Interim Results
(Thomson Reuters ONE) - Interim ResultsPacific Alliance China Land Limited18 September, 2009 Pacific Alliance China Land Limited ('PACL' or the 'Company') Interim Results for the six months ended 30 June 2009Pacific Alliance China Land Limited ('PACL' or the 'Company'), theclosed-end investment company admitted to trading on the AIM Marketof the London Stock Exchange plc and focused on investing in aportfolio of existing properties, new developments, distressedprojects and real estate companies in Greater China, today announcesits unaudited financial results for the six months ended 30 June2009.Financial Highlights * As at 30 June 2009, the Company's unaudited net asset value (NAV) per share was US$1.1070, a 4.33% increase from the 31 December 2008 Audited Financial Statements. * The Company's share price closed on 30 June 2009 at US$0.7075, an 8% increase from 31 December 2008. * Cash and cash equivalents as at 30 June 2009 were US$102 million.Portfolio and Fund Developments * 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 newly organized Cayman Islands private vehicle that will distribute free cash and proceeds from exited investments held by the Company. Those shareholders who have chosen to remain as shareholders of the Company will benefit from an increased annual yield of up to 12% of NAV. * On 5 March 2009, the tender offer was completed and 48.69% of the Company's ordinary shares were repurchased and cancelled by the Company. In return, shareholders who successfully tendered their shares in the Company received an equivalent number of new shares in PACL II. * The Company executed the early sale of Project Villa, a high-yield loan project, in May 2009. The proceeds represented a net IRR of 13%. * As at 30 June 2009, the Company held investments with a cost of approximately US$195 million and a carrying value of US$232 million. The breakdown of the portfolio allocation is as follows; bridge financing 36.8%, pre-IPO financing 19.4%, co-development 13.4% and 30.4% cash deposits.Significant subsequent events * The Company took advantage of the weak market conditions and reinvested US$35 million in two new investments during August 2009. * On 2 July 2009, a second tender offer was completed and an additional 5.024% of the Company's ordinary shares were repurchased by the Company's wholly-owned subsidiary, PACL Trading Limited, at a price of US$1.09 per share. Following the repurchase, the Company has a total of 189,833,893 ordinary shares in issue, of which 37,991,849 are held to effectively replicate a treasury facility.Commenting on the results, Patrick Boot, Managing Director, PacificAlliance Real Estate Limited, said:"China's economic stimulus package has sustained growth and led to arecent rebound in domestic equity markets. We have already seen someimprovement in the Chinese property market in recent months and thereare signs that this recovery has a high chance of being sustainable. This presents real estate opportunities for us as both buyers andsellers, and the Company has taken advantage of opportunities to makeboth divestments and acquisitions. The early exit of Project Villa atan impressive IRR of 13% is evidence of how our market insight andexperience is realising benefits."Copies of the report are being sent to registered shareholders. Acopy of the report will be posted on the Company's website(www.pacl-fund.com).For more information please contact:MANAGER: LEGAL COUNSEL:Patrick Boot, Managing Director Jon Lewis, General CounselPacific Alliance Real Estate Limited Pacific Alliance Group16/F, St. John's Building 16/F St. John's Building33 Garden Road 33 Garden RoadCentral, Hong Kong Central, Hong KongTel: (86) 21 6288 3788 Tel: (852) 29180088Fax: (86) 21 6288 9272 Fax: (852) 29180881pboot(at)pacific-alliance.com.cn jlewis(at)pacific-alliance.comBROKER: NOMINATED ADVISER:Hiroshi Funaki Philip SecrettLCF Edmond de Rothschild Grant Thornton Corporate FinanceSecurities Tel: (44) 20 7383 5100Tel: (44) 20 7845 5960 Philip.J.Secrett(at)gtuk.comFax: (44) 20 7845 5961funds(at)lcfr.co.ukMEDIA RELATIONS: MEDIA RELATIONS:Sophie Hoggarth Financial Dynamics, LondonPacific Alliance Group Andrew Walton/David CranmerTel: (86) 21 6288 3788 Tel: (44) 20 7269 7217shoggarth(at)pacific-alliance.com Financial Dynamics, Asia Alastair Hetherington/Christine Wood Tel: (852) 3716 9800Notes to Editors:Pacific Alliance China Land Limited ('PACL') (AIM:PACL) is aclosed-end investment company with net assets of US$170.85 million at31 August 2009. PACL was admitted to trading on the AIM Market of theLondon Stock Exchange plc in November 2007. PACL's principalinvestment objective is to invest in a portfolio of existingproperties, new developments, distressed projects and real estatecompanies in Greater China.For more information about PACL, please visit www.pacl-fund.comPacific Alliance China Land Limited is a member of Pacific AllianceGroup, the Asian alternative asset investment manager, founded in2002. Pacific Alliance Group and its affiliates manage assets inexcess of US$4 billion across three strategies covering privateequity; real estate; and absolute return and distressed. The Grouphas offices in Shanghai, Beijing, Hong Kong and Tokyo.For more information about Pacific Alliance Group, please visit:www.pacific-alliance.comChairman's StatementAmid the global economic crisis, China's stimulus package hasdelivered some impressive initial results - in particular, GDP growthreached 7.1% in the first half of the year and 7.9% in the secondquarter. Overall, China's domestic equity market has reboundedrelatively quickly, posting a gain of 57% from January to June2009. Similarly, its residential real estate markets rebounded withboth transaction volumes and selling prices increasing substantiallyfrom the market bottom in the fourth quarter of 2008. The Companybenefited from these market conditions as both the selling prices