TIDMARCH
RNS Number : 7114R
ARC Capital Holdings Limited
06 May 2009
ARC Capital Holdings Limited
6 May 2009
ARC Capital Holdings Limited
("ARCH" or "The Company")
Audited financial results for the six month period ended 31 December 2008
ARC Capital Holdings Limited ("ARCH" or the "Company"), the AIM-quoted
investment company focused on investments in the retail and consumer sectors
principally in China, today announces its audited financial results for the six
month period ended 31 December 2008.
Financial Highlights
* Net asset value as at 31 December 2008 was US$522.4 million, representing
US$1.22 per share (US$614.9 million or US$1.43 per share as at 30 June 2008)
* Net investment loss for the period was US$9.0 million
* Cash and cash equivalents as at 31 December 2008 was US$8.6 million
Operational Highlights
· ARCH is fully invested and the current primary focus is to implement
operational initiatives for its investees, and to continue to explore possible
exit opportunities for several of its major investments.
· Two pre-committed investments with an aggregate purchase cost of US$109
million were added to the portfolio in the second half of 2008, including:
o US$66 million investment for an equity interest in Orient Home - The Company
invested US$66 million in cash for an equity interest in Orient Home Decoration
& Building Materials Co. Ltd, the largest domestic brand and the second largest
retailer in China's home improvement sector.
o US$43 million for an equity interest in Xian University - The Company
committed to acquire a 45% equity interest in a private university in Shaanxi
for approximately US$71 million in June 2008. The first tranche payment of US$43
million was completed during the second half of 2008.
· Outlook
o The significant government stimulus programs, which focus on driving domestic
consumption, bolstering infrastructure spending and capital expenditure; and
loosening bank credit are all likely to support China's GDP growth, which will
ultimately have a positive impact on the performance of the Company's portfolio.
Commenting on the results, Allan Liu, Chairman of ARC Capital Partners Limited,
said:
"Despite the unfavourable market conditions experienced in the second half of
2008, ARCH's quarterly independent mark-to-market portfolio valuation reflected
a modest decrease in net asset value, representing a 15% decline as compared to
30 June 2008 but a 22% gain since admission to AIM on 26 June 2006. This was in
part due to our disciplined focus and expertise in operational reengineering to
create value for our investee companies.
Looking ahead, we continue to believe that ARCH's investee companies are well
positioned to benefit from the government's initiatives and we remain dedicated
to delivering value to the shareholders and our investee companies in
anticipation of attractive exit opportunities once liquidity returns to the
market in search of quality assets".
For more information, please contact:
+--------------------------------+--------------------------------+
| MANAGER: | LEGAL COUNSEL: |
| Allan Liu, Managing Partner | Jon Lewis, General Counsel |
| c/o ARC Capital Partners | c/o Pacific Alliance Group |
| Limited | 16/F St. John's Building |
| 13/F St. John's Building | 33 Garden Road Central, |
| 33 Garden Road | Hong Kong |
| Central, Hong Kong | Tel: (852) 2918 0088 |
| Tel: (852) 3115 0243 | Fax: (852) 2918 0881 |
| aliu@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: | MEDIA RELATIONS: |
| Sophie Hoggarth | Andrew Walton/David Cranmer |
| Pacific Alliance Group | Financial Dynamics, London |
| Tel: (86) 21 6113 5818 | Tel: (44) 20 7269 7100 |
| shoggarth@pacific-alliance.com | Christine Wood/ Queenie Tsao |
| | Financial Dynamics, Asia |
| | Tel: (852) 3716 9800 |
+--------------------------------+--------------------------------+
About ARC Capital Holdings Limited
ARC Capital Holdings Limited ("ARCH") (AIM: ARCH) is a closed-end investment
company with net assets of US$505.0 million as at 31 March 2009. ARCH was
admitted to trading on the AIM Market of the London Stock Exchange in June 2006.
ARCH makes and holds investments in the retail, consumer goods and consumer
services sectors, principally in China but also in neighboring Asian countries.
Target investments include regional hypermarkets and supermarkets, dominant
consumer brands, specialty retail chains, retail property assets and retail and
consumer service providers.
For more information about ARCH, please visit: www.arch-fund.com
ARC Capital Holdings Limited is a member of Pacific Alliance Group, the Asian
alternative investment fund management group.
For more information about Pacific Alliance Group, please visit:
www.pacific-alliance.com
Chairman's Statement
On behalf of the Board of Directors, I am pleased to present the audited
financial statements of ARC Capital Holdings Limited ("ARCH" or the "Company")
for the six month period ended 31 December 2008.
Review
The Company continued to focus on investments in the rapidly developing retail
and consumer sectors in China. During the second half of 2008, two pre-committed
investments with an aggregate purchase cost of US$109 million were added to the
portfolio at attractive entry valuations. The two investments include China's
second largest home improvement retailer, Orient Home Decoration & Building
Materials Co., Ltd. and one of China's top-ranked private universities,
Xian University.
The second half of 2008 proved to be exceptionally difficult as financial
deleveraging caused a synchronised contraction in global economic activity.
