TIDMPACL
RNS Number : 4212Y
Pacific Alliance China Land Limited
08 May 2019
8 May 2019
Pacific Alliance China Land Limited
Full year results for the period ended 31 December 2018
Pacific Alliance China Land Limited ("PACL" or the "Company"),
an AIM-traded, closed-end investment company has today announced
its full year audited results to 31 December 2018.
Highlights
-- Net asset value as at 31 December 2018 was US$7.21 million,
representing US$2.7192 per share, a 5.64% decrease from 31 December
2017 (US$2.8816 per share).
-- The Company's shares closed at US$2.58 on 31 December 2018, a
9.2% increase from 31 December 2017 and an 5.1% discount to the
audited NAV per share.
-- PACL'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.
Company Developments
-- The Company repurchased US$19 million, US$78 million and
US$55 million of PACL's ordinary shares in 2018 pursuant to the
Share Purchase programs announced in February, June and December
2018.
Portfolio and Company Developments
-- All of the Company's investments have been exited.
Patrick Boot, on behalf of, Pacific Alliance Real Estate Limited
commented that:
"Looking forward to 2019, we will continue to focus 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."
For further information please contact:
MANAGER: LEGAL COUNSEL:
Patrick Boot Jon Lewis
Pacific Alliance Real Estate PAG
Limited T: (852) 2918 0088
T: (852) 2918 0088 jlewis@pagasia.com
pboot@pagasia.com
BROKER: NOMINATED ADVISER:
Gillian Martin Philip Secrett
Liberum Capital Limited Grant Thornton UK LLP
T: (44) 20 3100 2000 T: (44) 20 7383 5100
Gillian.Martin@liberum.com Philip.J.Secrett@uk.gt.com
Notes to Editors:
About Pacific Alliance China Land Limited
Pacific Alliance China Land Limited ("PACL") (AIM: PACL) is a
closed-end investment company admitted to trading on the AIM Market
of the London Stock Exchange in November 2007. PACL is focused on
investing in a portfolio of existing properties, new developments,
distressed projects and real estate companies in Greater China.
For more information about PACL, please visit:
www.pacl-fund.com
Pacific Alliance China Land Limited is managed by a member of
PAG, the Asian alternative investment Company 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. PAG has a presence across Asia with over 300 staff
working in the region.
For more information about PAG, please visit:
www.pagasia.com
Chairperson's Statement
As of 31 December 2018, the net asset value (NAV) of Pacific
Alliance China Land Limited (the "Company" or "PACL") was US$7.21
million, or US$2.7192 per share, representing a 5.64% decrease from
31 December 2017. All of the Company's investments have been exited
now so we will continue to focus our efforts on the timely
repatriation of RMB and distribution of repatriation proceeds to
shareholders. A final distribution is targeted by the end of the
second quarter of 2019.
In line with market expectations, China's Gross Domestic Product
(GDP) grew 6.6% year-on-year, slightly lower than 6.8% in 2017,
indicating a moderate slowdown in China's economic growth. Robust
growth in consumption and the services sector contributed
positively to economic performance as tertiary industries grew by
7.6% in 2018. Although real estate development investment still
increased by 9.5% year-on-year, the Chinese economy still faces
challenges and downward pressure from excess industrial capacity,
as well as rising trade tensions with its largest trading partner,
the United States. While the macroeconomic situation is decidedly
mixed, China's overall outlook remains stable and a positive
resolution to the current China-U.S. trade disagreement is
possible. The government is likely to continue its monetary policy
support and fiscal expansion in order to maintain a moderate and
sustainable level of growth.
Most tier-one and tier-two cities saw limited growth in terms of
both price and transaction volumes as a result of the Chinese
government's stricter property tightening measures. According to
data from China's National Bureau of Statistics (NBS), prices of
new homes increased in 59 of the 70 cities tracked by the NBS in
December, compared with 63 in November. Average new home prices in
first-tier, second-tier, and third-tier cities increased 1.3%, 0.7%
and 0.7% month-on-month respectively. China's home sales volume, in
terms of transacted building floor area, also increased 2.2%
year-on-year during 2018. We expect the government to continue to
follow a differentiated housing policy strategy for different tier
cities, where policy is likely to be more loose in oversupplied
areas and tighter in cities with less supply.
On behalf of the Board of Directors, I would like to thank you
for your continued commitment and support
Margaret Brooke
Chairperson
Investment Managers' Report
On 31 December 2018, the Company's share price closed at
US$2.58, representing 9.2% increase from 31 December 2017 and a
5.1% discount to the NAV per share. The Company's NAV and share
price have both outperformed major benchmark indices including the
FTSE 350 Real Estate Index (F3REAES) and the FTSE AIM All-Share
Index (AXX) on a consistent basis since inception.