andsales frequency of our residential projects increased during 2009.The Company also completed its share capital reconstruction in March,with mandates to realise existing investments in an optimal manner toreturn capital to the shareholders of PACL II (a newly organizedCayman Islands private vehicle that will distribute free cash andproceeds from exited investments held by the Company), and to providecapital to the Company for reinvestment in new opportunities that areattractively priced due to weak market sentiment. To this end in Maythe Company executed the early sale of Project Villa, a high-yieldloan project. The proceeds represented a net IRR of 13% during a timewhen the market was suffering from numerous debt delinquencies. Todate, the Company has returned US$45 million to the shareholders ofPACL II and has taken advantage of the weak market conditions toreinvest US$35 million in two new investments during the month ofAugust.Looking to the second half of 2009, we remain positive as transactionvolumes should continue to be supported by availability of credit andstrong underlying fundamentals. We expect to see continued governmentsupport that is focused on growing domestic consumption which willprove positive for the PRC's residential and retail real estatesectors. In addition, the Company and the Investment Manager intendto implement a prudent medium term investment strategy to achievemore sustainable growth. The once widely anticipated distressedopportunities continue to be a focus but not to the extent initiallyanticipated because of the lower supply of new construction duringthe past 12 months and the increasing availability of credit fordevelopers. Therefore we will prepare for the emerging demand forincome producing properties from China's domestic institutionalinvestors by looking to acquire income producing assets withvalue-added opportunities. This strategy should help deliver strongreturns to our shareholders in 2009 and beyond.Horst F. GeickeChairmanInvestment Manager's ReportPortfolio PerformanceAs at 30 June 2009, the Company's net asset value per share ('NAV')was US$1.1070, a 4.33 per cent increase from the 31 December 2008Audited Financial Statements. Independent valuations have beenperformed quarterly with bridge financing collateral valued byrecognized international real estate appraisers.The Company's share price increased 8 per cent between 1 January and30 June 2009, closing at US$0.7075. On 30 June 2009, the share pricestood at a 36 per cent discount to the unaudited NAV per ordinaryshare. On a relative basis, on 30 June 2009 the Company had sinceinception outperformed the F3REAL and AXX Indices by 60 and 53 percent, respectively.Realized and unrealized income for the period from 1 January 2009 to30 June 2009 30 June 09 US$Realized Income / (Loss) Bridge Financing (1,153,529) Deposit Interest 140,341 ------- (1,013,188)Unrealized Gain / (Loss) Pre-IPO Investment 3,086,000 Bridge Financing* (1,302,921) Co-Development Investment (2,204,798) Foreign Exchange (110,781) ------- (532,500) -------- (1,545,688)Restructuring Income** ======= 5% Discount on Tender Offer 9,592,589* Bridge Financing includes a mark down in relation to an option.** Restructuring income has been booked to reservesPortfolio SummaryAs at 30 June 2009, the Company held investments with a cost ofapproximately US$195 million and a carrying value of US$232 million.The Company's portfolio is currently diversified across threestrategies including Bridge Financing, Co-Development and Pre-IPOFinancing.Investments Value (US$) Type of % of Location investment TotalProject Speed Bridge Financing 12.45% Guandong 41,521,127Project Silk Bridge Financing 13.73% Hangzhou 45,801,063Project Beijing Bridge Financing 12.68% BeijingOlympic 42,279,452Project RMBox Bridge Financing 10.41% Beijing 34,717,075Project Blue Bird Co-Development 7.84% Qingdao 26,137,630Hainan Airport Pre-IPO 6.92% GreaterGroup 23,086,000 Financing ChinaProject Shanghai Co-Development 5.54% HuzhouJingrui 18,466,403Cash 101,539,225 Cash 30.44%Investment StrategyIn contrast to the downturn of the global real estate markets, theChina residential real estate markets have shown signs of a robustrecovery. Developers have gained confidence from domestic homebuyers' strong investment in the first half of the year. Meanwhile,reputable local real estate companies succeeded in new bond and shareissuances as capital markets in China improved after many difficultmonths. It is believed the first REIT in China will launch its IPO in2010 which should bode well for the strength of the domestic propertyinvestment market. Furthermore, new regulations are under review toallow insurance companies to invest directly in income producingproperties. Both of these two prospective developments would enhancethe market liquidity for income producing properties and potentiallyresult in yield compression for core products in the mid-term. TheInvestment Manager intends to pursue the following strategies tocapitalize on these emerging opportunities:Value-Added Asset AcquisitionsIn response to mid-term demand from domestic institutional investors,the investment manager will seek to identify properties withvalue-added potential in first tier and core second tier cities andto deliver repositioning, recapitalization or operating efficiencyimprovement opportunities. Projects which are close to completionwith attractive leasing fundamentals are an example of this strategy.The Investment Manager has a strong deal pipeline and has been inactive discussions with local property owners to source additionalvalue-added opportunities.Co-Developments and Corporate Level Investments with Local DevelopersChinese home buyers have consistently shown great resilience inrecent market cycles. The Investment Manager believes residentialand retail development will remain important areas in China's realestate investment for many years as the