| Maiden Interim Results |
| Wednesday, 27. August 2008 08:02 |
|---|
| Pacific Alliance China Land Limited 27 August, 2008 Pacific Alliance Asia China Land Limited ("PACL" or "the Company") Maiden Interim Results For the period from 5 September 2007 to 30 June 2008 Pacific Alliance China Land Limited ("PACL" or "the Company"), the private equity fund focused on investing in a portfolio of investments in existing properties, new developments, distressed projects and pre-IPO and IPO real estate companies in Greater China, today announces its maiden interim results for the period from 5 September 2007 (Date of Incorporation) to 30 June 2008. Financial Highlights * Net asset value as at 30 June 2008 was US$412 million, representing US$1.0335 per share, a 3.35% increase since 22 November 2007 (listing date). * Profit before tax for the period was US$15 million * Cash and cash equivalents as at 30 June 2008 of US$198 million Operational Highlights * Successful AIM listing and raising of US$400 million on 22 November 2007 * As at 30 June 2008, the Company was approximately 50% invested with the portfolio allocation, including cash deposits, as follows; pre-IPO 18.7%, bridge financings 17.3% and co-development 14.5%. The Company expects funds to be fully invested in the coming months. * Key investments since listing include: * December 2007: Cash investment in Hainan Airport Group - The Company invested US$20 million cash for a 4.9% equity stake in Hainan Airport Group. The group owns and operates airport facilities around China and will continue to acquire other facilities in tourism cities and in the fast growing second and third tier cities, further strengthening its position as the leading owner and operator of airport facilities in China. * January 2008: Cash investment in mid-sized real estate developer, Pearl River Delta Region, Guandong Province - The Company invested US$40 million cash in a mid-sized real estate developer, based in the Pearl River Delta Region, Guandong Province. It is a strong mid-sized developer, property manager and interior design firm based in Guangzhou and active throughout Guangdong province with a focus on mid-end properties with creative design. * February 2008: Extension of bridge loan to Beijing developer in Chaoyang District - The Company extended a US$30 million bridge loan to a Beijing developer. The borrower is developing a unique high-end comprehensive development in the Asian/Olympic Game Village Area in Beijing. * March 2008: Cash investment in Shanghai based property developer, Yangtze River Delta and Pan-Bohai Rim regions - The Company invested US$15 million cash in a leading property developer in the Yangtze River Delta region. This was a strategic pre-IPO investment in the developer, which has a diversified land bank totaling 2.4 million square meters in various cities including Shanghai, Tianjin, Shenyang, Wuxi and Beijing. * April 2008: Cash investment in Residential property development, Qingdao - The Company invested US$28 million cash in a residential property development in Qingdao, one of the fastest growing second-tier cities in China. The investment will be a strategic co-development with one of China's largest developers specializing in mid to high income residential developments in first and second tier cities. The investment will be structured as joint acquisition of an existing project company, of which PACL will own 40%. * April 2008: Extension of bridge loan to Beijing based property developer - The Company extended a US$30 million bridge loan to a Beijing based property developer as part of a combined US$92 million financing with Pacific Alliance Asia Opportunity Funds. The borrower has developed a middle class shopping mall located in a well-established residential area of Beijing. * June 2008: Investment in a residential property development in Huzhou - The Company invested US$21 million in a residential property development in Huzhou, a fast growing third-tier city with a population of 2.57 million located in the Yangtze River Delta. Huzhou has a per capita GDP that is greater than larger cities such as Chengdu, Chongqing and Changsha. The investment forms a joint venture with Shanghai Jingrui Properties (Group) Co. Ltd, a mid-sized PRC developer that is minority-owned by Equity International of Chicago. Commenting on the results, Patrick Boot, Managing Partner, Pacific Alliance Real Estate, said: "We have had a very active investment programme during our first six months of operation. As a result, we are well on the way to building a substantial portfolio of property assets in the residential, office, retail, hospitality and industrial real estate sectors. Furthermore, we are confident that we can continue to unlock value in the exciting real estate sector in Greater China". For