China was no exception to the global downturn as the Hong Kong and Shanghai
Stock Exchanges declined 55% and 70%, respectively, at year end, from the highs
of nearly 32,000 and 6,100 in October 2007.
Despite these unfavourable market conditions, the Company's quarterly
independent mark-to-market portfolio valuation reflected a modest decrease in
net asset value to US$1.22 per share as at 31 December 2008, representing a 15%
decline as compared to 30 June 2008 but a 22% gain since admission to AIM on 26
June 2006. This was in part due to the Company's disciplined investment strategy
and its operationally-driven approach to creating value.
With most of the portfolio invested in recession-resistant consumer industries,
the Company's performance has experienced less volatility during the current
financial downturn. Additionally, with consistently low entry valuations and the
ability to rapidly implement organizational changes, the Company's investees
have generally achieved their targeted revenue growth and profit generation. The
Company will continue to focus on helping its investees implement efficient
operational and financial initiatives with maximum bottom line impact and to
execute attractive exits as our investments mature.
The Company's share price closed on 31 December 2008 (last trading day in
December 2008) at US$0.50, implying a 59% discount to the Company's audited NAV
per share as at 31 December 2008. The Board of the Company is concerned about
the discount and its impact on shareholders. Consequently, the Company made an
announcement on 1 April 2009, which explains the actions the Company is taking
to reduce the discount, including amendments to the Company's investment
management agreement to reflect the change in the payment method of the
performance fee.
The Company's US$75 million loan is due for repayment in August 2009. The
Investment Manager has progressed a number of options for repaying and/ or
refinancing the loan, which the Board believes will allow the Company to be able
to finance the repayment when it falls due.
Outlook
We anticipate that 2009 will be a challenging year for the Company as China has
yet to feel the full impact of the global recession. However, China's large
government stimulus programs, which focus on driving domestic consumption,
bolstering infrastructure spending, loosening bank credit and capital
expenditure in relation to the reconstruction of Sichuan following the
earthquake, are all likely to support its GDP growth, which will ultimately have
a positive impact on the performance of the Company's portfolio.
Retail sales reported a 21.6% increase in 2008 and inflation leveled off at
5.9%, despite the decline in GDP growth from 13.0% in 2007 to 9.0% in 2008.
Government measures have already had a positive impact on the retail and
manufacturing sectors during December 2008 and January 2009 with increased
activity in both sectors. At 31 March 2009, the Hong Kong and Shanghai Stock
Exchanges had gained 23% and 39%, respectively, since the 2008 contraction,
which can be interpreted as early signs of economic stabilisation in China. As
such, the Board remains confident the Company's performance will recover during
2009.
Finally, on behalf of the Board, I would like to express my gratitude to our
shareholders for their continued support, and my appreciation to the dedicated
team of our Investment Manager for its contribution to the Company's results. I
look forward to sharing future success in 2009.
Allan Liu
Chairman
30 April, 2009
Investment Manager's Report
The downturn in the capital markets and contraction in credit, after losses
posted by the world's banks and other financial institutions, caused a slowdown
in the global economy during the second half of 2008. Despite China's large
foreign reserves and minimal exposure to leverage, compared to most developed
nations, its economy was not fully insulated from the fallout. China's growth
decreased significantly in Q4 2008 in parallel with substantial declines in the
Hong Kong and China equity indices.
Further complementing ARCH's investments in recession-resistant consumer
industries and companies, its ability to secure investments at attractive entry
valuations, with a greater proportion of the Company's key investments entered
at single digit P/E multiples, has protected the portfolio from the significant
write-downs witnessed elsewhere in the market.
China's Macro Economy
The government reported 9% GDP growth for 2008 which had declined from 13% for
2007, due to softening exports, decreased industrial production and a weak
property sector. However, retail sales reported a 21.6% increase in 2008 while
inflation fell from nearly 9% year-on-year at the beginning of 2008 to 5.9% for
the entire year. To focus on reviving domestic consumption and infrastructure
growth, the government has implemented its recently announced stimulus programs
to generate future economic growth. The Company continues to believe China's
financial sector will remain stable during the financial turmoil in comparison
with its counterparts in the U.S. and Europe due to the government's willingness
and ability to loosen credit to fuel domestic development and complement its
policies.
Investment Environment and the ARCH Strategy
The troubles faced by the global investment environment have intensified
scrutiny on the strategies of fund managers and in particular private equity in
China. While most local companies enjoyed exceptional growth for the past decade
resulting from double-digit GDP growth, many still lack operational efficiency
and world-class management teams, resulting in suboptimal profit margins.
Furthermore, a large number of sectors remain highly fragmented with no dominant
market leader.
The weakening of public markets and the dissipation of speculative investments
into China have generated a greater acceptance for private equity in recent
months. New government policies to encourage foreign investment and openness of
sponsors to initiate conversations with fund managers are increasingly apparent.
ARCH's local market expertise and operational capabilities exemplify the
qualities sought by both investors and sponsors alike, to navigate and manage
investments in such trying times when high quality short-term opportunities are
few in number. ARCH's private equity strategy allows for value creation through
improvements in core operations and consolidation by forming strong working
relationships with management teams, supported by ARCH's dedication and
post-investment involvement to its investee companies.