31 December 31 December
2018 2017
US$ US$
Realized gains/(losses) and other
income
Net realized losses (net with tax
expense) (5,870,465) (1,284,378)
Deposit interest 1,916,825 1,960,007
-------------------- --------------------
(3,953,640) 675,629
Change in unrealized gains/(losses)
Derivatives 3,187,209 (5,419,594)
Other real estate investments - (1,513,834)
Share of losses/(gains) receivable/(payable
to) from PACL II (209,795) 295,415
Foreign exchange (2,247,293) 11,690,979
-------------------- --------------------
730,121 5,052,966
-------------------- --------------------
(3,223,519) 5,728,595
Portfolio Summary
As at 31 December 2018, the Company held cash of US$8.04 million
(of which US$7.0 million was held onshore in RMB, pending
repatriation).
Investments and Fair value (gross) Type % of total
Cash US$
----------------- -------------------- ----------- -----------
Cash 8,035,357 Cash (1,2) 100%
----------------- -------------------- ----------- -----------
TOTAL
----------------- -------------------- ----------- -----------
Note
(1) The gross investment value includes an amount attributable to the PACL II shareholders.
(2) Of the total cash of US$ 8.04 million, US$ 7.0 million was held as RMB in PRC banks.
Distribution
The timeline below is the Manager's best estimate of amount and
timing of the final distribution to shareholders. The repatriation
process involves many steps and requires numerous approvals. As
always, the Manager will work to speed up the process where
possible.
Project Source Estimated distribution amount Estimated Timing
Auspice Tianjin WFOE original invested capital US$6.7 million(1) June 2019
--------------------------------------- ------------------------------ -----------------
Note
(1) The estimated final distribution amount is based on the 31
December 2018 NAV of US$7.2 million, as reduced by operating and
winding up expenses of US$0.5 million.
Foreign Exchange Hedging
On 10 January 2019, the Company bought a new currency option in
order to effectively hedge the potential currency risk. The hedging
costs were also included in the estimation of operating expenses in
2019:
Conclusion
The central government continues to maintain purchase and home
loan restrictions on first- and second-tier markets with the
expectation of stable housing prices and reasonable transaction
volume. The Manager expects the market to remain flat in 2019.
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 31 DECEMBER 2018
Note 2018 2017
US$ US$
Assets
Derivative contracts, at fair value
(Cost: US$ Nil; 2017: US$3,468,680) 5 - 281,471
Prepayment and other receivables 6 546,115 1,165,130
Cash and bank balances 8,035,357 176,563,063
-------------------- --------------------
Total assets 8,581,472 178,009,664
------------------ ------------------
Liabilities
Provision for taxation 8 743,333 9,986,124
Amounts due to PACL II Limited 10(a) 152,135 1,142,339
Performance fee payable 9 133,162 133,162
Provision for investment agency fees - 1,415,585
Management fee payable 9 315,050 -
Accrued expenses and other payables 23,648 54,171
-------------------- --------------------
Total liabilities 1,367,328 12,731,381
------------------ ------------------
Net assets 7,214,144 165,278,283
Analysis of net assets
Share capital 7 26,531 573,564
Retained earnings 7,187,613 164,704,719
-------------------- --------------------
Net assets (equivalent to US$ 2.7192
per share based on 2,653,078 outstanding
shares; 2017: US$2.8816 per share based
on 57,356,356 outstanding shares) 7,214,144 165,278,283
Approved by the Board of Directors
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED CONDENSED SCHEDULE OF INVESTMENTS
AS AT 31 DECEMBER 2018
2018 2017
Investments - % of % of Cost/principal Fair % % of Cost/principal Fair
Assets net effective value of effective value
assets equity net equity
interest assets interest
held held
US$ US$ US$ US$
Derivatives 0.00% 0.17%
Currency Options 0.00% - - 0.17% 3,468,680 281,471
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARED 31 DECEMBER 2018
Note 2018 2017
US$ US$
Income
Interest income 1,916,825 1,960,007
------------------ ------------------
Total income 1,916,825 1,960,007
----------------- -----------------
Expenses
Management fees 9 (2,067,143) (3,605,849)
Legal and professional fees (392,770) (689,947)
Other expenses (380,720) (766,989)
Performance fees 9 - (133,162)
------------------ ------------------
Total expenses (2,840,633) (5,195,947)
----------------- -----------------
Net investment loss (923,808) (3,235,940)
----------------- -----------------
Realized and change in unrealized gains/losses
from investments, derivatives and foreign
currency
Net realized (losses)/gains from investments,