more information please contact: +-------------------------------------------------------------------+ | MANAGER: | LEGAL COUNSEL: | | Chris Gradel, Managing Partner | Jon Lewis, General Counsel | | Pacific Alliance Group | Pacific Alliance Group | | 16/F St. John's Building | 16/F St. John's Building | | 33 Garden Road | 33 Garden Road | | Central, Hong Kong | Central, Hong Kong | | Tel: +852 29180088 | Tel: +852 29180088 | | Fax: +852 29180881 | Fax: +852 29180881 | | cgradel@pacific-alliance.com | jlewis@pacific-alliance.com | | | | |----------------------------------+--------------------------------| | BROKER: | NOMINATED ADVISER: | | Hiroshi Funaki | Philip Secrett | | LCF Edmond de Rothschild | Grant Thornton UK LLP | | Securities | Tel: +44 20 7383 5100 | | Tel: +44 20 7845 5960 | Philip.J.Secrett@gtuk.com | | Fax: +44 20 7845 5961 | | | funds@lcfr.co.uk | | | | | |----------------------------------+--------------------------------| | MEDIA RELATIONS: | CISX SPONSOR | | | | | Pacific Alliance Group | LCF Edmond de Rothschild | | Sophie Hoggarth | (C.I.) Limited | | Pacific Alliance Group | John Falla | | Tel: +86 21 61135818 | Tel: +44 1481 735579 | | shoggarth@pacific-alliance.com | johnf@lcfci.com | | | | | Financial Dynamics, London | | | Christine Wood/David Cranmer | | | Ed Gascoigne-Pees/ David Cranmer | | | Tel: + 44 20 72697132 | | | | | | Financial Dynamics, Asia | | | Alastair Hetherington/Winnie Lo | | | Tel: +852 3716 9800 | | | | | +-------------------------------------------------------------------+ Notes to Editors: About Pacific Alliance China Land Limited Pacific Alliance China Land Limited (AIM:PACL) is a private equity fund focused on investing in a portfolio of investments in existing properties, new developments, distressed projects and pre-IPO and IPO real estate companies in Greater China. The Company was admitted to trading on the AIM Market of the London Stock Exchange and to listing on the Channel Islands Stock Exchange in November 2007. For more information, see www.pacl-fund.com Chairman's Statement Since late 2007, real estate prices in China have softened due to the Government's continued tightening of credit to property developers and its increasing regulation of foreign investment in real estate. Chinese property stocks saw large share price drops as the earnings of developers were squeezed due to higher funding costs and slower sales. During the same period, the NAV of Pacific Alliance China Land Limited (the "Company") increased by 3.35% since it was admitted to the AIM Market of the London Stock Exchange and the Channel Islands Stock Exchange on 22 November 2007. The Company's increase in NAV was largely driven by two key factors. First was an upward revaluation of 13% of the Qingdao residential co-development project with Qingdao Vanke Real Estate Co. Ltd, a subsidiary of China Vanke Co. Ltd. which is the largest listed real estate company in China. The co-development strategy is becoming increasingly attractive given the Government's continuing tight credit policy to Chinese property developers. By having RMB available on-shore the Company can invest in attractive projects at below market prices, which is an advantage the Company has over many of its competitors. Second was an upward revaluation of the equity kicker that was part of the bridge financing for the Beijing Olympic Project resulting in a 38% gain on the investment to date. The Company's bridge financing strategy is another good short-term use of cash until the Company sees more distressed asset acquisition opportunities, should the tightening continue, or makes investments to enjoy a rebound should the tightening ease. Other investments are currently held at cost or accruing interest as appropriate pending the next quarterly valuation at the end of September. As at 30 June 2008, the Company was approximately 50% invested with the portfolio allocation, including cash deposits, as follows; pre-IPO 18.7%, bridge financings 17.3% and co-development 14.5%. The Company expects that as funds are fully invested in the coming months, the portfolio allocation will be approximately 25% pre-IPO investments, 25% co-development investments, 30% bridge financings, and 20% distressed asset acquisitions. As the Company's current bridge financings mature these funds shall be re-invested in distressed asset acquisition opportunities and the portfolio should then reflect the Company's target strategy allocation. However, it is also important the Company retain the flexibility to take advantage of opportunities resulting from changes in the economy and Government policy as they develop. In the first half of 2008, the Investment Manager expanded its team to 12 dedicated staff focused on China real estate investment and has quickly established itself as one