounting to US$170,047,280 (2016: US$164,657,215) held in multiple different bank accounts with a number of different financial institutions. The Company attempts to minimize its credit risk exposure on its cash and bank balances by monitoring the size of its credit exposure to any one counterparty and by only entering into banking relationships with reputable financial institutions.
(e) Liquidity risk
The Company was exposed to liquidity risk as the majority of the investments of the Company were illiquid while some of the Company's liabilities were with short maturity as of 30 June 2017. Illiquid investments included 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. As at 30 June 2017, all investments were fully realized and currently assets are held in cash or disposal receivables as of 30 June 2017. Most of the disposal receivables are expected to be received by fourth quarter of 2017. Management considered that there was no such liquidity risk exposed by the Company as of 30 June 2017.
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 Company 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 Company's exposure to renminbi.
The Company is closed-end and, thus, not exposed to redemptions of shares by its shareholders.
4 Investments
The Company 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 Company 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 Company'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 the fair value of all instruments within the fair value hierarchy:
Level Level Level
1 2 3 Total
US$ US$ US$ US$
As at 30 June
2017
Investments -
derivatives - 1,714,515 - 1,714,515
-------------------- -------------------- -------------------- --------------------
- 1,714,515 - 1,714,515
As at 31 December
2016
Investments -
derivatives - 6,339,045 - 6,339,045
-------------------- -------------------- -------------------- --------------------
- 6,339,045 - 6,339,045
As at 30 June 2017, derivatives of US$1,714,515 (31 December 2016: US$6,339,045) were held directly by the Company.
All Level 3 investments held had been disposed as at 31 December 2016, therefore there was no valuation review of Level 3 investments as at 30 June 30 2017.
5 Derivative instruments
The Company transacts in derivative instruments including options with each instrument's primary risk exposure being equity, credit and foreign exchange. The Company enters into currency options to hedge itself against foreign currency exchange rate risk for its foreign currency denominated assets and liabilities due to adverse foreign currency fluctuations against the US dollar.
The fair value of these derivative instruments is included within the consolidated statement of assets and liabilities with changes in fair value reflected as net realized gains/(losses) from investments or net change in unrealized gains/(losses) from investments within the consolidated statement of operations. The Company does not designate derivatives as hedging instruments under FASB ASC 815. The Partnership held Level 2 derivative contracts as follows:
As at 30 June Fair Value Contractual/notional
2017 amounts
Assets Liabilities Assets Liabilities
US$ US$ US$ US$
Currency options 1,714,515 - 128,000,000 -
---------- ------------ ------------ ------------
1,714,515 - 128,000,000 -
========== ============ ============ ============
As at 31 December Fair Value Contractual/notional
2016 amounts
Assets Liabilities Assets Liabilities
US$ US$ US$ US$
Currency options 6,339,045 - 159,000,000 -
---------- ------------ ------------ ------------
6,339,045 - 159,000,000 -
========== ============ ============ ============
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 2017
Average Average Change in Gains/(losses)
notional Number Unrealized
of contracts Gains/losses
US$ US$ US$ US$
Currency
options 128,000,000 - (3,986,550) (637,980)
------------ -------------- -------------- ---------------
128,000,000 - (3,986,550) (637,980)
============ ============== ============== ===============
Period ended 31 December 2016
Average Average Change in Gains/(losses)
notional Number Unrealized
of contracts Gains/losses
US$ US$ US$ US$
Currency
options 159,000,000 - 1,903,639 64,984
------------ -------------- -------------- ---------------
159,000,000 - 1,903,639 64,984
============ ============== ============== ===============
The above gains/losses on derivatives are included in realized/change in unrealized gain from investments in the consolidated statement of operations.
6 Prepayment and other receivables
As at As at
30 June 31 December
2017 2016
US$ US$
Interest receivable 726,537 630,543
Receivable from investments
disposal 16,323,423 27,973,672
Prepayment and other receivables 504,111 503,767
------------------ ------------------
17,554,071 29,107,982
7 Share capital, share premium, capital surplus and tendered shares
Number
of
shares Share Share Capital Tendered
outstanding capital premium surplus shares Total
US$ US$ US$ US$ US$
As at 1
January
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) (1,816,917) - (68,279,444)
-------------------- ---------------- -------------------- ---------------- -------------------- --------------------
As at 31
December
2016 and
1 January
2017 61,596,638 615,967 - - - 615,967
Re-purchase
of tendered
shares - - - - - -
-------------------- ---------------- -------------------- ---------------- -------------------- --------------------
As at 30
June 2017 61,596,638 615,967 - - - 615,967
As at 30 June 2017, the total number of authorized ordinary shares was 10,000,000,000 (2016: 10,000,000,000) with par value of US$0.01 (2016: US$0.01) per share. As at 30 June 2017, the Company had 61,596,638 (2016: 61,596,638) ordinary shares in issue.
8 Taxation
The Company 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 Company 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% 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 Company and its offshore SPVs would be deemed as a China Tax Resident Enterprise ("TRE") under the China Corporate Income Tax ("CIT") Law. If an offshore entity is deemed as a China TRE, its income would be subject to China CIT at 25%.
(b) Whether any of the Company 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 Company 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 Company 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 Company 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 Company's financial statements.