Finally, in-line with its core investment premise, the greater proportion of
ARCH's investments have targeted recession-resistant sectors driven by domestic
consumption, including the fast growing mobile phone sector, juvenile products,
private education, domestic air travel, department store retailing, and
supermarkets/hypermarkets.
Portfolio Highlights
During the fiscal period, ARCH deployed all of its available capital to complete
two significant investments.
Marking its second investment in China's rapidly growing private education
sector, ARCH committed US$71 million in June 2008 to Shaanxi Dade Education
Group, a leading private university and tertiary education group in Xian,
Shaanxi, at an entry valuation of approximately US$97 million. The pre-money
entry valuation of this investment is approximately one third of the traded
multiples of its international peers.
In August 2008, ARCH invested US$66 million in cash for an interest in Orient
Home, the largest domestic brand and the second largest retailer in China's home
improvement sector. Orient Home has 25 stores in 16 first and second tier
cities, including Beijing, Shenyang and Chengdu. China's home improvement and
home decoration retail market is highly fragmented, with organised retail chains
accounting for only 5% of the market share. Through its investment in Orient
Home, ARCH plans to benefit from future opportunities for consolidation and
intrinsic value-creation.
Also during the period, Pypo, a major national mobile phone distributor and
retailer, entered into a merger with a U.S.-listed special purpose acquisition
corporation ("SPAC"). The shareholders of the SPAC approved the transaction in
December. Pypo is finalising the merger process and is seeking to list its
business on NASDAQ as part of its retail acquisition strategy in China's highly
fragmented mobile phone retailing sector.
ARCH continues to actively explore exit opportunities for several portfolio
investments and is currently engaged in discussions with interested parties.
Portfolio Performance
The Company's audited net asset value ("NAV") per share as at 31 December 2008
was US$1.22, representing a 9.0% decline compared to US$1.34 unaudited NAV per
share released in January 2009. The decline in net asset value resulted
primarily from the valuation adjustment based on the recent independent
valuation report, produced by one of the Big Four accounting firms in accordance
with US GAAP and recommended Private Equity valuation guidelines and based on 31
December 2008 investee company financials. The Company incorporated all the
relevant valuation adjustments when it announced its NAV per share as at 31
March 2009 on 14 April 2009.
Conclusion
What began as a crisis in the U.S. financial system has evolved into a sharp
global market correction over a period of two quarters, indicating the early
signs of a worldwide recession. China, which was once thought to be decoupled
from the effects of this recession and less affected by the initial market
slowdown, has experienced similar consequences due to its considerable reliance
on exports. However, given China's large foreign reserves, minimal exposure to
leverage and government policy favouring domestic spending and consumption,
ARCH's investee companies are well positioned to benefit from the government's
initiatives. In addition to ARCH's focus and expertise in operational
reengineering to create value for its investee companies, ARCH's disciplined
approach to investment at attractive entry valuations should continue to provide
adequate insulation as market comparables undergo further correction. ARCH is
dedicated to delivering value to the shareholders and its investee companies in
anticipation of attractive exit opportunities once liquidity returns to the
market in search of quality assets.
ARC Capital Partners Limited
Investment Manager
30 April, 2009
Portfolio Summary
As of 31 December 2008
The following table summarises the status of the Fund's portfolio as of 31
December 2008:
+-----------------+--------------+----+------------+-------+----------+--------+---------+----------+----+
| | Industry and | | | | | | Effective |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | location of | Form of | % of | Purchase | Fair | Change | interest |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Description | operations | investment | total | cost | value | on | held |
| | | | | | | cost | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | US$ | US$ | US$ | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Pypo Digital | Mobile | Equity | 17.5% | 90.00M | 98.50M | 8.50M | 33.0% |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Company | phone | | | | | | |
| Limited | retail/ | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | China | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Shanghai | Supermarket/ | Equity | 16.2% | 89.14M | 91.02M | 1.88M | 100.0% |
| Jiadeli | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Supermarket | China | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Co., Ltd. | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| HNA Airport | Airport/ | Equity | 12.4% | 70.99M | 70.00M | (0.99M) | 17.2% |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Holding | China | | | | | | |
| (Group) | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Company | | | | | | | |
| Limited | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Orient Home | Home | Equity | 11.5% | 66.26M | 64.55M | (1.71M) | 51.0% |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Decoration & | decoration | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Building | retail/China | | | | | | |
| Materials | | | | | | | |
+-----------------+--------------+-----------------+-------+----------+--------+---------+---------------+
| Co., Ltd. | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Goodbaby Group | Child | Equity | 8.7% | 23.88M | 48.80M | 24.92M | 25.3% |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | products/ | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | China | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Yangzhou | Home | Equity | 7.1% | 48.65M | 40.00M | (8.65M) | 30.2% |
| Huiyin | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Household | appliance | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Appliance | retail/China | | | | | | |
| Co., | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Ltd. | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Xian University | Education/ | Equity | 7.6% | 42.81M | 42.65M | (0.16M) | 45.0% |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | China | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Department | Department | Equity | 5.1% | 19.07M | 28.80M | 9.73M | 12.5% |
| Store | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| A * | store/China | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Beijing | Education/ | Equity | 4.0% | 21.86M | 22.60M | 0.74M | 50.0% |
| Science | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Technology | China | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| Management | | | | | | | |
+-----------------+-------------------+------------+-------+----------+--------+---------+---------------+
| College | | | | | | | |
+-----------------+--------------+----+------------+-------+----------+--------+---------+----------+----+
Portfolio Summary (continued)
As of 31 December 2008
The following table summarises the status of the Fund's portfolio as of 31
December 2008: (continued)
+----------------+--------------+---+-------------+----------+----------+----------+----------+-----------+
| | Industry and | | | | | | Effective |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | location of | Form of | % of | Purchase | Fair | Change | interest |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Description | operations | investment | total | cost | value | on | held |