of the largest and most experienced real estate teams in China. Just recently the Government signalled it may begin to relax its tight credit policy towards the property sector. If the Government goes ahead with this, it bodes well for the property sector and may result in a rebound in sales volumes and prices. We are confident that despite the uncertain outlook for the world economy and the current weakness of the China real estate market the Company can continue to deliver attractive risk-adjusted returns through investing in high quality real estate and developers at attractive valuations. Horst F. Geicke Chairman 26 August, 2008 Investment Manager's Report Portfolio Performance As at 30 June 2008, the Company's net asset value per share (NAV) was US$ 1.0335, a 3.35% increase since 22 November 2007 (listing date). The Company's share price closed at US$ 0.89 on 30 June 2008. Realized and Unrealized Income Total income for the period from 5 September 2007 to 30 June 2008 was US$ 31,773,472. Realised Appreciation US$ Investment Interest Income 7,155,599 Deposit Interest 4,768,303 Other Income 238,016 12,161,918 Unrealised Appreciation US$ Bridge Financing 11,547,128 Co-Development 5,760,000 Foreign Exchange 2,304,426 19,611,554 31,773,472 Portfolio Summary As at 30 June 2008, the Company held investments with a cost of approximately US$ 185 million and a carrying value of US$ 202 million. The Company's portfolio is diversified across three strategies including Pre-IPO Financing, Bridge Financing and Co-Development. Breakdown of Investments by Strategy +---------------------------------+ | Type of Investment | % of Total | |--------------------+------------| | Deposit | 49.49% | |--------------------+------------| | Pre-IPO Financing | 18.71% | |--------------------+------------| | Bridge Financing | 17.31% | |--------------------+------------| | Co-Development | 14.49% | +---------------------------------+ +-------------------------------------------------------------------+ | Investments | Value (US$) | Type of | % of | Location | | | | investment | Total | | |----------------+-------------+----------------+--------+----------| | Project Villa | 15,000,000 | Pre-IPO | 3.74% | Greater | | | | Financing | | China | |----------------+-------------+----------------+--------+----------| | Hainan Airport | 20,000,000 | Pre-IPO | 4.99% | Greater | | Group | | Financing | | China | |----------------+-------------+----------------+--------+----------| | Project | | | | Huzhou | | Shanghai | | | | | | Jingrui | 20,732,390 | Co-Development | 5.17% | | |----------------+-------------+----------------+--------+----------| | | | Bridge | | Beijing | | Project RMBox | 27,793,950 | Financing | 6.94% | | |----------------+-------------+----------------+--------+----------| | Project Blue | | | | Qingdao | | Bird | 37,350,400 | Co-Development | 9.32% | | |----------------+-------------+----------------+--------+----------| | | | Pre-IPO | | Guandong | | Project Speed | 40,000,000 | Financing | 9.98% | | |----------------+-------------+----------------+--------+----------| | Project | | | | Beijing | | Beijing | | Bridge | | | | Olympic | 41,547,128 | Financing | 10.37% | | |----------------+-------------+----------------+--------+----------| | Cash | 198,318,942 | Deposit | 49.49% | | +-------------------------------------------------------------------+ Investment Strategy The Company seeks to achieve attractive risk adjusted returns through pre-IPO investment in real estate companies, high-yield bridge financing, co-development with regional real estate development companies, and acquisition of assets in distressed situations. Each of these strategies can be considered opportunistic to some degree given China's current credit crunch. Accordingly, developers are looking for partners at both corporate (pre-IPO) and project (co-development) levels given the need to secure alternative financing sources. They are also being forced to consider bridging solutions (bridge financings) or selling assets directly (distressed asset sales) in order to raise capital and keep their businesses solvent. The Investment Manager will continue to seek and evaluate opportunities with these characteristics. The scale and nature of such opportunities will likely evolve with changes in the economy and Government policies. Set out below are descriptions of the Company's current strategies: Pre-IPO Financing The real estate industry in China is still in its early stage of development. Private ownership of property became more widespread with the privatization of State Owned Enterprises during the 90s, and it's only in the past 10 years that foreign investment in China's real estate sector has gained momentum. But we are still in the early stage of the industry's development, and