urbanization processcontinues and the domestic economy grows. The Investment Manager willseek co-development opportunities and corporate levelinvestment opportunities with quality developers in first tier andcore second tier cities.Discounted Corporate and Project InvestmentsThere have been numerous offshore investments in pre-IPO anddevelopment projects in China during the past few years. We believethe current state of the international capital markets will presentmany attractive opportunities to acquire convertible debt or otherpre-IPO securities issued by reputable real estate companies andoffshore interests in development projects at attractive discounts asglobal deleveraging and restructuring continues.ConclusionThe Company has established a strong reputation and delivered one ofthe more robust performances among listed companies investing in theChina property market since listing on the AIM market of the LondonStock Exchange in November 2007. The Investment Manager believesopportunities in the China property market remain compelling as aresult of the downturn in the global economy, and the Company'sinvestment strategies are well positioned to capitalize on theseopportunities.CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES Note As at As at 30 June 2009 31 Dec 2008 US$ US$AssetsInvestments, at fair value(Cost: US$195,162,125) 3,4,5 232,008,750 257,047,676Due from related parties 147 7,542Other receivables 4,149 86,515Other assets 100,811 1,587,041Cash and bank balances 3 101,539,225 112,694,832Total assets 333,653,082 371,423,606LiabilitiesDue to PACL II 149,067,832 -Deferred taxation 8 7,544,811 10,293,093Accrued expenses and otherpayables 56,558 302,232Total liabilities 156,669,201 10,595,325Net assets 176,983,881 360,828,281Analysis of net assetsShare capital 6 1,898,339 3,700,000Share premium 6 187,935,554 366,300,000Capital surplus* 6 4,707,515 3,910,000Treasury shares 6 (26,215,000) (26,215,000)Retained earnings 8,657,473 13,133,281Net assets 176,983,881 360,828,281*includes restructuring income. (Equivalent to US$1.1070 per share based on 159,873,893 issued andoutstanding shares)The accompanying notes on pages 11 to 23 are an integral part ofthese consolidated financial statements.CONSOLIDATED SCHEDULE OF INVESTMENTS % of effective % of % of equity net As at net As atInvestments interest- Assets held assets 30 June 09 assets 31 Dec 08 Cost/Principal Fair value Cost/Principal Fair value US$ US$ US$ US$COMMONSTOCKS 35.15% 20.16%Aviation,China 9.95% 5.54%HainanAirportGroup Ltd. 4.90% 9.95% 20,000,000 23,086,000 5.54% 20,000,000 20,000,000Real EstateDevelopment,China 25.20% 14.62%HuzhouJingrui RealEstate Co.Ltd.* 49.00% 10.43% 17,832,984 18,466,403 6.22% 20,817,650 22,440,344QingdaoVanke Real Estate Co.Ltd. * 40.00% 14.77% 22,838,400 26,137,630 8.40% 25,784,000 30,305,283LOANSRECEIVABLE 92.84% 51.08%Real EstateDevelopment,China 92.84% 51.08%GloriousProperty (Holdings)Co Ltd. 0.00% - - 5.16% 15,000,000 18,612,329SpiritCharter InvestmentLtd. 23.89% 30,000,000 42,279,452 15.04% 30,000,000 54,256,886TimesProperty HoldingsCo. Ltd. 23.46% 40,000,000 41,521,127 11.09% 40,000,000 40,000,000ZhonghongXingye Real EstateDev. Co.Ltd. 19.62% 27,889,200 34,717,075 8.76% 27,908,250 31,594,195ZhongjiangHolding Co. Ltd. 25.88% 36,601,541 45,801,063 11.04% 36,626,542 39,838,639 195,162,125 232,008,750 216,136,442 257,047,676The accompanying notes on pages 11 to 23 are an integral part ofthese consolidated financial statements.CONSOLIDATED STATEMENT OF OPERATIONS Period from Period from 5 Sep 2007 1 Jan 2009 (date of to incorporation) to Note 30 Jun 2009 30 Jun 2008 US$ US$IncomeLoan origination income - 750,000Bank interest income 140,341 4,768,303Other interest income - 238,016 ------- -------Total income 140,341 5,756,319 ------- -------ExpensesManagement fees 7,9(a) 3,409,216 4,853,270Local taxes other than incometax 8 (2,579,362) 1,728,000Legal and professional fees 214,352 1,014,910Placement fees - 7,000,000Setup costs - 1,466,470Investment structuring costs 1,468,431 1,750,000Other expenses 399,482 728,338 ------- -------Total expenses 2,930,120 18,540,988 ------- -------Net investment loss (2,789,779) (12,784,669) ------- -------Realized and unrealized gainsfrom investmentsNet realized (loss)/gain frominvestments (1,153,529) 595,272Net unrealized (loss)/gain frominvestments (421,719) 23,117,455Net foreign exchange (loss)/gain (110,781) 2,304,426 ------- -------Net realized and unrealized(losses)/gainsfrom investments (1,686,029) 26,017,153 ------- -------Net (decrease)/increase in netassetsresulting from operations (4,475,808) 13,232,484 ======= =======The accompanying notes on pages 11 to 23 are an integral part ofthese consolidated financial statements.CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS Share capital and share Capital Treasury Retained premium surplus shares earnings Total US$ US$ US$ US$ US$At 5 September2007 (date ofincorporation) - - - - -Issue ofshares 400,000,000 - - - 400,000,000Repurchase and cancellationof shares (30,000,000) 3,910,000 - - (26,090,000)Repurchase ofshares - - (26,215,000) - (26,215,000)Net increasein net assets resultingfromoperations - - - 13,133,281 13,133,281 ------- ------- ------- ------- -------At 31 December2008 370,000,000 3,910,000 (26,215,000) 13,133,281 360,828,281 ======= ======= ======= ======= ======= Share capital and share Capital Treasury Retained Note premium surplus shares earnings Total US$ US$ US$ US$ US$At 1 January2009 370,000,000 3,910,000 (26,215,000) 13,133,281 360,828,281Issue ofshares - - - - -Repurchaseand cancellationof shares 6 (180,166,107) 797,515 - - (179,368,592)Repurchase ofshares - - - - -Net increasein net assets resultingfromoperations 6 - - - (4,475,808) (4,475,808) ------- ------- ------- ------- -------At 30 June2009 189,833,893 4,707,515 (26,215,000) 8,657,473 176,983,881 ======= ======= ======= ======= =======The accompanying notes on pages 