ARCH Arc Capital

RNS Number:5526F
ARC Capital Holdings Limited
03 July 2006

             ARC CAPITAL HOLDINGS LIMITED ("ARCH" or "the Company")

                                  ANNOUNCEMENT

                           SALE OF EQUITY INTEREST IN
                 K.P.I. (BVI) RETAIL MANAGEMENT COMPANY LIMITED
                      AND SUBSCRIPTION TO CONVERTIBLE NOTE
                        ISSUED BY K.P.I. COMPANY LIMITED

London, UK, 3 July 2006 - ARC Capital Holdings Limited (AIM:ARCH) is pleased to
announce that it has agreed to restructure its 49% ownership of K.P.I. (BVI)
Retail Investment Company Limited ("KPIRM") in order to facilitate a
consolidation of the offshore equity holdings of Shanghai Hualian GMS Shopping
Centre Company Limited ("GMS").  ARCH and KPI Company Limited ("KPI") have
entered into a conditional sale and purchase agreement ("Sale and Purchase
Agreement") pursuant to which ARCH has agreed to  exchange its shares in KPIRM
for a convertible note ("Note") issued by KPI.  The Sale and Purchase Agreement
is conditional principally upon the approval of KPI's shareholders.

Description of KPI

KPI, a holding company listed on the Hong Kong Stock Exchange since 1993, is
controlled by Mr. Cheung Siu Lam, a Chinese entrepreneur with extensive
experience with investment and trading in the People's Republic of China.  KPI's
businesses have included the trading, processing, transporting and risk
management of commodities, and direct investments in retail businesses including
a convenience store chain and a hypermarket. KPI currently holds the other 51%
of KPIRM.

Description of GMS

GMS is the third largest hypermarket chain in Shanghai with a total of 19
stores.  GMS is a large scale retailer of food and general merchandise,
focussing on residential neighbourhoods, and expanding through a low capital
expenditure by converting old department store premises into modern
hypermarkets.

Benefits of transaction

ARCH and its investment manager, ARC Capital Partners Limited ("ACP") have been
considering several options for the realization of its investment in GMS, which
is held indirectly through ARCH's holding of shares in KPIRM. ARCH and ACP
believe that this transaction is in the best interests of the Company in terms
of achieving the maximum potential return as well as mitigating any potential
downside risks.

Improved Liquidity

ARCH's indirect holding in GMS is a minority equity interest in an unlisted
holding company which can likely only be exited through a trade sale. Through
this proposed transaction, ARCH will enjoy improved liquidity options by
exchanging the unlisted minority interest for a convertible note which may be
exited through repayment or conversion.

Mitigation of Downside Risks

Through the structure of the Note, the risks of sector or market downturn,
delays in the trade sale, are substantially transferred to the issuer.  The Note
provides for payment in principal and implied interest of USD 13.51m.   The
issuer's cash and net assets were USD11.6m and USD22.3m as at December 31, 2005.

Aggregation of Offshore Interests

The proposed transaction is part of the process of aggregating offshore equity
holdings in GMS to, among other things, improve the prospects of any future
trade sale to a foreign strategic buyer.  Through this transaction, KPI will
indirectly hold, through its holding of KPIRM shares, a total of 40% in GMS.

Interest in Upside Maintained

The Note provides for ARCH to retain a 40% share of the investment gain
attributable to its original indirect interest in GMS through a profit sharing
arrangement on a successful trade sale, or the option to participate in any
significant rise of KPI's share price as a result of such a trade sale, or from
other transactions, through the conversion option, which is exercisable at
ARCH's discretion.

Among other standard subject conditions, completion of this transaction is
subject to the shareholders of KPI passing at an extraordinary general meeting
the resolutions approving the Sale and Purchase Agreement and the transactions
contemplated under it including but not limited to the issue of the Note.

Key Terms of the Note



The principal amount of the Note is HKD93 million (approximately USD11.95m) and
the Note bears an implied simple interest of 6.5% per annum.  The Note will
mature on the date falling two calendar years after the date of issue of the
Note.  Unless previously redeemed or converted, KPI will repay the principal
amount outstanding under the Note at 113% on the maturity date.



Conversion right



ARCH will have the right to convert the whole (but not part) of the principal
amount of the Note into ordinary shares of KPI ("Shares") at any time after the
date of issue of the Note at a conversion price of HKD0.32 per Share, subject to
adjustment such as the subdivision or consolidation of Shares, bonus issues,
rights issues and other dilutive events provided that the conversion price shall
not be less than the nominal value of the Shares on the date of conversion.

Automatic conversion



The outstanding principal amount of the Note shall be automatically be converted
into Shares at the price of HKD0.34 per Share, subject to adjustment such as the
subdivision or consolidation of shares, bonus issues, rights issues and other
dilutive events, if the average daily trading price of the Shares for 20
consecutive business days as quoted on the Hong Kong Stock Exchange ("HKSE") is
HKD0.36 per Share or higher and the daily traded volume of the Shares for each
such business day as quoted on the HKSE is 4,000,000 Shares or higher.