ownership within each sector (i.e. residential, commercial, hotel, industrial) is still quite fragmented. As such there are still many opportunities to invest in good medium-sized real estate companies, providing capital to help them expand their businesses ahead of an IPO. We will continue to search all sectors for companies with good business models and strong management. Bridge Financing As the first phase of the credit crunch continues, bridge financing opportunities will continue as developers are only now beginning to sell their assets at a discount. Developers will try to keep their assets as long as possible and pay higher interest rates through bridge financing if they think they can retain ownership. These bridge financings are high-yield financings against well collateralized assets, and we expect to see more of these opportunities in the next few months. The Investment Manager will also leverage the network of its other group funds to access a larger pool of investment opportunities. Co-Development Prior to 2007 developers could use leverage to acquire land, and in 2007 when the Government began tightening credit it restricted banks from lending to property developers. As such, many developers are becoming more desperate for cash to finance new projects or projects under development. As a result, developers are now more willing to work with foreign funds on co-development projects which have a history of higher returns. The Company will continue looking for strong co-development partners, who have a good pipeline of projects across multiple markets, to build good long-term partnerships. Asset Acquisitions As the credit crunch deepens we expect to see developers become sufficiently starved of funds that they will consider selling assets at distressed prices. We believe this will occur in the second half of 2008 and into 2009. We have allocated a portion of the Company's remaining funds for these types of opportunities in the coming months and it has been, and continues to be, our strategy to reinvest bridge financing proceeds into distressed asset acquisitions upon maturity. Conclusion We have a strong pipeline of attractive investment opportunities across these specific strategies, and we remain confident the Company will achieve its objective of providing Shareholders with capital appreciation and a regular level of income through an annual dividend. PACIFIC ALLIANCE CHINA LAND LIMITED (incorporated in the Cayman Islands with limited liability) CONSOLIDATED STATEMENT OF NET ASSETS AS AT 30 JUNE 2008 Note 30-Jun-08 US$ ASSETS Pre-IPO financing 75,000,000 Bridge financing 69,341,078 Co-development 58,082,790 202,423,868 Cash at bank 2(g), 6 198,318,942 Investment interest receivable 5,810,271 Deposit & prepayments 8,358,431 Total Assets 414,911,512 LIABILITIES Accrued expenses and other payables 813,302 Provision for taxation 2(j) 1,750,726 Total Liabilities 2,564,028 NET ASSETS 412,347,484 ANALYSIS OF NET ASSETS Attributable to shareholders 399,115,000 Retained earnings 13,232,484 Net Assets (equivalent to US$ 1.0335 per share based on 412,347,484 399,000,000 shares of capital stock outstanding) The accompanying notes are an integral part of these consolidated financial statements CONSOLIDATED SCHEDULE OF INVESTMENT PORTFOLIO As at 30 June 2008 Cost Fair Value % US$ US$ Pre-IPO Investment Project Villa 15,000,000 15,000,000 3.64 Hainan Airport Group 20,000,000 20,000,000 4.85 Project Speed 40,000,000 40,000,000 9.70 75,000,000 75,000,000 Bridge Financing Project RMBox 27,793,950 27,793,950 6.74 Project Beijing Olympic 30,000,000 41,547,128 10.08 57,793,950 69,341,078 Co - Development Project Shanghai Jingrui 20,732,390 20,732,390 5.03 Project Blue Bird 31,590,400 37,350,400 9.06 52,322,790 58,082,790 TOTAL INVESTMENTS 185,116,740 202,423,868 Note: Percentages (%) above are calculated based on net assets. CONSOLIDATED STATEMENT OF OPERATIONS Period from 5-Sep-07 to Note 30-Jun-08 US$ Income Investment interest income 2(k) 7,155,599 Interest income 2(k) 4,768,303 Other income 238,016 TOTAL INCOME 12,161,918 Expenses Legal and professional fees - Investments (2,167,059) Setup costs (7,880,382) Management fees 3 (4,853,270) Other expenses (1,889,551) TOTAL EXPENSES (16,790,262) Unrealised gain on investments 17,307,128 Unrealised foreign exchange gain 2(h) 2,304,426 PROFIT BEFORE TAXATION 14,983,210 Provision for taxation 2(j) (1,750,726) PROFIT AFTER TAXATION AND 13,232,484 NET INCOME CARRIED FORWARD CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS Share Share Share Retained Total Capital Premium Reserves Earnings US$ US$ US$ US$ US$ As at 22 November 2007 (Listing Date) 4,000,000 396,000,000 - - 400,000,000 Cancellation of 1 million shares on 30 June 2008 (10,000) (990,000) - - (1,000,000) Additions to share reserves - - 