| | | | | | | cost | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | | | | US$ | US$ | US$ | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Ningxia Xiajin | Dairy/China | Equity | 3.2% | 18.13M | 18.13M | - | 37.2% |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Dairy Co., | | | | | | | |
| Ltd. | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| K.P.I. Company | Hypermarket/ | Equity | 2.0% | 14.00M | 11.25M | (2.75M) | 16.8% |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Limited | China | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| New Focus Auto | Auto | Convertible | 2.1% | 12.00M | 12.00M | - | - |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Tech | accessories | bonds | | | | | |
| Holdings | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Limited | retail and | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | maintenance/ | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | China | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| UCCAL Holdings | Fashion | Equity | 1.9% | 10.84M | 10.50M | (0.34M) | 37.0% |
| | | and | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Ltd. | retail/China | loan | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| International | Food services/ | Convertible | 0.7% | 5.00M | 3.80M | (1.20M) | - |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Restaurants | Hong Kong | notes | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Holdings | | | | | | | |
| Limited | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Secrets | Fashion | Equity | 0.0% | 2.50M | 0.00M | (2.50M) | 20.0% |
| International | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Limited | jewellery/ | | | | | | |
+----------------+--------------+-----------------+----------+----------+----------+----------+-----------+
| | Hong Kong | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| Total | | | 100.0% | 535.13M | 562.60M | 27.47M | |
+----------------+------------------+-------------+----------+----------+----------+----------+-----------+
| | | | ======== | ======== | ======== | ======== | |
| | | | | | | ==== | |
+----------------+--------------+---+-------------+----------+----------+----------+----------+-----------+
* Name of the investee is not disclosed due to confidentiality arrangement.
Portfolio Summary (continued)
As of 30 June 2008
The following table summarises the status of the Fund's portfolio as of 30 June
2008:
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | Industry | | | | | | Effective |
| | and | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | location of | Form of | % of | Purchase | Fair | Change | interest |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Description | operations | investment | total | cost | value | on | held |
| | | | | | | cost | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | US$ | US$ | US$ | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Pypo Digital | Mobile | Equity | 22.5% | 90.00M | 117.70M | 27.70M | 33.0% |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Company | phone | | | | | | |
| Limited | retail/ | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | China | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Shanghai | Supermarket/ | Equity | 16.8% | 84.52M | 88.15M | 3.63M | 97.0% |
| Jiadeli | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Supermarket | China | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Co., Ltd. | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| HNA Airport | Airport/ | Equity | 13.5% | 70.99M | 70.99M | - | 17.2% |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Holding | China | | | | | | |
| (Group) | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Company | | | | | | | |
| Limited | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Goodbaby Group | Child | Equity | 12.7% | 23.88M | 66.40M | 42.52M | 25.3% |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | products/ | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | China | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Yangzhou | Home | Equity | 10.8% | 42.30M | 56.40M | 14.10M | 26.1% |
| Huiyin | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Household | appliance | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Appliance | retail/China | | | | | | |
| Co., | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Ltd. | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Department | Department | Equity | 7.3% | 19.07M | 38.30M | 19.23M | 12.5% |
| Store | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| A * | store/China | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Beijing | Education/ | Equity | 4.3% | 21.86M | 22.83M | 0.97M | 50.0% |
| Science | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Technology | China | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Management | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| College | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Ningxia Xiajin | Dairy/China | Equity | 3.5% | 18.13M | 18.13M | - | 37.2% |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Dairy Co., | | | | | | | |
| Ltd. | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| K.P.I. Company | Hypermarket/ | Equity | 3.2% | 14.00M | 16.59M | 2.59M | 16.8% |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| Limited | China | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
| | | | | | | | |
+----------------+--------------+------------+--------+----------+---------+--------+-----------+
Portfolio Summary (continued)
As of 30 June 2008
The following table summarises the status of the Fund's portfolio as of 30 June
2008: (continued)
+----------------+--------------+-+-------------+----------+----------+----------+----------+-----------+
| | Industry and | | | | | | Effective |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | location of | Form of | % of | Purchase | Fair | Change | interest |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| Description | operations | investment | total | cost | value | on | held |
| | | | | | | cost | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | | | | US$ | US$ | US$ | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| New Focus Auto | Auto | Convertible | 2.3% | 12.00M | 12.00M | - | - |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| Tech | accessories | bonds | | | | | |
| Holdings | | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| Limited | retail and | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | maintenance/ | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | China | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| UCCAL Holdings | Fashion | Equity | 2.1% | 10.84M | 10.84M | - | 37.0% |
| | | and | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| Ltd. | retail/China | loan | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| International | Food | Convertible | 0.9% | 5.00M | 5.00M | - | - |
| | services/ | | | | | | |
+----------------+--------------+---------------+----------+----------+----------+----------+-----------+
| Restaurants | Hong Kong | notes | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| Holdings | | | | | | | |
| Limited | | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| Secrets | Fashion | Equity | 0.1% | 2.50M | 0.60M | (1.90M) | 20.0% |
| International | | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| Limited | jewellery/ | | | | | | |
+----------------+--------------+---------------+----------+----------+----------+----------+-----------+
| | Hong Kong | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | | | | | | | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| Total | | | 100.0% | 415.09M | 523.93M | 108.84M | |
+----------------+----------------+-------------+----------+----------+----------+----------+-----------+
| | | | ======== | ======== | ======== | ======== | |
| | | | | | | | |
+----------------+--------------+-+-------------+----------+----------+----------+----------+-----------+
* Name of the investee is not disclosed due to confidentiality arrangement.