derivatives and foreign currency transactions 5 (3,456,680) 82,375
Tax expense (2,413,785) (1,366,753)
Net change in unrealized gains/(losses)
from investments, derivatives and losses
on translation of assets and liabilities
in foreign currencies 4 939,916 4,757,551
Net (increase)/decrease in amount payable
to PACL II Limited from gains/(losses)
attributable to PACL II Limited 10(a) (209,795) 295,415
------------------ ------------------
Net realized and change in unrealized
gains/losses from investments, derivatives
and foreign currency (5,140,344) 3,768,588
----------------- -----------------
Net (decrease)/increase in net assets
from operations (6,064,152) 532,648
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARED 31 DECEMBER 2018
Share capital
and share Retained
Note premium earnings Total
US$ US$ US$
At 1 January 2017 615,967 176,129,666 176,745,633
Repurchase of ordinary
shares 7 (42,403) (11,957,595) (11,999,998)
Net increase in net assets
from operations - 532,648 532,648
-------------------- -------------------- --------------------
At 31 December 2017 and
1 January 2018 573,564 164,704,719 165,278,283
Repurchase of ordinary
shares 7 (547,033) (151,452,954) (151,999,987)
Net derease in net assets
from operations - (6,064,152) (6,064,152)
-------------------- -------------------- --------------------
At 31 December 2018 26,531 7,187,613 7,214,144
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2018
Note 2018 2017
US$ US$
Net (decrease)/increase in net assets
from operations (6,064,152) 532,648
Adjustments to reconcile net change
in net assets from operations to net
cash generated from/(used in) operating
activities
Purchase of derivatives - (105,000)
Proceeds from settlement of derivatives 12,000 -
Net realized and change in unrealized
gains/(losses) from investments and
derivatives 269,472 6,162,573
Net decrease/(increase) in amount payable
to PACL II Limited from gains/(losses)
attributable to PACL II Limited 209,795 (295,415)
Change in prepayment and other receivables 619,015 27,942,852
Change in amounts due to PACL II Limited (1,200,000) 1,200,000
Change in performance fees payable 9 - (478,419)
Change in provision for investment
agency fees (1,415,585) -
Change in provision for taxation (9,242,791) (10,258,568)
Change in management fee payable 9 315,050 -
Change in accrued expenses and other
payables (30,523) (794,825)
-------------------- --------------------
Net cash (used in)/generated from operating
activities (16,527,719) 23,905,846
------------------ ------------------
Cash flows from financing activities
Repurchase of shares 7 (151,999,987) (11,999,998)
-------------------- --------------------
Net cash used in financing activities (151,999,987) (11,999,998)
------------------ ------------------
Net (decrease)/increase in cash and
cash equivalents (168,527,706) 11,905,848
Beginning balance 176,563,063 164,657,215
-------------------- --------------------
Ending balance, representing cash and
bank balances 8,035,357 176,563,063
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2018
1 Organization
Pacific Alliance China Land Limited (the "Fund") was
incorporated on 5 September 2007 in the Cayman Islands. It is a
closed-end Cayman Islands registered, exempted Fund. The address of
its registered office is PO Box 472, 2nd Floor, Harbour Place,
Grand Cayman KY1-1106, Cayman Islands.
The Fund's ordinary shares are traded on the AIM market of the
London Stock Exchange. The Fund can raise additional capital up to
the authorized share capital as described in Note 7.
The principal investment objective of the Fund and its
subsidiaries (collectively, the "Fund") is to provide shareholders
with capital growth and a regular level of income from investments
in existing properties, new developments, distressed projects and
real estate companies in Greater China.
The Fund's investment activities are managed by Pacific Alliance
Real Estate Limited ("PARE" or the "Investment Manager"). The Fund
appointed Sanne Fiduciary Services Limited to act as the custodian
of certain assets of the Fund, and as the administrator and
registrar pursuant to the Administration Custodian and Registrar
Agreement.
On 25 July 2014, the Fund's investment policy changed to
restrict new investment solely to (a) supporting existing
investments, (b) utilizing Renminbi cash assets subject to exchange
control restrictions, for low risk short-term investments, and (c)
to focus future investment management efforts on the realization of
the portfolio and the return of net realization proceeds to
shareholders.
As of 31 December 2018, all investments under management were
realized and all the sale proceeds had been received by underlying
special purpose vehicles.