11 to 23 are an integral part ofthese consolidated financial statements.CONSOLIDATED STATEMENT OF CASH FLOWS Period from 5 Sep 2007 (date of Period from incorporation) 1 Jan 2009 to to 30 Jun 2009 31 Dec 2008 US$ US$Net (decrease)/increase in net assetsresulting from operations (4,475,808) 13,133,281AdjustmentsIncrease in operating assetsPurchase of investments - (216,136,442)Sale of investments 20,974,317 -Net unrealized gains/(losses) frominvestments 4,064,609 (40,911,234)Due from/(to) related parties 179,073,450 (7,542)Other receivables/(payables) 84,161 (86,515)Other assets/(liabilities) 1,486,211 (1,587,041)(Decrease)/Increase in operatingliabilitiesDeferred taxation (2,748,283) 10,293,093Accrued expenses and other payables (245,673) 302,232 ------- -------Net cash provided/(used) by operatingactivities 198,212,985 (235,000,168) ------- -------Issue of shares - 400,000,000Repurchase of shares (179,368,592) (52,305,000)Distribution to PACL II (30,000,000) - ------- -------Net cash provided /(used) by financingactivities (209,368,592) 347,695,000 ------- -------Net (decrease)/increase in cash and cashequivalents (11,155,607) 112,694,832Beginning balance 112,694,832 - ------- -------Ending balance, representing cash andbank balances 101,539,225 112,694,832 ======= =======The accompanying notes on pages 11 to 23 are an integral part ofthese consolidated financial statements.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1 OrganizationPacific Alliance China Land Limited (the "Company") was incorporatedon 5 September 2007 in the Cayman Islands. It is a closed-end CaymanIslands registered, exempted company. The address of its registeredoffice is PO Box 309GT, Ugland House, South Church Street, GeorgeTown, Grand Cayman, Cayman Islands. The Company can raise additionalcapital up to the authorized share capital as described in Note 6.The Company's principal investment objectives are to provideshareholders with capital growth and a regular level of income, froma diversified portfolio of property in Greater China and to achieveabove average returns for an acceptable level of risk.The Company's investment activities are managed by Pacific AllianceReal Estate Limited (the "Investment Manager"). The Company hasappointed Sanne Trust Company Limited to act as Custodian of certainassets of the Company pursuant to the custodian agreement. SanneTrust Company Limited has also been appointed as Administrator andRegistrar of the Company pursuant to the fund administration servicesagreement.On 2 March 2009, the Company held an extraordinary general meeting("EGM") to approve a tender offer that allowed shareholders toexchange all or part of their shares for shares in PACL II Limited("PACL II"), a newly organized Cayman Islands private vehicle thatwill distribute free cash and proceeds from exited investments heldby the Company. Those shareholders who have chosen to remain asshareholders of the Company will benefit from an increased annualyield of up to 12% of NAV.On 5 March 2009, the tender offer was completed and 48.69% of theCompany's ordinary shares were repurchased and cancelled by theCompany. In return, shareholders who successfully tendered theirshares in the Company received an equivalent number of new shares inPACL II. Following the cancellation, the Company has a total of189,833,893 ordinary shares in issue, of which 29,960,000 are held astreasury shares.Details and results of the EGM were announced on 6 February 2009 and3 March 2009 respectively. On 7 March 2009, the Company voluntarilydelisted its ordinary shares from the Channel Islands Stock Exchange("CISX"). The Company's ordinary shares continue to trade on the AIMmarket of the London Stock Exchange.The consolidated interim financial statements were approved by theBoard of Directors on 17 September 2009.2 Summary of Significant Accounting PoliciesThe following significant accounting policies are in conformity withaccounting principles generally accepted in the United States ofAmerica. The Company applies the provision of the AICPA Audit andAccounting Guide for Investment Companies (the "Guide"). Suchpolicies are consistently followed by the Company in the preparationof its consolidated financial statements.2 Summary of Significant Accounting Policies (Continued)(a) Principles of ConsolidationThese consolidated financial statements include the financialstatements of the Company and its subsidiaries (collectively the"Fund"). Subsidiaries are fully consolidated from the date on whichcontrol is transferred to the Fund and deconsolidated from the datethat control ceases. Inter-company transactions between groupcompanies are eliminated upon consolidation.The Fund uses wholly and partially owned special purpose vehicles("SPV") to hold and transact in certain investments and lending. TheFund's policy is to consolidate, as appropriate, those entities inwhich the Fund has control over significant operating, financial orinvesting 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 toNote 2(c) for fair value measurement). (b) Use of EstimatesThe preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of Americarequires the directors to make estimates and assumptions that affectthe reported amounts and disclosures in the financial statements andaccompanying notes. The directors believe that the estimatesutilized in preparing the financial statements are reasonable;however, actual results could differ from these estimates.(c) InvestmentsThe Fund holds investment securities which are unlisted and havelimited marketability.The Fund engages in secured lending transactions consisting ofrepurchase agreements and secured lending.