The accompanying notes are an integral part of these consolidated financial
statements.
+---------------------------------------------+----------------+--------------
-----------+----------------------------+
| Consolidated Statement of Assets
and Liabilities
|
+--------------------------------------------------------------------------
=------------------------------------------+
|
|
+--------------------------------------------------------------------------
=------------------------------------------+
|
| | 31 December | 30 June
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| Note | 2008 | 2008
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | US$ |
US$
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Assets
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Investments, at fair value
| | |
|
+---------------------------------------------+----------------+-----------
--------------+----------------------------+
| (Cost: 31 December 2008:
$535,125,688; | | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| 30 June 2008: $415,093,429)
| 17 | 562,595,308 |
523,927,437
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Short-term loans receivable
| 17 | 11,828,155 |
4,500,000
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Interest receivable
| | 1,464,414 |
774,127
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Investment deposits
| 8 | 13,582,980 |
40,748,941
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Other assets
| 9 | 27,774,926 |
11,976,051
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Cash and cash equivalents
| 13(d) | 8,589,465 |
141,726,286
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Fixed deposits - pledged
| 10(a) 13(d) | 68,307,755 |
56,080,721
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Total assets
| | 694,143,003 |
779,733,563
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | |
|
| | |
-------------------- | --------------------
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Liabilities
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | |
|
+---------------------------------------------+----------------+-----------
--------------+----------------------------+
| Investment management fee
payable | 3 | 3,052,834 |
922,140
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Performance fee payable
| 4 | 10,406,850 |
10,406,850
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Bank loans
| 10(a) | 60,823,685 |
53,251,244
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Short-term loan payable
| 10(b) | 75,000,000 |
75,000,000
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Provision for income taxes
| 6(a) | - |
131,304
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Deferred tax
| 6(b) | 2,249,744 |
4,661,308
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Other payables and accruals
| 11 | 20,213,442 |
20,437,037
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Total liabilities
| | 171,746,555 |
164,809,883
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | -------------------- |
--------------------
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Net assets
| | 522,396,448 |
614,923,680
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | ========== |
==========
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Shareholders' equity
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Share capital
| 12(a) | 4,295,334 |
4,295,334
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Share premium
| 12(b) | 529,989,036 |
529,989,036
|
+---------------------------------------------+----------------+-----------
--------------+----------------------------+
| (Accumulated losses)/retained
earnings | | (13,063,238) |
79,157,034
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Other comprehensive income
| | 1,175,316 |
1,482,276
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | 522,396,448 |
614,923,680
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | ========== |
==========
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | |
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
| Net asset value per share
| 7 | 1.22 |
1.43
|
+---------------------------------------------+----------------+-----------
=-------------+----------------------------+
|
| | ========== |
==========
|
+---------------------------------------------+----------------+-----------
--------------+----------------------------+
+-------------------+-----------+------------+------------+-----------+----+-------+----+----+----+
| Consolidated Schedule of Investments |
| As of 31 December 2008 |
+-------------------------------------------------------------------------------------------------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Investment | date | of | Instrument | Cost | Fair | net |
| | | operations | | | value | assets |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | US$ | US$ | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Mobile phone | | | | | | |
| retail | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Pypo Digital | November | China | Equity | 90,000,044 | 98,500,000 | 18.86% |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Company | 2007 | | | | | |
| Limited | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Airport | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| HNA Airport | December | China | Equity | 70,988,735 | 70,000,000 | 13.40% |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Holding | 2007 | | | | | |
| (Group) | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Company | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Limited | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Child products | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Goodbaby Group | June | China | Equity | 23,880,000 | 48,800,000 | 9.34% |
| | 2006 | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+-----------+------------+---------+
| Home appliance | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| retail | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Yangzhou | November | China | Equity | 48,645,753 | 40,000,000 | 7.66% |
| Huiyin | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Household | 2007 | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Appliance | | | | | | |
| Co., | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Ltd. | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Home | | | | | | |
| decoration | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| retail | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Orient Home | August | China | Equity | 66,264,151 | 64,550,844 | 12.36% |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Decoration & | 2008 | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Building | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Materials | | | | | | |
| Co., Ltd | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Department | | | | | | |
| store | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Department | July | China | Equity | 19,066,352 | 28,800,000 | 5.51% |
| Store | 2007 | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| A * | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Super/hypermarket | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Shanghai | September | China | Equity | 89,142,235 | 91,016,389 | 17.42% |
| Jiadeli | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Supermarket | 2007 | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Co., Ltd. | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| K.P.I. Company | June | China | Equity | 14,000,000 | 11,249,710 | 2.15% |
| | 2006 | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Limited | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Dairy | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| | | | | | | |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Ningxia Xiajin | December | China | Equity | 18,130,000 | 18,130,000 | 3.47% |
+-------------------+-----------+------------+------------+----------------+------------+---------+
| Dairy Co., | 2006 | | | | | |
| Ltd. | | | | | | |
+-------------------+-----------+------------+------------+-----------+----+-------+----+----+----+
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Consolidated Schedule of Investments (continued) |
| As of 31 December 2008 |
+-----------------------------------------------------------------------------------------------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | Investment | Location | | | | % of |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Investment | date | of | Instrument | Cost | Fair | net |
| | | operations | | | value | assets |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Education | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Beijing | November | China | Equity | 21,863,663 | 22,603,187 | 4.33% |