The consolidated financial statements were approved by the Board
of Directors on 30 April 2019.
2 Summary of significant accounting policies
The following significant accounting policies are in conformity
with accounting principles generally accepted in the United States
of America ("US GAAP"). The Fund applies the provisions of
Financial Accounting Standards Board ("FASB") Accounting Standard
Codification ("ASC") 946-10, Financial Services - Investment
Companies (the "Guide"). The Fund is an investment Fund under the
Guide. Such policies are consistently followed by the Fund in the
preparation of its consolidated financial statements.
(a) Principles of consolidation
These consolidated financial statements include the financial
statements of the Fund. Subsidiaries are fully consolidated from
the date on which control is transferred to the Fund and
deconsolidated from the date that control ceases. Inter-Fund
transactions between group companies are eliminated upon
consolidation.
The Fund uses wholly and partially owned special purpose
vehicles ("SPVs") to hold and transact in certain investments. The
Fund's policy is to consolidate, as appropriate, those SPVs in
which the Fund has control over significant operating, financial or
investing decisions of the entity.
Except when an operating Fund provides services to the Fund,
investment in an operating Fund is carried at fair value (refer to
Note 2(c) below for fair value measurement).
2 Summary of significant accounting policies (Continued)
(b) Use of estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires the Fund's management to make
estimates and assumptions that affect the reported value of assets
and liabilities and disclosures of contingent assets and
liabilities as at 31 December 2018 and the reported amounts of
income and expenses for the year then ended. The areas involving a
higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the financial statements are
disclosed in Note 2(j).
(c) Investments
The Fund may hold both listed securities and unlisted
securities, which by nature have limited marketability.
(i) Recognition and derecognition
Regular purchase and sale of investments are accounted for on
the trade date, the date the trade is executed. Costs used in
determining realized gains and losses on the disposal of
investments are based on the specific identification method for
unlisted or unquoted investments. Cost includes legal and due
diligence fees associated with the acquisition of investments.
Transfer of investments is accounted for as a sale when the Fund
has relinquished control over the transferred assets. Any realized
gains and losses from investments are recognized in the
consolidated statement of operations.
(ii) Fair value measurement
The Fund is an investment Fund under the Guide. As a result, the
Fund records and re-measures its investments on the consolidated
statement of assets and liabilities at fair value, with unrealized
gains and losses resulting from changes in fair value recognized in
the consolidated statement of operations.
Fair value is the amount that would be received to dispose of
the investments in an orderly transaction between market
participants at the measurement date, i.e. the exit price. Fair
value of investments is determined by the Valuation Committee of
the Fund, which is established by the Investment Manager and the
Board of Directors.
Investments in securities traded on a recognized exchange are
value at the traded price on the exchange in which such security
was traded on the last business day of the period.
The fair values of unlisted or unquoted securities are based on
the Fund's valuation models, including earnings multiples (based on
the budgeted earnings or historical earnings of the issuer and
earnings multiples of comparable listed companies) and discounted
cash flows. The Valuation Committee also considers the relevant
developments since acquisition of the investments, the original
transaction price, recent transactions in the same or similar
instruments, completed third-party transactions in comparable
instruments, reliable indicative offers from potential buyers and
rights in connection with realization. Judgment is used to adjust
valuation as necessary for factors such as non-maintainable
earnings, tax risk, growth stage, and cash traps. Cross-checks of
primary techniques are made against other secondary valuation
techniques.
2. Summary of significant accounting policies (Continued)
(c) Investments (Continued)
(ii) Fair value measurement (Continued)
In determining the fair value 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 Fund
purchases the Fund's equity share capital, the consideration paid
is deducted from equity until the shares are cancelled or reissued.
Where such ordinary shares are subsequently reissued, any
consideration received is included in equity.
(g) Foreign currency translation
The books and records of the Fund are maintained in United
States Dollars ("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
year.
Gains and losses attributed to changes in the value of foreign
currencies for investments, cash balances and other assets and
liabilities are reported as foreign exchange gains and losses in
the consolidated statement of operations.
2 Summary of significant accounting policies (Continued)
(h) Taxation
The Fund may be subject to taxes imposed in jurisdictions in
which it invests and operates. Such taxes are generally based on
income and gains earned. Taxes are accrued on investment income,
realized gains, and unrealized gains, as appropriate, when the
income and gains are earned. The Fund accrues for liabilities
relating to uncertain tax positions only when such liabilities are
probable and can be reasonably estimated in accordance with the
authoritative guidance contained in ASC 740 Income Taxes as
described in Note 8.