As at 30 June 2017, the Investment Manager has analyzed the open tax years of all jurisdictions subject to tax examination and the provision deferred tax and uncertain tax amounted to US$9,378,519 (2016: US$19,501,359) and US$743,333 (2016: US$743,333) 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 Company's consolidated financial statements.
The Investment Manager has reviewed the structure of the Company's investment portfolio and considered the Company's exposure to countries in which it invests to be properly reflected in the Company'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 Company in the Cayman Islands.
9 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 Company. 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 2017, total management fees amounted to US$1,877,219 (30 June 2016: US$2,278,591); payable amounted to US$Nil (31 December 2016: US$Nil).
The Investment Manager is also entitled to receive performance fees from the Company in the event that the year-end NAV is greater than the higher of (a) the year-end NAV for the last year in which a performance fee was payable ("High Water Mark"); and (b) the NAV on Admission increased by a non-compound annual hurdle rate of 8% ("Hurdle").
The performance fees will be calculated as follows:
-- 0% of the relevant increase in the year-end NAV if the year-end NAV is at or below the Hurdle;
-- 100% of the relevant increase in the year-end NAV above the Hurdle up to a non-compound annual rate of 10% (the "Catch-up"); and
-- 20% of the relevant increase in the year-end NAV above the Catch-up.
For the period ended 30 June 2017, total performance fees amounted to US$Nil (30 June 2016: US$Nil). As at 30 June 2017, performance fees payable amounted to US$611,581 (31 December 2016: US$611,581).
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.
10 Investment agency fees
To facilitate the disposal of an investment, the Company entered into a consulting agreement with an unrelated third party (the "Consultant"). Under the agreement, the Company 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 Company upon realization.
For the period ended 30 June 2017, investment agency fee of US$1,415,585 (2016: US$1,415,585) was accrued based on the realized and unrealized gain on the investment net of certain expenses and tax attributable to the investment.
11 Related party transactions
Apart from the related party transactions disclosed in Note 9, the Company also had the following significant related-party transactions.
(a) Restructuring with PACL II Limited
On 2 March 2009, the Company held an extraordinary general meeting to approve a tender offer that allowed shareholders to exchange all or part of their shares for shares in PACL II Limited ("PACL II"), a Cayman Islands private vehicle that will be used to realize and distribute cash from exited investments based on the investment and asset positions held by the Company as at 31 December 2008 ("Tender Offer Portfolio"). PACL II is also managed by the Investment Manager. It was due to, without any further action on the part of its shareholders, automatically wind up and dissolve 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$1.01 per share in exchange for holders of these shares receiving the same number of shares in PACL II.
Under the terms of the tender offer, PACL II is entitled to receive 50.33% of the proceeds from the Tender Offer Portfolio, which reflects a 5% discount of its proportionate share of the Tender Offer Portfolio. As such, the amount due to PACL II is recorded as a payable by the Company, adjusted at each period end based on the movement in the fair value of the underlying assets and the income and expense attributable to the Tender Offer Portfolio. The amount is unsecured and non-interest bearing. The following table summarizes the movements in amount due from/(to) PACL II.
As at As at
30 June 31 December
2017 2016
US$ US$
Opening (237,755) 242,923
Distributions to PACL II - (344,000)
Net decrease/(increase)
in payable from gains/(losses)
attributable to PACL II 112,734 (138,678)
------------------ ------------------
Closing (125,021) (237,755)
(b) Directors' remuneration
The Company pays each of its Directors an annual fee of US$57,500 (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$5,000. During the period ended 30 June 2017, Jon-Paul Toppino agreed to waive his directors' fees and committee fees.
(c) Share capital held by funds managed by fellow subsidiaries of the Investment Manager
As at 30 June 2017, PAX LP held 8,315,732 (2016: 8,315,732) shares of the Company, representing 13.5% (2016:13.5%) of total outstanding shares of the Company.
PAX LP is managed by a fellow subsidiary of the Investment Manager.
12 Financial highlights
Net asset value per share at the end of the period is as follows:
2017 2016
US$ US$
Per share data (for a share
outstanding throughout the
period)
Net asset value as at opening
of the period 2.8694 2.2601
Net investment gain (loss) (0.0286) 0.0065
Net realized and unrealized
gains (losses) from investments (0.0081) 0.6028
-------------- --------------
Net asset value as at closing
of the period 2.8327 2.8694
The following represents the ratios to average net assets and other supplemental information:
From 1 From 1
January January
to to
30 June 30 June
2017 2016
Total return before performance
fees (1) (1.28%) (3.97%)
Performance fees 0.00% 0.00%
Total return after performance
fees (1) (1.28%) (3.97%)
Ratios to average net assets
(2)
Total expenses (1.57%) (3.08%)
Net investment loss (1.01%) (2.89%)
(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 2017, the average net assets amounted to US$175,041,849 (2016: US$182,216,962).
13 Commitment and contingency
In the normal course of business, the Company may enter into arrangements that contain a variety of representations and warranties that provide general indemnification under certain circumstances. The Company's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company 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.
14 Subsequent events
The Manager has performed a subsequent events review from 1 July 2017 through to 25 September, being the date that the financial statements were available to be issued, and has determined 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
IR LIMATMBJTBRR
(END) Dow Jones Newswires
September 25, 2017 02:01 ET (06:01 GMT)
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