| Science | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Technology | 2007 | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Management | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| College | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Xian University | August | China | Equity | 42,806,849 | 42,645,178 | 8.16% |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | 2008 | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Auto | | | | | | |
| accessories | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| retail and | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| maintenance | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| New Focus Auto | April | China | Convertible | 12,000,000 | 12,000,000 | 2.30% |
| | 2007 | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Tech | | | bonds | | | |
| Holdings | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Limited | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Fashion retail | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| UCCAL Holdings | December | China | Equity | 10,837,906 | 10,500,000 | 2.01% |
| | | | and | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Ltd. | 2006 | | interest | | | |
| | | | free | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | loan | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Food services | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| International | March | Hong Kong | Convertible | 5,000,000 | 3,800,000 | 0.73% |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Restaurants | 2007 | | notes | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Holdings | | | | | | |
| Limited | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Fashion | | | | | | |
| jewellery | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Secrets | August | Hong Kong | Equity | 2,500,000 | - | 0.00% |
| International | | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Limited | 2006 | | | | | |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | __________ | __________ | _______ |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| Total | | | | 535,125,688 | 562,595,308 | 107.70% |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | ========== | ========== | ======= |
+-----------------+------------+------------+-------------+-------------+-------------+---------+
* Name of the investee is not disclosed due to confidentiality arrangement.
+-------------------+------------+------------+------------+-----------+----+--------+----+----+----+
| Consolidated Schedule of Investments (continued) |
| As of 30 June 2008 |
+---------------------------------------------------------------------------------------------------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | Investment | Location | | | | % of |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Investment | date | of | Instrument | Cost | Fair | net |
| | | operations | | | value | assets |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | US$ | US$ | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Mobile phone | | | | | | |
| retail | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Pypo Digital | November | China | Equity | 90,000,044 | 117,700,000 | 19.14% |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Company | 2007 | | | | | |
| Limited | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Airport | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| HNA Airport | December | China | Equity | 70,988,735 | 70,988,735 | 11.54% |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Holding | 2007 | | | | | |
| (Group) | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Company | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Limited | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Child products | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Goodbaby Group | June | China | Equity | 23,880,000 | 66,400,000 | 10.80% |
| | 2006 | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+-----------+-------------+---------+
| Home appliance | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| retail | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Yangzhou | November | China | Equity | 42,305,450 | 56,400,000 | 9.17% |
| Huiyin | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Household | 2007 | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Appliance | | | | | | |
| Co., | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Ltd. | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Department | | | | | | |
| store | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Department | July | China | Equity | 19,066,352 | 38,300,000 | 6.23% |
| Store | 2007 | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| A * | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Super/hypermarket | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Shanghai | September | China | Equity | 84,521,279 | 88,151,212 | 14.34% |
| Jiadeli | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Supermarket | 2007 | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Co., Ltd. | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| K.P.I. Company | June | China | Equity | 14,000,000 | 16,585,951 | 2.70% |
| | 2006 | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Limited | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Dairy | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| | | | | | | |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Ningxia Xiajin | December | China | Equity | 18,130,000 | 18,130,000 | 2.95% |
+-------------------+------------+------------+------------+----------------+-------------+---------+
| Dairy Co., | 2006 | | | | | |
| Ltd. | | | | | | |
+-------------------+------------+------------+------------+-----------+----+--------+----+----+----+
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Consolidated Schedule of Investments (continued) |
| As of 30 June 2008 |
+----------------------------------------------------------------------------------------------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | Investment | Location | | | | % of |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Investment | date | of | Instrument | Cost | Fair | net |
| | | operations | | | value | assets |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Education | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Beijing | November | China | Equity | 21,863,663 | 22,833,633 | 3.71% |
| Science | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Technology | 2007 | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Management | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| College | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Auto | | | | | | |
| accessories | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| retail and | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| maintenance | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| New Focus Auto | April | China | Convertible | 12,000,000 | 12,000,000 | 1.95% |
| | 2007 | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Tech | | | bonds | | | |
| Holdings | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Limited | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Fashion retail | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| UCCAL Holdings | December | China | Equity | 10,837,906 | 10,837,906 | 1.76% |
| | | | and | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Ltd. | 2006 | | interest | | | |
| | | | free | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | loan | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Food services | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| International | March | Hong Kong | Convertible | 5,000,000 | 5,000,000 | 0.81% |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Restaurants | 2007 | | notes | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Holdings | | | | | | |
| Limited | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Fashion | | | | | | |
| jewellery | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Secrets | August | Hong Kong | Equity | 2,500,000 | 600,000 | 0.10% |
| International | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Limited | 2006 | | | __________ | __________ | _______ |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | | | |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| Total | | | | 415,093,429 | 523,927,437 | 85.20% |
+----------------+------------+------------+-------------+-------------+-------------+---------+
| | | | | ========== | ========== | ======= |
+----------------+------------+------------+-------------+-------------+-------------+---------+
* Name of the investee is not disclosed due to confidentiality arrangement.