The Fund files tax returns as prescribed by the tax laws of the
jurisdictions in which it operates. The Fund uses the asset and
liability method to provide income taxes on all transactions
recorded in the consolidated financial statements. This method
requires that income taxes reflect the expected future tax
consequences of temporary differences between carrying amounts of
assets or liabilities for book and tax purposes. Accordingly, a
deferred tax asset or liability for each temporary difference is
determined based on the tax rates that the Fund expects to be in
effect when the underlying items of income and expense are
realized.
(i) Recognition of income and expenses
Interest income on bank balances is accrued as earned using the
effective interest method.
Expenses are recorded on an accrual basis. Provision of deferred
tax expenses is made based on the capital gain from realization of
investments as at the year-end.
(j) Critical accounting estimates and assumptions
Estimates and judgments are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. The resulting accounting estimates will, by
definition, seldom equal the related actual results. There are no
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.
3 Concentration of risks
(a) Market risk
Market risk represented 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
Fund's investments and the respective markets to become less liquid
and also the prices to become more volatile.
The Fund's investments had concentration in a particular
industry or sector and performance of that particular industry or
sector had a significant impact on the Fund. The Fund's
concentration of investments in a particular industry or sector is
presented on the consolidated condensed schedule of
investments.
The Fund's investments 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 Fund will be able
to realize the value of such investments in a timely manner.
3 Concentration of risks (Continued)
(b) Interest rate risk
Interest rate risk arises from the fluctuations in the
prevailing levels of market interest rates which affect the fair
value of financial assets and liabilities and future cash flows.
The Fund has bank deposits that expose the Fund to interest rate
risk. The Fund has direct exposure to interest rate changes in
respect of the valuation and cash flows of its interest bearing
assets and liabilities.
(c) Currency risk
The Fund has assets and liabilities denominated in currencies
other than the US$, the functional currency. The Fund is therefore
exposed to currency risk as the value of assets and liabilities
denominated in other currencies may fluctuate due to changes in
exchange rates. The net assets of the Fund before the impact of
currency hedging are denominated in the following currencies:
2018 2017
Net assets Net assets
US$ US$
equivalent equivalent
Renminbi 8,382,900 158,456,062
Pounds Sterling (1,234,793) (1,234,793)
Singapore Dollars 71 72
Hong Kong Dollars (96,686) (96,686)
The Investment Manager manages the Fund's currency exposure
through use of currency options. Refer to Note 5.
(d) Credit risk
The Fund 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 31 December 2018 the main concentrations of
credit risk to which the Fund is exposed arise from derivative
contracts, prepayments and other receivables, and cash and bank
balances.
As at 31 December 2018, the Fund has cash and bank balances
amounting to US$8,035,357 (2017: US$176,563,063) held in multiple
different bank accounts with a number of different financial
institutions. The Fund attempts to minimize its credit risk
exposure on its cash and bank balances by monitoring the size of
its credit exposure to any one counterpart and by only entering
into banking relationships with reputable financial
institutions.
3 Concentration of risks (Continued)
(e) Liquidity risk
The Fund was exposed to liquidity risk as the majority of the
investments of the Fund were illiquid while some of the Fund's
liabilities were with short maturity as of 31 December 2018.
Illiquid investments included any securities or instruments which
were not actively traded on any major securities market or for
which no established secondary market existed where the investments
could be readily converted into cash. As at 31 December 2018, all
investments were fully realized and currently assets are held in
cash as of 31 December 2018. Management considered that there was
no such liquidity risk exposed by the Fund as of 31 December
2018.
China currently has foreign exchange restrictions, especially in
relation to the repatriation of foreign funds. Any unexpected
foreign exchange control in China may cause difficulties in the
repatriation of funds. The Fund invests in China and is therefore
exposed to the risk of repatriating funds out of China on a timely
basis to meet its obligations. Please refer its Note 3(c) above for
the Fund's exposure to Renminbi.
The Fund is closed-end and, thus, not exposed to redemptions of
shares by its shareholders.
4 Investments
The Fund discloses the fair value of its investment in a
hierarchy that prioritizes the inputs to valuation techniques used
to measure the fair value. The hierarchy gives the highest priority
to valuations based upon unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the
lowest priority to valuations based upon unobservable inputs that
are significant to the valuation (Level 3 measurements). Three
levels of the fair value hierarchy are as follows:
Level 1 Inputs that reflect unadjusted quoted prices in active
markets for identical assets or liabilities that the Fund has the
ability to access at the measurement date.