(i) Recognition, Derecognition and MeasurementRegular purchase and sale of investments are accounted for on thetrade date, the date the trade is executed. Costs used indetermining realized gains or losses on the sale of investments arebased on the specific identification method. Cost includes legal anddue diligence fees associated with acquisition of the investments.Transfer of investments is accounted for as a sale when the Fund hasrelinquished control over the transferred assets. Any realized gainsor losses from investments are recognized in the consolidatedstatement of operations.Investments are subsequently carried at fair value and changes infair value are presented in the consolidated statement ofoperations.2 Summary of Significant Accounting Policies (Continued)(c) Investments(ii) Fair Value MeasurementThe Fund is an investment company under the Guide. As a result, theFund records its investments on the consolidated statement of assetsand liabilities at their fair value, with unrealized gains and lossesresulting from changes in fair value recognized in the consolidatedstatement of operations.Fair value is the amount that would be received to sell theinvestments in an orderly transaction between market participants atthe measurement date (i.e. the exit price). Fair value ofinvestments is determined by the Valuation Committee, which isestablished by the Investment Manager and the Board of Directors.Although the Valuation Committee uses its best judgment in estimatingfair value, there are inherent limitations in any valuationtechnique. Estimated fair value may differ significantly from thevalue that would have been used had a readily available market forsuch investments existed and these differences could be material tothe financial statements. Additional information about the level ofmarket observability associated with investments carried at fairvalue are disclosed in Note 4.(iii) Loans ReceivableThe Fund enters into secured lending transactions which are reportedas operating activities. The loans receivable are recorded at fairvalue which is the amount of cash advanced under the loan agreementsand related interest income. Interest income is accrued based onrates associated with the related loans. The changes in fair value ofloans receivable are included in realized and unrealized gains andlosses from investments.The Fund monitors the fair value of collateral on a regular basisrelative to the loan amounts plus accrued interest and wherenecessary, requires the transfer of additional cash or collateral tomanage its exposure. If the counterparty defaults, realization ofthe collateral by the Fund may be delayed or limited.(d) Cash and Cash EquivalentsCash and cash equivalents represent cash at banks.(e) Foreign Currency TranslationThe books and records of the Fund are maintained in United StatesDollars ("US$"), which is also the functional currency. Assets andliabilities denominated in foreign currencies are translated into US$at period-end exchange rates, while income and expenses aretranslated at the exchange rates in effect during the period. Thenet realized and unrealized gains or losses from investmentsdenominated in currencies other than the functional currency includethe results of operations arising as a result of changes in exchangerates and the fluctuations arising from changes in the market pricesof securities held during the period.(f) Income TaxesThe Fund may be subject to taxes imposed in other countries in whichit invests. Such taxes are generally based on income and/or gainsearned. Taxes are accrued and applied to net investment income, netrealized gains and net unrealized gains, as applicable, when theincome and/or gains are earned. The Fund accrues for liabilitiesrelating to uncertain tax positions only when such liabilities areprobable and can be reasonably estimated. Such income and/or gainsare recorded gross of taxes in the consolidated statement ofoperations and taxes are shown as a separate item in the consolidatedstatement of operations.(g) Recognition of Income and ExpensesInterest income on bank balances is accrued as earned using theeffective interest method.Loan origination income is recognized when the relevant services arerendered.Expenses are recorded on an accrual basis.3 Concentration of Risks(a) Market RiskMarket risk represents the potential loss in value of financialinstruments caused by movements in market variables, such as interestrates, exchange rates and equity prices.Investments are typically made with a focus on the Greater China.Political or economic conditions and the possible imposition ofadverse laws or currency exchange restrictions in that region couldcause the Fund's investments and their markets to become less liquidand also the prices to become more volatile.The Fund's investments may have concentration in a particularindustry or sector and performance of that particular industry orsector may have a significant impact on the Fund.The Fund's investments may also be subject to the risk associatedwith investing in private equity securities. Investments in privateequity securities may be illiquid and subject to various restrictionson resale and there can be no assurance that the Fund will be able torealize the value of such investments in a timely manner.See Note 4 for a discussion on the inputs in fair value measurement.(b) Interest Rate RiskInterest rate risk arises from the effects of fluctuations in theprevailing levels of market interest rates on the fair value offinancial assets and liabilities and future cash flows. The Fund hasbank accounts and loans receivable that expose the Fund to interestrate risk. The Fund has direct exposure to interest rate changes onthe valuation and cash flows of its interest bearing assets. TheFund may also be indirectly affected by the impact of interest ratechanges on the earnings of certain companies in which the Fundinvests and by the impact of the valuation of certainover-the-counter derivative products that use interest rates as aninput in their valuation models. In accordance with the Fund'sinvestment policy, the Fund is allowed to enter into derivativecontracts to hedge against interest rate risk where the directorsconsider appropriate.