+--------------------------------------------------+-----------+-------------------------+---------------+----------+
| Consolidated Statement of Operations | |
+--------------------------------------------------------------------------------------------------------+----------+
| | | | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | Period from | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | 1 July 2008 to | Year ended |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | 31 December | 30 June |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | Note | 2008 | 2008 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | US$ | US$ |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Investment income | | | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Interest income from investments | | 1,014,250 | 1,305,392 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Other interest income | | 741,921 | 7,873,580 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Dividend income | | 5,782,288 | 525,218 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Other income | | - | 40,226 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Total investment income | | 7,538,459 | 9,744,416 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | | --------------- |
| | | ----------------- | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Expenses | | | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Investment management fee | 3, 14(a) | 5,977,990 | 10,826,907 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Performance fee | 4, 14(a) | - | 10,406,850 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Administration fee | | 243,344 | 652,721 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Professional fees | | 1,026,742 | 1,312,823 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Directors' fees | 5 | 115,355 | 80,329 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Custodian fee | | 21,220 | 35,560 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Interest expenses | | 7,421,806 | 7,601,975 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Provision for other assets | | 3,725,572 | - |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Other expenses | | 605,760 | 1,010,378 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Total expenses | | 19,137,789 | 31,927,543 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | | ----------------- |
| | | ---------------- | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Income taxes-current | 6(a) | (131,304) | 131,304 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Income taxes-deferred | 6(b) | (2,411,564) | 4,661,308 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | (2,542,868) | 4,792,612 |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | ------------------ | ------------------ |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | | |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| Net investment loss | | (9,056,462) | (26,975,739) |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | ------------------ | ------------------ |
+--------------------------------------------------+-----------+-------------------------+--------------------------+
| | | | |
+--------------------------------------------------+-----------+-------------------------+---------------+----------+
The accompanying notes are an integral part of these consolidated financial
statements.
+--------------------------------------------------+-----------+--------------------+-------------------+
| Consolidated Statement of Operations (continues) |
+-------------------------------------------------------------------------------------------------------+
| | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| | | Period from | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| | | 1 July 2008 to | Year ended |
+--------------------------------------------------+-----------+--------------------+-------------------+
| | | 31 December | 30 June |
+--------------------------------------------------+-----------+--------------------+-------------------+
| | Note | 2008 | 2008 |
+--------------------------------------------------+-----------+--------------------+-------------------+
| | | | |
| | | US$ | US$ |
+--------------------------------------------------+-----------+--------------------+-------------------+
| Net realised and unrealised (loss)/gain | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| from investments and foreign | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| currencies | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| Net realised gain from investments | | | 3,846,150 |
| | | - | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| Net change in unrealised (loss)/gain | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| from investments | | (81,364,388) | 61,415,646 |
+--------------------------------------------------+-----------+--------------------+-------------------+
| Net unrealised (loss)/gain from foreign | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| currencies | | (1,799,422) | 57,433 |
+--------------------------------------------------+-----------+--------------------+-------------------+
| | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| Net realised and unrealised (loss)/gain | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| from investments and foreign | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| currencies | | (83,163,810) | 65,319,229 |
+--------------------------------------------------+-----------+--------------------+-------------------+
| | | ------------------ | ----------------- |
+--------------------------------------------------+-----------+--------------------+-------------------+
| Net (decrease)/increase in net assets | | | |
+--------------------------------------------------+-----------+--------------------+-------------------+
| from operations | | (92,220,272) | 38,343,490 |
+--------------------------------------------------+-----------+--------------------+-------------------+
| | | ========== | ========== |
+--------------------------------------------------+-----------+--------------------+-------------------+
The accompanying notes are an integral part of these consolidated financial
statements.