Level 2 Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly or
indirectly, including quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not considered to
be active, inputs other than quoted prices that are observable for
the asset or liability, and inputs that are derived principally
from or corroborated by observable market data by correlation or
other means.
Level 3 Unobservable inputs based on the best information
available in the circumstances, to the extent observable inputs are
not available (including the Fund's own assumptions used in
determining the fair value of investments).
Inputs to measure fair values broadly refer to the assumptions
that market participants use to make valuation decisions, including
assumptions about risk. Inputs may include price information,
volatility statistics, specific and broad credit data, liquidity
statistics and other factors. An asset or a liability's level
within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. However,
the determination of what constitutes "observable" requires
significant judgment. The Valuation Committee considers observable
data to be such market data which is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary
and provided by multiple, independent sources that are actively
involved in the relevant market. The categorization of an asset or
a liability within the hierarchy is based upon the pricing
transparency of the asset or liability and does not necessarily
correspond to the Valuation Committee's perceived risk of that
asset or liability.
4 Investments (Continued)
As at 31 December 2018, the Fund did not hold any Level 1 and 3
instruments. In determining an instrument's placement within the
hierarchy, the Valuation Committee follows the following guidance
for investments held by the Fund:
Level 2 Investments in illiquid listed stocks and derivatives
are valued using the last traded prices of the listed stocks and
derivatives after factoring in discounts for liquidity. Such
investments are generally classified within Level 2 of the fair
value hierarchy.
There was no investment held by the Fund as at 31 December
2018.
The following table summarizes as at 31 December 2017 the fair
value of all instruments within the fair value hierarchy:
Level 1 Level 2 Level 3 Total
US$ US$ US$ US$
Currency options - 281,471 - 281,471
-------------------- -------------------- -------------------- --------------------
- 281,471 - 281,471
5 Derivative instruments
The Fund transacts in derivative instruments including options
with each instrument's primary risk exposure being equity, credit
or foreign exchange. The Fund enters into currency options to hedge
itself against foreign currency exchange rate risk for its foreign
currency denominated assets and liabilities due to adverse foreign
currency fluctuations against the 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
Fund does not designate derivatives as hedging instruments under
FASB ASC 815.
There was no Level 2 derivative contracts held by the Fund as at
31 December 2018.
The Partnership held Level 2 derivative contracts as at 31
December 2017 as follows:
As at 31 December Fair Value Contractual/notional
2017 amounts
Assets Liabilities Assets Liabilities
US$ US$ US$ US$
Currency options 281,471 - 128,000,000 -
5 Derivative instruments (Continued)
The following table indicates the gains and losses on
derivatives, by contract type, as included in the consolidated
statement of operations.
Year ended 31 December 2018
Average Average Change in Realized gains/(losses)
notional number of unrealized
contracts gains/losses
US$ US$ US$
Currency options 59,000,000 1 3,187,209 (3,456,680)
Year ended 31 December 2017
Average Average Change in Realized gains/(losses)
notional number of unrealized
contracts gains/losses
US$ US$ US$
Currency options 128,000,000 2 (5,419,594) (742,980)
Average notional amounts is derived from the total outstanding
contracts at each quarter end. The above realized and unrealized
gains/losses on derivatives are included in realize and change in
unrealized gains from investments, derivatives and foreign currency
in the consolidated statement of operations.
As at 31 December 2018 and 2017, the Partnership does not have
any derivative assets or cash collateral being used by
counterparties to offset derivatives liabilities on its statements
of assets, liabilities and partner's capital.
6 Prepayment and other receivables
2018 2017
US$ US$
Interest receivable 96,115 710,605
Prepayment and other receivables 450,000 454,525
------------------ ------------------
546,115 1,165,130
7 Share capital and tendered shares
Number of
shares Share
outstanding capital Total
US$ US$
As at 1 January 2017 61,596,638 615,967 615,967
Re-purchase of tendered
shares (4,240,282) (42,403) (42,403)
-------------------- ---------------- --------------------
As at 31 December 2017 and
1 January 2018 57,356,356 573,564 573,564
Re-purchase of tendered
shares (54,703,278) (547,033) (547,033)
-------------------- ---------------- --------------------
As at 31 December 2018 2,653,078 26,531 26,531
As at 31 December 2018, the total number of authorized ordinary
shares was 10,000,000,000 (2017: 10,000,000,000) with par value of
US$0.01 (2017: US$0.01) per share. As at 31 December 2018, the
Company had 2,653,078 (2017: 57,356,356) ordinary shares in
issue.