(c) Currency RiskThe Fund has assets and liabilities denominated in currencies otherthan the US$, the functional currency. The Fund is therefore exposedto currency risk as the value of assets and liabilities denominatedin other currencies may fluctuate due to changes in exchange rates.As at 30 June 2009, cash and cash equivalents are denominated in thefollowing currencies: US$ US$ 30 Jun 2009 31 Dec 2008Renminbi 28,327,818 21,958,774United States Dollars 73,207,378 90,736,048Others 4,029 10 ------- -------Total 101,539,225 112,694,832 ======= =======In addition, the net assets of the Fund are predominantly denominatedin US$ and Renminbi with net assets carrying at US$31,071,326 andUS$145,912,555, respectively.(d) Credit RiskThe Fund is exposed to default risk by the counterparties of theloans receivable. Whilst the loans receivable are structured toprovide the Fund with adequate collateral in the event of default,enforcement may be subject to the domestic legal system of thecountries in the Asia-Pacific region. Where the contract isenforced, the collateral may not be sufficient to fully compensatethe Fund for default losses. In an attempt to mitigate the losses,the Fund, where possible, obtains independent valuations of thecollaterals on a regular basis. However, these valuations do notguarantee the ultimate realizable value of the collateral.The domestic legal system of the countries in the Asia-Pacific regionvary 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 thecountries in which the Fund invests varies, thus the Fund (or anyentity in which the Fund holds a direct or secondary interest) mayhave difficulty in successfully pursuing claims in the courts of suchcountries. Further, to the extent that the Fund or an entity inwhich the Fund holds a direct or secondary interest has obtained ajudgement but is required to seek its enforcement in the courts ofthe countries in the Asia-Pacific region, there can be no assurancethat the court will enforce such judgement.The Fund is also exposed to credit risk in respect of its investmentsin debt securities, cash and bank balances and trades counterparties.(e) Liquidity RiskAs the Company is closed-end, it is not exposed to redemptions ofshares by its shareholders.The Fund is exposed to liquidity risk as the Fund's investments arelargely illiquid while the majority of the Fund's liabilities arewith short maturity. Illiquid investments include any securities orinstruments which are not actively traded on any major securitiesmarket or for which no established secondary market exists where theinvestments can be readily converted into cash. Reduced liquidityresulting from the absence of an established secondary market mayhave an adverse effect on the prices of the investments and theFund's ability to dispose of them where necessary to meet liquidityrequirements. As a result, the Fund may be exposed to significantliquidity risk.China currently has foreign exchange restrictions, especially inrelation to the repatriation of foreign funds. Any unexpected foreignexchange control in China may cause difficulties in the repatriationof funds. The Fund invests in China and is exposed to the risk ofrepatriating funds out of China to meet its obligations on a timelybasis.The Fund has the ability to borrow in the short term and this issubject to certain limitations, including the total amount of allborrowings outstanding at any time shall not exceed 50% of the Fund'stotal assets at such time.4 InvestmentsStatement of Financial Accounting Standard No. 157, Fair ValueMeasurement ("FAS 157") issued by the Financial Accounting StandardsBoard ("FASB") establishes a fair value hierarchy that prioritizesinputs to measure fair value. The hierarchy gives the highestpriority to unadjusted quoted prices in active markets for identicalassets or liabilities (level 1 measurements) and the lowest priorityto unobservable inputs (level 3 measurements).The three levels of the fair value hierarchy under FAS 157 aredescribed below:Level 1 Inputs to measure fair values are unadjusted quotedprices in active markets that are accessible at the measurement datefor identical, unrestricted assets or liabilities;Level 2 Inputs to measure fair values are quoted prices inmarkets that are not active, quoted prices for similar assets inactive markets or prices or valuations for which all significantinputs are observable, either directly or indirectly;Level 3 Inputs to measure fair values are both significant tothe fair value measurement and unobservable.Inputs to measure fair values broadly refer to the assumptions thatmarket participants use to make valuation decisions, includingassumptions about risk. Inputs may include price information,volatility statistics, specific and broad credit data, liquiditystatistics and other factors. An asset or a liability's levelwithin the fair value hierarchy is based on the lowest level of anyinput that is significant to the fair value measurement. However,the determination of what constitutes "observable" requiressignificant judgment. The Valuation Committee considers observabledata to be such market data which is readily available, regularlydistributed or updated, reliable and verifiable, not proprietary andprovided by multiple, independent sources that are actively involvedin the relevant market. The categorization of an asset or aliability within the hierarchy is based upon the pricing transparencyof the asset or liability and does not necessarily correspond to theValuation Committee's perceived risk of that asset or liability.Level 1As at 30 June 2009, the Fund did not have any investments that werecategorized as level 1 within the fair value hierarchy.Level 2As at 30 June 2009, the Fund did not have any investments that werecategorized as level 2 within the fair value hierarchy.Level 3Assets are classified within level 3 of the fair value hierarchy ifthey are