Conversion Shares



If the Note is converted in full at the conversion price, 290,625,000 Shares,
representing approximately 28.6% of the existing issued share capital of KPI and
approximately 22.2% of the enlarged issued share capital of KPI, will be
allotted and issued to ARCH. Accordingly, ARCH will become a substantial
shareholder of KPI. The Shares which may fall to be allotted and issued on the
conversion of the Note, when allotted and issued, will rank pari passu in all
respects among themselves and with the Shares in issue on the date of allotment
and issue of such Shares.



Redemption



The Note may be redeemed before the maturity date under the following
circumstances:



(a)      KPI shall be entitled by giving not less than 30 days written notice in
advance while the Note is outstanding to redeem at 100% of the entire
outstanding principal amount of the Note together with interest accrued at the
rate of 6.5% per annum on the amount redeemed up to the date of redemption.



(b)      If KPI proposes to dispose all of its equity interests in GMS for cash
or marketable securities which may be liquidated without any material liquidity
discount, ARCH shall have the option, exercisable in writing within seven (7)
days after the proposal is announced to the public, to:



(i)             require KPI to repay the outstanding principal amount of the
Note, plus 7.84% of the amount of the excess (if any) of the valuation implied
by the consideration for the disposal of GMS over HKD474.5 m (approximately
USD61.0m), or



(ii)           require KPI to repay the outstanding principal amount of the Note
plus interest accrued at the rate of 6.5% per annum on the outstanding principal
amount of the Note up to the date of completion for the disposal of GMS; or



(iii)      exercise the conversion rights to convert in full the total
outstanding amount of the Note.



(c)      If KPI proposes to dispose all of its equity interests in GMS for a
consideration other than cash or marketable securities, ARCH shall also have the
option, exercisable in writing within seven (7) days after the proposal is
announced to the public, to:



(i)        require KPI to repay the outstanding principal amount of the Note
plus interest accrued at the rate of 6.5% per annum on the outstanding principal
amount of the Note up to the date of completion for the disposal of GMS (with a
grace period of 30 days for which no interest will be charged by ARCH and a
further grace period of 60 days for which interest at the rate of 3% per annum
will be charged by ARCH); or



(ii)       exercise the conversion rights to convert in full the total
outstanding amount of the Note.



(d)      In the event of a change in control (as defined in the Code of
Takeovers and Mergers of Hong Kong) of KPI, ARCH shall have the option,
exercisable in writing within seven (7) days after the change in control has
occurred, to require KPI to repay the outstanding principal amount of the Note
to ARCH at 113% or to exercise the conversion rights to convert in full the
total outstanding amount of the Note.



The options granted to ARCH under paragraphs (b), (c) and (d) above are part of
the terms of the Note and are exercisable at the discretion of ARCH. No payment
by ARCH is required for the grant of the options.



Transferability, Voting and Status of Note



No assignment or transfer of the whole or part of the Note may be made except
between affiliated companies of ARCH which are its controlled subsidiaries  or
to another company which is controlled by the shareholders of ARCH, provided
that at least 7 days' prior written notice shall be given to KPI. ARCH will not
be entitled to attend or vote at any meetings of KPI by reason only of it being
the holder of the Note. The Note shall constitute general and unsecured
obligations of KPI and shall rank equally among themselves and pari passu with
all other present and future unsecured and unsubordinated obligations of KPI and
will rank senior to all shareholder loans of KPI, except for obligations
accorded preference by mandatory provisions of applicable laws.

About ARC Capital Holdings Limited

ARC Capital Holdings Limited is a  closed-end fund whose shares are traded on
the AIM Market of the London Stock Exchange plc. The Company was admitted to
trading on AIM in June 2006, aiming to make and hold investments primarily in
the retail, consumer products and services sectors of China, Greater China and
other countries in Asia.

Forward-looking Statements

This announcement contains forward-looking statements subject to the inherent
uncertainties in predicting future results and conditions. Any statements that
are not statements of historical fact (including statements containing the words
"believes," "plans," "anticipates," "expects," "estimates" and similar
expressions) should also be considered to be forward-looking statements. Certain
factors could cause actual results and conditions to differ materially from
those projected in these forward-looking statements. The Company undertakes no
obligation to update such statements to reflect subsequent events.

For further information, please contact:




Clement Kwong, Managing Director                     Jon Lewis, General Counsel
ARC Capital Partners Limited                         Pacific Alliance Group
Suite 1905 City Center of Shanghai                   13/F St. John's Building
Tower A, 100 Zunyi Road                              33 Garden Road
Shanghai, PRC 200051                                 Central, Hong Kong
Tel:  +8621 6237 1202                                Tel:  +852 29180088
Fax:  +852 3544 7699                                 Fax:  +852 2918 0881
clement@arccapitalchina.com                          jlewis@paghk.com




Note:  Translations from HKD to USD are made at HKD7.78 per USD1.


                      This information is provided by RNS
            The company news service from the London Stock Exchange
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