115,000 - 115,000 Net operating loss during the period - - - (4,074,644) (4,074,644) Unrealised gains on investments - - - 17,307,128 17,307,128 As at 30 3,990,000 395,010,000 115,000 13,232,484 June 2008 412,347,484 CONSOLIDATED STATEMENT OF CASH FLOWS Period from 05-Sep-07 to 30-Jun-08 US$ Cash flows from operating activities Net income 13,232,484 Adjustment to reconcile net gain to net cash used in operating activities Net unrealised appreciation on investments (17,307,128) Other receivable (5,810,271) Deposit & prepayments (8,358,431) Accrued expenses and other payables 2,564,028 Net cash used in operating activities (15,679,318)) Cash flows from investing activities Purchase of investments (185,116,740) Cash flows from financing activities Share capital 3,990,000 Share premium 395,010,000 Share reserves 115,000 399,115,000 Net increase in cash and cash equivalents 198,318,942 Analysis of cash and cash equivalents Cash at bank 198,318,942 Notes to the Consolidated Financial Statements 1. ORGANISATION 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 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands. The Company's principal investment objectives are to provide shareholders with capital growth and a regular level of income, from a diversified portfolio of property in Greater China and to achieve above average returns for an acceptable level of risk. The Company's investment activities are managed by Pacific Alliance Real Estate Limited (the "Investment Manager"). The Company has appointed Sanne Trust Company Limited to act as administrator, custodian and registrar of the Company's assets pursuant to the Custodian Agreement and Fund Administration Services Agreement, respectively. 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 ("U.S. GAAP"). Such policies are consistently followed by the Company in the preparation of its consolidated financial statements. (a) Principles of Consolidation The Company uses wholly owned Special Purpose Vehicles (its "subsidiaries") to hold and transact in certain investments and lending. These consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively the "Group"). Subsidiaries are fully consolidated from the date on which control is transferred to the Group and deconsolidated from the date that control ceases. Inter-company transactions between Group companies are eliminated upon consolidation. (b) Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements and accompanying notes. Management believes that the estimates utilized in preparing the financial statements are reasonable and prudent; however, actual results could differ from these estimates. (c) Basis of Accounting for Securities Transactions Security transactions are accounted for on the trade date, the date the trade is executed. Costs used in determining realised gains or losses on the sale of investment securities are based on the specific identification method. Legal and due diligence fees associated with acquiring investments are capitalised as part of the cost of the investment. (d) Investment Valuation Securities listed on a stock exchange or traded on any other regulated market will be valued at the last closing price on such exchange or market or, if no such price is available, the mean of the bid and ask price on such day will be used. If there is no such price or such market price is not representative of the fair market value of any such security, then the security will be valued at the same price as at the last reporting date, in consultation with the Investment Manager, unless there are specific considerations or events which occurred which the Investment Manager in good faith considers, with reference to the valuation guidance set out in U.S. GAAP, to have an impact on the fair market value of such securities, in which case the securities will be valued in accordance with U.S. GAAP. If a security is listed on several stock exchanges or markets, the last closing price on the stock exchange or market which constitutes the main market for such security will be used. Securities for which quotations are not readily available are recorded at fair value with reference to U.S. GAAP and the International Private Equity and Venture Capital Valuation Guidelines. Although the Valuation Committee, which is established by the Investment Manager and the Board of Directors, uses its best judgment in estimating fair value, there are inherent limitations in any estimation 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 financial statements. If a revaluation of an unlisted security/asset of the Company is proposed by the Investment Manager, it shall be accepted by the Company at its revised value only upon approval of the Valuation Committee. The Investment Manager will present a valuation report (including a valuation report