8 Taxation
The Fund adopted the authoritative guidance contained in FASB
ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which require the directors to determine whether a tax
position of the Fund is more likely than not to be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. For tax positions meeting the more likely than not
threshold, the tax amount recognized in the financial statements is
reduced by the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the
relevant taxing authority.
The uncertain tax positions identified by the directors mainly
include:
(a) Whether any of the Fund and its offshore 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%
(rate could be reduced to a lower rate of 9% in certain
jurisdiction in China).
(b) Whether any of the Fund and its offshore SPVs that may
derive income would be deemed as having an establishment or place
in China. If an offshore entity has an establishment or place in
China, income derived by the offshore entity that is derived from
China by the establishment or place or income that is effectively
connected to the establishment or place would be subject to China
CIT at 25% (rate could be reduced to a lower rate of 9% in certain
jurisdiction in China).
(c) Whether any of the Fund and its offshore SPVs is subject to
Hong Kong profits tax. An entity would be subject to Hong Kong
profits tax if (i) the entity carries on a trade, profession or
business in Hong Kong; (ii) profits are derived from that trade,
profession or business carried on in Hong Kong (excluding gains of
a capital nature); and (iii) the profits arise in or are derived
from Hong Kong, i.e. have a Hong Kong source.
8 Taxation (Continued)
The Investment Manager has assessed that the Fund and its
offshore SPVs are not TREs in China and do not have any
establishment or place of business in China. Gains from the
disposal of investments in China by the Fund or its SPVs may be
subject to China withholding tax at 10% without considering the
potential relief that may be available under any tax treaty between
the tax jurisdiction of the transferor and China. In addition,
where Chinese equity investments are held via an offshore
intermediate holding fund, exit of the Chinese equity investment
disposal of shares in the offshore intermediate holding fund could
be regarded as an indirect transfer of the Chinese equity
investment. According to the General Anti Avoidance Rules under the
China CIT Law, if an investment holding structure and investment
exit via indirect transfer do not have a reasonable commercial
purpose, the Chinese tax authority is empowered to disregard such
arrangement and impose withholding tax on the gains from such an
indirect transfer. The directors have reviewed the structure of the
investment portfolio and assessed the potential withholding tax
implications and considered adequate provision to China tax has
been made on the Fund's financial statements.
As at 31 December 2018, the Investment Manager has analyzed the
open tax years of all jurisdictions subject to tax examination and
the provision for deferred tax and uncertain tax amounted to US$Nil
(2017: US$9,242,791) and US$743,333 (2017: 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 for China tax has
been made on the Fund's consolidated financial statements.
The Investment Manager has reviewed the structure of the Fund's
investment portfolio and considered the Fund's exposure to
countries in which it invests to be properly reflected in the
Fund's consolidated financial statements.
Under current Cayman Islands legislation applicable to an
exempted Fund, there is no income tax, capital gains or withholding
tax, estate duty, or inheritance tax payable by the Fund in the
Cayman Islands.
9 Management fee and performance fees
Pursuant to the Investment Management Agreement dated 20
November 2007, the Investment Manager was appointed to manage the
investments of the Fund. The Investment Manager will receive an
aggregate management fee of 2% per annum of the quarterly Net Asset
Value ("NAV"). The management fee is paid quarterly in advance
based on the NAV at the first day of each fiscal quarter. For the
year ended 31 December 2018, total management fee amounted to
US$2,067,143 (2017: US$3,605,849); There was US$315,050 management
fee payable as at 31 December 2018 (2017: US$ Nil).
The Investment Manager is also entitled to receive performance
fees from the Fund in the event that the year-end NAV is greater
than the higher of (a) the year-end NAV for the last year in which
a performance fee was payable ("High Water Mark"); and (b) the NAV
on Admission increased by a non-compound annual hurdle rate of 8%
("Hurdle").
9 Management fee and performance fees (Continued)
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 year ended 31 December 2018, total performance fees
amounted to US$ Nil (2017: US$133,162). As at 31 December 2018,
performance fees payable amounted to US$133,162 (2017:
US$133,162).
Under the Investment Management Agreement, the performance fees
earned by the Investment Manager shall be paid 75% in cash and 25%
in the Fund's ordinary shares ("share portion"). The Fund 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 Related party transactions
Apart from the related party transactions disclosed in Note 9,
the Fund also had the following significant related-party
transactions.