traded infrequently and therefore have little or no pricetransparency. Such assets include investments in unlisted stocks andbonds and loans receivable. Valuation methodologies utilized by theValuation Committee include comparable transactions or performancemultiples, latest round of financing, and are supported byindependent valuations of underlying assets. The selection ofappropriate valuation techniques may be affected by the availabilityof reliable inputs, including management accounts or locally auditedfinancial statements of the underlying investee companies. In somecases, one valuation technique may provide an appropriate estimationof fair value while in other circumstances, multiple valuationtechniques may be appropriate. Once used, the methodology willcontinue to be used until a new, more appropriate method isdetermined.The fair value of loans receivable is determined using multipleinputs, including terms of maturity, estimated cash flows under theloans, valuations of the underlying collaterals and credit assessmentof the borrowers. The Valuation Committee considers the costs of theloans receivable generally approximate their fair value since theloans have relatively short maturity and the interest rates chargedreflect market discount rates.The following table summarizes the assets carried on the consolidatedstatement of assets and liabilities by captions and by levels withinthe fair value hierarchy. Assets at fair value as of 30 June 2009 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Investments - stocks - - 67,690,033 67,690,033 Investments - bonds - - - - Investments - loans receivable - - 164,318,717 164,318,717 ------- ------- ------- ------- Total - - 232,008,750 232,008,750 ======= ======= ======= ======= Assets at fair value as of 31 December 2008 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Investments - stocks - - 72,745,627 72,745,627 Investments - bonds - - 40,000,000 40,000,000 Investments - loans receivable - - 144,302,049 144,302,049 ------- ------- ------- ------- Total - - 257,047,676 257,047,676 ======= ======= ======= =======As of 30 June 2009, no investments were held directly by the Fund,and investments of US$232,008,750 were held through subsidiaries ofthe Fund.As of 1 April 2009 Project Speed was reclassified from a bondinvestment to a loan, the fair value as at 31 December 2008 wasUS$40,000,000 and as at 30 June 2009 was US$41,521,127. There was noreclassification between levels or in the valuation methodology used.The following table summarizes the changes in the fair value of theFund's level 3 investments. Investments Investments Investments - loans - stocks - bonds receivable Total US$ US$ US$ US$ At 1 January 2009 72,745,627 40,000,000 144,302,049 257,047,676 Purchase of investments - 40,000,000 40,000,000 Sale of investments (5,530,266) (40,000,000) (15,044,051) (60,974,317) Net realized (loss) (1,153,529) (1,153,529) Net unrealized gain/(loss) 874,672 - (3,785,752) (2,911,080) ------- ------- ------- ------- At 30 June 2009 67,690,033 - 164,318,717 232,008,750 ======= ======= ======= ======= Investments Investments Investments - loans - stocks - bonds receivable Total US$ US$ US$ US$ At 5 September 2007 (date of incorporation) - - - - Purchase of investments 66,601,650 40,000,000 109,534,792 216,136,442 Net realized gains - - 2,074,363 2,074,363 Net unrealized gains 6,143,977 - 32,692,894 38,836,871 ------- ------- ------- ------- At 31 December 2008 72,745,627 40,000,000 144,302,049 257,047,676 ======= ======= ======= =======For the period ended 30 June 2009, total net unrealized losses onlevel 3 investments amounted to US$ 2,911,080.5 Investments - Loans ReceivableThe loans are categorized into the following types by structure: June 2009 Dec 2008 US$ US$Repurchase agreements 122,797,591 125,689,720Secured borrowings 41,521,127 18,612,329 ------- -------Total 164,318,717 144,302,049 ======= =======6 Share Capital, Share Premium, Capital Surplus and TreasuryShares As at As at As at As at 30 Jun 09 30 Jun 09 31 Dec 08 31 Dec 08 Number of Number of shares US$ shares US$Share CapitalAuthorized:10,000,000,000ordinaryshares ofUS$0.01 10,000,000,000 100,000,000 10,000,000,000 100,000,000 ======= ======= ======= =======Issued andfully paid:ordinaryshares ofUS$0.01 189,833,893 1,898,339 370,000,000 3,700,000 ======= ======= ======= =======Share PremiumIssued shares 189,833,893 187,935,554 370,000,000 366,300,000 ======= ======= ======= =======CapitalSurplus (30,000,000) 4,707,515 (30,000,000) 3,910,000 ======= ======= ======= =======TreasuryShares (29,960,000) (26,215,000) (29,960,000) (26,215,000) ======= ======= ======= =======Total ShareCapital, SharePremium,CapitalSurplus 168,326,408 347,695,000and TreasuryShares ======= =======During the period, the Company repurchased and cancelled 180,166,107shares as part of the reconstruction, at a tender price of US$1.01per share in March 2009. Upon cancellation of the shares, theCompany recognised a capital surplus of US$797,515. In addition, theCompany continued to hold 29,960,000 shares through a wholly-ownedsubsidiary as treasury shares.7 Management Fees and Performance FeesPursuant to the Investment Management Agreement dated 20 November2007 between the Company and the Investment Manager, the InvestmentManager was appointed to manage the investments of the Fund, subjectto the overall supervision and authorization by the directors and/orthe Investment Committee (as appropriate).The Investment Manager will receive an aggregate management fee of 2%per annum of the quarterly net asset value ("NAV"). The managementfee is paid quarterly in advance based on the NAV at the end of theprevious quarter. For the period from 1 January 2009 to 30 June2009, total management fees amounted to US$3,409,216 and were fullypaid.The Investment Manager is also entitled to receive a performance feein the event that the year end NAV is greater than (i) the year