prepared by an independent external valuer, as deemed appropriate). The Valuation Committee will accept or reject the valuation report and may require the Investment Manager to obtain other third party valuation reports if deemed necessary. The Investment Manager will revalue all unlisted securities/assets at least on an annual basis. The Investment Manager, having obtained Valuation Committee approval, may adjust the value of any investment if, having regard to currency, applicable rate of interest, maturity, marketability and/or such other considerations as it deems relevant, it considers that such adjustment is required to reflect the fair market value thereof. If a particular value is not ascertainable as above provided or if the Investment Manager considers that some other method of valuation better reflects the fair market value of the relevant investment, then in such case the method of valuation of the relevant investment shall be such as the Manager shall decide having first received the Valuation Committee's approval. (e) Derivative Financial Instruments In order to hedge against interest rate risks and currency risk, the Company may, where appropriate enter in to forward interest rate agreements, forward currency agreements, interest rate and bond futures contracts and interest rate swaps and purchase and write put or call options on interest rates and put or call options on futures on interest rates. All such financial instruments will be held at their fair value which is obtained from option pricing models. When a contract is closed / expired, the Company records a realised gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. (f) Loans Receivable Loans receivable are carried at cost, which approximates fair value due to the relatively short maturity of the loans, unless the loan is impaired. Evaluation of loans for impairment is based on the fair value of the underlying collateral, which is determined on an individual loan basis. (g) Cash and Cash Equivalents Cash and cash equivalents includes cash at banks and is valued at its face value with interest accrued to the end of each day. (h) Foreign Currency Translation The books and records of the Group are maintained in United States Dollars ("US$"). Assets and liabilities denominated in foreign currencies are translated into US$ using period-end spot foreign currency exchange rates, while revenue and expenses are translated at the daily spot rates of exchanges. The net realised and unrealised gains or losses from investments denominated in currencies other than US$ include that portion of the results of operations arising as a result of changes in foreign currency exchange rates and the fluctuations arising from changes in the market prices of securities held or sold short during the period. The foreign currency element of net realised gains or losses represents net foreign currency exchange gains or losses from the disposition of foreign currencies and other foreign currency denominated assets and liabilities. The foreign currency translation element of the changes in unrealised appreciation or depreciation represents the change in the value of foreign currencies held and other assets and liabilities arising as a result of changes in foreign currency exchange rates. (i) Distribution Policy and Discount Control Subject to the availability of cash and reserves, the Company will seek, where circumstances allow, to provide a regular level of income in the form of a dividend up to an annual dividend yield of six per cent. In the event that Ordinary Shares are trading at a substantial discount to the then prevailing Net Asset Value per Share for an extended period of time, the Board will consider the most appropriate method of reducing the discount, which may include making market purchase of Ordinary Shares and/or implementing a Buyback Programme. The implementation and timing of any Buyback Programme will be at the absolute discretion of the Board and not at the option of Shareholders. Any repurchase of Ordinary Shares will be made subject to the laws of the Cayman Islands and within guidelines established from time to time by the Board (which will take in to account the income and cash flow requirements of the Company). General purchases of Ordinary Shares of up to 14.99 per cent of the Ordinary Shares in issue will only be made through the market and general purchases of over 15% will be made through a Buyback Programme. Any purchase will be made using cash at prices below the prevailing Net Asset Value (NAV) per Share where the Directors believe such purchases will enhance shareholder value. Such purchases may only be made provided the price to be paid is not more than the higher of: (i) five per cent above the average of the middle market quotations on AIM for the Ordinary