(a) Restructuring with PACL II Limited
On 2 March 2009, the Fund 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 would be used to realize and
distribute cash from exited investments based on the investment and
asset positions held by the Fund as at 31 December 2008 ("Tender
Offer Portfolio"). PACL II is also managed by the Investment
Manager. It was due to, without any further action on the part of
its shareholders, automatically wind up and dissolve 3 years after
its ordinary shares were first issued. On 5 January 2012, the
duration of PACL II was extended by 1 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 2 years to 4 March
2015 upon the written election by the Investment Manager and a
major of the shareholders. On 30 January 2015, the Investment
Manager made an election to extend the duration of PACL II by 1
year to 4 March 2016.
As part of this restructuring, the Fund repurchased 180,166,107
shares at a tender price of US$1.01 per share in exchange for
holders of these shares receiving the same number of shares in PACL
II.
Under the terms of the tender offer, PACL II is entitled to
receive 50.33% of the proceeds from the Tender Offer Portfolio,
which reflects a 5% discount of its proportionate share of the
Tender Offer Portfolio. As of 31 December 2018, the amount due to
PACL II is recorded as a payable by the Fund, adjusted at each
period end based on the movement in the fair value of the
underlying assets and the income and expense attributable to the
Tender Offer Portfolio. The amount is unsecured, non-interest
bearing.
10 Related party transactions (Continued)
(a) Restructuring with PACL II Limited (Continued)
The following table summarizes the movements in amount due to
PACL II.
2018 2017
US$ US$
At 1 January (1,142,339) (237,755)
Fund transfer to/(from) PACL II from/(to)
the Fund 1,200,000 (1,200,000)
Share of operating expenses paid by
the Fund 302,181 184,416
Exchange (losses)/gains (511,977) 111,000
------------------ ------------------
At 31 December (152,135) (1,142,339)
(b) Directors' remuneration
The Fund pays each of its directors an annual fee and the total
fees incurred amounts to US$30,000 (2017: 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$5,000. During the year 2018, Jon-Paul Toppino agreed to waive
his directors' fees and committee fees.
(c) Share capital held by funds managed by fellow subsidiaries of the Investment Manager
Pacific Alliance Asia Opportunity Master Fund ("PAX LP") is
managed by a fellow subsidiary of the Investment Manager.
In February, June and December 2018, PAX LP sold 890,644,
3,681,901 and 2,812,563 ordinary shares of the Fund as part of the
Fund's share repurchase transaction (see Note 7) which closed on
the same date. PAX LP's interest in the Fund remains unchanged at
13.5%. As at 31 December 2018, PAX LP held 358,173 shares of the
Company, representing 13.5% of total outstanding shares of the
Company.
In August 2017, PAX LP sold 572,451 ordinary shares of the Fund
as part of the Fund's share repurchase transaction (see Note 7)
which closed on the same date. PAX LP's interest in the Fund
remains unchanged at 13.5%. As at 31 December 2017, PAX LP held
7,743,281 shares of the Fund, representing 13.5% of total
outstanding shares of the Fund.
PAX LP is managed by a fellow subsidiary of the Investment
Manager.
11 Financial highlights
Net asset value per share at the end of the year is as
follows:
2018 2017
US$ US$
Per share data (for a share outstanding
throughout the year)
Net asset value at 1 January 2.8816 2.8694
Net investment loss (0.0419) (0.0564)
Net realized and unrealized losses
from investments (0.1205) 0.0686
-------------- --------------
Net asset value at 31 December 2.7192 2.8816
The following represents the ratios to average net assets and
other supplemental information:
2018 2017
Total return before performance fees
(1) (5.64%) 0.43%
Performance fees 0.00% 0.00%
Total return after performance fees
(1) (5.64%) 0.43%
Ratios to average net assets (2)
Total expenses (2.97%) (3.05%)
Net investment loss (0.97%) (1.90%)
(1) Total return represents the change in NAV (before and after
performance fees), adjusted for cash flows in relation to capital
transactions for the year.
(2) Average net assets is derived from the beginning and ending
NAV, adjusted for cash flows in relation to capital transactions
for the year. For the year ended 31 December 2018, the average net
assets amounted to US$95,670,321 (2017: US$170,595,207).
12 Commitment and contingency
In the normal course of business, the Fund may enter into
arrangements that contain a variety of representations and
warranties that provide general indemnification under certain
circumstances. The Fund's maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made
against the Fund and which have not yet occurred. However, based on
experience, the directors expect the risk of loss to be remote,
and, therefore, no provision has been recorded.
For the years ended 31 December 2017 and 2018, there is no
unfunded commitment in investments.
13 Subsequent events
Management has performed a subsequent events review from 1
January 2019 through to 30 April 2019 being the date that the
financial statements were available to be issued.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EASSPEAXNEFF
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