endNAV for the last year in which a performance fee was payable ("HighWater Mark") and (ii) the year end NAV for the last year in which aperformance fee was payable increased by an annual hurdle rate of 8%("Hurdle").The performance fee 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 year end NAV above the Hurdle up to 10% (the "Catch-up"); and * 20% of the relevant increase in year end NAV above the Catch-up.For the period from 1 January 2009 to 30 June 2009 no performance feewas accrued, or payable as of 30 June 20098 TaxationUnder current Cayman Islands legislation applicable to an exemptedcompany, there is no income tax, capital gains or withholding tax,estate duty, or inheritance tax payable by the Fund.A provision for China tax has been made on the Fund's China sourcedincome and realized and unrealized gains from investments. For theperiod from 1 January 2009 to 30 June 2009 current tax and deferredtax amounted to US$158,412 and US$7,544,811, respectively.No provision for Hong Kong profits tax has been made as the directorsbelieve that the Fund had no Hong Kong sourced profits during theperiod.9 Related Party Transactions(a) Management Fees and Performance Fees to the InvestmentManagerThe Fund pays management fees and performance fees to the InvestmentManager. See Note 7 for details.10 Financial HighlightsNet asset value per share at the end of the period is as follows: Period Period 1 Jan 2009 to 30 from 1 Jan 2008 to June 2009 30 June 2008 US$ US$ Per share data (for a share outstanding throughout the period): Net asset value at beginning of period 1.0611 1.0000 Net investment loss (0.0174) (0.0339) Net realized and unrealized gains from investments 0.0633 0.0673 ------- ------- Net asset value at end of period 1.1070 1.0335 ======= =======The following represents the ratios to average net assets and othersupplemental information for the period from 1 January 2009 to 30June 2009: 30 June 2009 30 June 2008 Total return before and after performance 4.33% fees (1) 3.41% Ratios to average net assets (2) Total expenses (1.23%) (4.59%) Net investment loss (1.17%) (3.35%)(1) Total return represents the change in net asset value(before and after performance fees), adjusted for cash flows inrelation to capital transactions for the period from 1 January 2009to 30 June 2009.(2) Average net asset value is derived from the beginning andending net asset value, adjusted for cash flows related to capitaltransactions for the period from 1 January 2009 to 30 June 2009. Forthe period from 1 January 2009 to 30 June 2009, the average net assetvalue amounted to US$238,851,632.11 Events after the Balance Sheet DateAt its launch in November 2007, the Company's admission documentindicated that PACL would provide a regular level of income in theform of a dividend up to an annual yield of 6 per cent of net assetvalue. At the EGM held on 2 March 2009, a special resolution waspassed authorising the Company to increase this annual yield to 12per cent of net asset value.After further consultation with the Company's major shareholdersfollowing the EGM, the Board and the Investment Manager concludedthat currently it would be more tax efficient, and therefore in thebest interests of the shareholders, that distributions be made by wayof a tender offer instead of a dividend. As such a circular was sentto shareholders detailing a tender offer (the 'Tender Offer') topurchase up to 6 per cent of the ordinary shares of the Company at aprice equal to the unaudited net asset value as at 31 May 2009.The Tender Offer closed on Thursday 2 July 2009 and 8,031,849 of theCompany's ordinary shares, representing 5.024 per cent of theCompany's ordinary shares in issue (and able to be tendered under theTender Offer), were tendered and repurchased by the Company'swholly-owned subsidiary, PACL Trading Limited, at a price of $1.09per share.Following the repurchases, the Company has a total of 189,833,893ordinary shares in issue, of which 37,991,849 are held to effectivelyreplicate a treasury share facility by PACL Trading Limited.12 Commitment and ContingencyIn the normal course of business, the Fund may enter intoarrangements that contain a variety of representations and warrantiesand which provide general indemnification. The Fund's maximumexposure under these arrangements is unknown, as this involves futureclaims that may be made against the Fund and which have not yetoccurred. However, based on experience, the directors expect therisk of loss to be remote.13 Recent Accounting PronouncementsIn March 2008, FASB issued Statement of Financial Accounting StandardNo. 161, Disclosures about Derivative Instruments and HedgingActivities ("FAS 161"), an amendment of FASB Statement No. 133. FAS161 requires enhanced disclosures about (a) how and why an entityuses derivative instruments, (b) how derivative instruments andhedging activities are accounted for and (c) how derivativeinstruments and related hedging activities affect a fund's financialposition, financial performance and cash flows. FAS 161 is effectivefor financial statements issued for fiscal years and interim periodsbeginning after 15 November 2008.The directors do not believe that the adoption of FAS 161 willmaterially impact the financial statement amounts as the Company hasnot utilised any derivatives for hedging purposes during the period.In October 2008, FASB issued FSP No. 157-3 "Determining the FairValue of a Financial Asset when the Market for that Asset is NotActive" ("FSP 157-3"). FSP 157-3 clarifies how FAS 157 should beapplied when valuing securities in markets that are not active. FSP157-3 became effective for fiscal year 2008. The adoption of FSP157-3 did not have a material impact on the financial statements ofthe Fund.---END OF MESSAGE---This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 18.09.2009 - 15:55 Uhr
Sprache: Deutsch
News-ID 5974
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