Shares for the five Business Days before the purchase is made (ii) the higher of the price of the last independent trade and the highest current independent bid at the time of purchase. (j) Income Taxes Under current Cayman Island legislation applicable to an exempt company, there is no income tax, capital gains or withholding tax, estate duty, or inheritance tax payable by the Company or by its shareholders in respect of their shares. The Company may be subject to taxes imposed in other countries in which it invests. Such taxes are generally based on income and/or gains earned. Taxes are accrued and applied to net realised gains and net change in unrealised appreciation, as applicable, as the income and/or gains are earned. No provision for Hong Kong profits tax has been made as the Directors believe that the Company has no Hong Kong sourced profits during the period. A provision of US$ 1,750,726 has been included within the accounts for China taxation. (k) Recognition of Income and Expenses Interest income on cash and bank balances is accrued as earned using the effective interest method. Interest income on loans is accrued as earned using the coupon rates of the respective loans, which approximate the effective interest rates. Loan origination income is initially recorded as deferred loan revenue and recognized in income over the life of the loan. Dividend income is recognised on the ex-dividend date and is recorded net of withholding tax where applicable. Expenses are recorded on an accrual basis. 3. MANAGEMENT AND PERFORMANCE FEES Pursuant to the Investment Management Agreement dated 20 November 2007 between the Company and the Investment Manager, the Investment Manager was appointed to manage the investments of the Company, subject to the overall supervision and authorisation of the Directors and/or the Investment Committee (as appropriate). The Investment Manager will receive a management fee which shall equate to one quarter of two per cent of the quarterly NAV of the Company which shall be paid in US dollars quarterly in advance on the first business day of each quarter. For the period from inception to 30 June 2008 the Company incurred management fees of US$ 4,853,270. The Investment Manager is also entitled to receive a performance fee in the event the year end net asset value is greater than (i) the year end net asset value for the last year in which a performance fee was payable (the High Water Mark), and (ii) the year end net asset value for the last year in which a performance fee was payable increased by an annual hurdle rate of eight percent (the Hurdle). The performance fee will be calculated as follows: * 0% of the relevant increase in the year end net asset value if the year end net asset value is at or below the Hurdle; * 100% of the relevant increase in year end net asset value above the Hurdle up to 10% (the "Catch-up"); * 20% of the relevant increase in year end net asset value above the Catch-up. The Investment Manager shall be paid 25 percent of any performance fee in the form of Ordinary Shares at the higher of (i) fair market value (being the average of the middle market quotation for Ordinary Shares on AIM for the five prior trading days); and (ii) the then prevailing Net Asset Value per Share. 4. NET ASSET VALUE The Company issued 400,000,000 ordinary shares (the "Shares") at the subscription price of US$ 1.00 per share. The Shares were admitted to trade on the AIM market of the London Stock Exchange plc and the Channel Islands Stock Exchange, and dealing commenced on 22 November 2007. Net asset value per share at the end of the period is as follows: 5-Sep-07 to 30-Jun-08 US$ Per share operating performance (for a share of stock outstanding throughout the period): Net asset value at beginning of period 1.0000 Net increase in net assets from operations 0.0335 Net asset value per share at end of period 1.0335 Number of shares in issue (see Note (8)) 399,000,000 5. INVESTMENTS As at 30 June 2008, the Company held investments at fair value, amounting to US$ 202,423,868 which was determined by the Valuation Committee to approximate fair value at the date of the statement of assets. All investments are valued in accordance with the Company's valuation guidelines as detailed in Note 2(d) above. A schedule of investments is provided in these financial statements. 6. CONCENTRATION OF MARKET, CREDIT, CURRENCY AND INDUSTRY RISKS The Company's investments (including both investments and loans) may be subject to various risk factors, including market, credit, currency and industry risks. Investments are typically made with specific focus on Greater China and thus have concentration in that region. Political or economic conditions and the possible imposition of adverse governmental laws or currency exchange restrictions in that region could cause any of the Company's investments and their markets to be less liquid and prices more volatile. Market risk represents the potential loss in value of financial instruments caused by movements in market variables, such as interest and foreign exchange rates and equity prices. The Company may have a concentration of investments in a particular sector. Investment performance of any sector may have a significant impact on the Company. The Company's investments may also be subject to the risk associated with investing in private equity securities. Investments in private equity securities may be illiquid, can be 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. The Company may be exposed to default risk by its counterparties in respect of bridge financing contracts and transactions. Whilst the bridge financing contracts are written with the intention of providing the Company with adequate collateral in the event of default, enforcement may be subject to reliance on the domestic legal systems in different countries in the Asia-Pacific region. Where the contract is enforced, the collateral may not be of sufficient value to fully compensate the Company for default losses. In an attempt to mitigate any losses, the Company, where possible, obtains independent collateral valuations on a regular basis. However, these valuations do not guarantee the realizable value of collateral. The Company is also exposed to concentration of currency and credit risks on its cash and cash equivalents. The Company maintains its cash and cash equivalents in reputable financial institutions. The table below summarises the Group's cash at their fair values (including those denominated in foreign currencies): 30-Jun-08 US$ Cash at banks - USD - USD 135,418,918 135,418,918 Cash at banks - CNY - CNY 430,640,816 62,828,507 Cash at banks - GBP - GBP 34,369 68,673 Cash at banks - HKD - HKD 22,171 2,844 198,318,942 7. RELATED PARTY TRANSACTIONS Management fees paid to a related party For the period ended 30 June 2008, the Company paid management fees of US$ 4,853,270 to its investment manager, Pacific Alliance Real Estate Limited. Further details of this fee are provided in Note 3 above. 8. SHARE CAPITAL 30-Jun-08 US$ Authorised 10,000,000,000 ordinary shares of US$ 0.01 100,000,000 Issued and fully paid 399,000,000 ordinary shares of US$ 0.01 3,990,000 Share Premium 399,000,000 at US$ 0.99 395,010,000 Share Reserves 115,000 Shareholder's funds 399,115,000 During the period the Company repurchased and cancelled 1,000,000 shares at a price of US$ 0.885 per share. 9. COMMITMENT AND CONTINGENCY In the normal course of its operations, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnification. The Company's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the company that have not yet occurred. However, based on experience, the Directors expect the risk of loss to be remote. 10. FINANCIAL HIGHLIGHTS The following represents the ratios to average net assets and other supplemental information for the period: +------------------------------------------+ | | 5-Sep-07 | | | to | | | 30-Jun 08 | |------------------------------+-----------| | Total Return | 3.06% | |------------------------------+-----------| | Ratios to average net assets | | |------------------------------+-----------| | Expenses | (2.01%) | |------------------------------+-----------| | Net investment gain | 1.64% | +------------------------------------------+ 1. Total return represents the change in value by comparing the aggregate beginning and ending values of net assets, adjusted for cash flows related to capital contributions or withdrawals during the period 5 September 2007 to 30 June 2008. 2. Average net assets were derived from the average value taken from the net assets balances for the period, adjusted for cash flows related to capital contributions and withdrawals during the period. For the period from 5 September 2007 to 30 June 2008, the average net assets amounted to US$ 403,063,705. 11. SUBSEQUENT EVENTS On both 2 July 2008 and 8 July 2008 the Company repurchased and cancelled 1,000,000 ordinary shares of US$ 0.01 each at a price of US$ 0.89 per share. A further 1,000,000 ordinary shares of US$ 0.01 each were repurchased and cancelled on 18 July 2008 at a price of US$ 0.885 per share. Following this repurchase and cancellation the Company had 396,000,000 ordinary shares in issue. 12. REPORT DISTRIBUTION Copies of the report are being sent to registered shareholders and will also be available, free of charge, from the office of Pacific Alliance Investment Management (HK) Limited, c/o 16/F., St. John's Building, 33 Garden Road, Hong Kong . A copy of the report will be posted on the Company's website (www.pacl-fund.com). |
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