+-------------------------------------+--------------------+-----------------+
------------------------------+-------------------+---------------------+
|
Consolidated Statement of Changes in Net Assets
|
+--------------------------------------------------------------------------
=--------------------------------------------------------------------------+
|
| |
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
| | Retained
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
| | earnings/
| Other |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
| Capital | (accumulated |
comprehensive |
|
+-------------------------------------+--------------------+---------------
-+---------------------------------------------------+---------------------+
|
| contributions | losses)
| income | Total
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
| |
US$ | | |
|
| US$ |
| US$ | US$
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
| |
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
At 1 July 2007 | 480,668,013 |
40,813,544 | | 521,481,557 |
|
| |
| - |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
Issuance of shares | 55,214,267 |
- | | 55,214,267 |
|
| |
| - |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
Less: Offering costs | (1,597,910) |
- | | (1,597,910) |
|
| |
| - |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
Net investment loss during | |
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
the year | |
(26,975,739) | | (26,975,739) |
|
| - |
| - |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
Net realised gain from | |
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
investments | |
3,846,150 | | 3,846,150 |
|
| - |
| - |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
Net change in unrealised | |
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
gain from investments | |
61,415,646 | | 61,415,646 |
|
| - |
| - |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
Net unrealised gain from | |
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
foreign currencies | |
57,433 | | 57,433 |
|
| - |
| - |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
Foreign currencies translation | |
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
difference | |
- | 1,482,276 | 1,482,276 |
|
| - |
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
| |
| |
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
At 30 June 2008 | 534,284,370 |
79,157,034 | 1,482,276 | 614,923,680
|
+-------------------------------------+--------------------+---------------
=--------------------------------+-------------------+---------------------+
|
| =========== |
=========== | =========== | ===========
|
+-------------------------------------+--------------------+---------------
-+-------------------------------+-------------------+---------------------+
+-------------------------------------+-------------------+-------------------
+-------------------+--------------------+
| At 1 July 2008
| 534,284,370 | 79,157,034 | 1,482,276 |
614,923,680
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
| Net investment loss during
| | | |
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
| the period
| | (9,056,462) | |
(9,056,462) |
| | - |
| - |
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
| Net change in unrealised
| | | |
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
| loss from investments
| | (81,364,388) | |
(81,364,388) |
| | - |
| - |
|
+-------------------------------------+-------------------+----------------
---+-------------------+--------------------+
| Net unrealised
(loss)/gain from | | |
|
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
| foreign currencies
| | (1,799,422) | |
(1,799,422) |
| | - |
| - |
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
| Foreign currencies translation
| | | |
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
| difference
| | | (306,960) |
(306,960) |
| | - |
- | |
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
|
| | | |
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
| At 31 December 2008
| 534,284,370 | (13,063,238) | 1,175,316 |
522,396,448
|
+-------------------------------------+-------------------+----------------
=--+-------------------+--------------------+
|
| =========== | =========== | ============ |
============
|
+-------------------------------------+-------------------+----------------
---+-------------------+--------------------+
The accompanying notes are an integral part of these consolidated financial
statements.
+--------------------------------------------------------+-----------------+---+-----------------------+-----------------------+
| Consolidated Statement of Cash Flows |
+------------------------------------------------------------------------------------------------------------------------------+
| | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | Period from | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | 1 July 2008 to | Year ended |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | 31 December | 30 June |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | 2008 | 2008 |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | US$ | US$ |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| Cash flows from operating activities | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| Net (decrease)/increase in net assets from | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| operations | | (92,220,272) | 38,343,490 |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| Adjustments to reconcile net (decrease)/increase | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| in net assets from operations to net cash used in | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| operating activities | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - Net change in realised and unrealised | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| loss/(gain) from investments | | 81,364,388 | (65,261,796) |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - Provision for other assets | | 3,725,572 | |
| | | | - |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - Purchase of investments | | (120,032,259) | (369,356,979) |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - Proceeds from sale of an investment | | | 38,459,700 |
| | | - | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - (Decrease)/increase in short-term loans | | (7,328,155) | 8,000,000 |
| receivable | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - (Increase)/decrease in interest receivable | | (690,287) | 883,139 |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - Decrease/(increase) in investment deposits | | 27,165,961 | (40,748,941) |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - Increase in other assets | | (19,524,447) | (4,187,473) |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - Increase in fixed deposits - pledged | | (12,227,034) | (56,080,721) |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - Increase/(decrease) in investment management | | | |
+--------------------------------------------------------------------------+---+-----------------------+-----------------------+
| fee payable | | 2,130,694 | (513,554) |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - Increase in performance fee payable | | | 2,604,450 |
| | | - | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - (Decrease)/increase in deferred tax liabilities | | (2,411,564) | 4,661,308 |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - (Decrease)/increase in provision for | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| income taxes | | (131,304) | 131,304 |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| - (Decrease)/increase in other payables and | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| accruals | | (223,595) | 18,063,846 |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| Net cash used in operating activities | | (140,402,302) | (425,002,227) |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | -------------------- | -------------------- |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| Cash flows from financing activities | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| Increase in bank loans and short-term loan payable | | 7,572,441 | 128,251,244 |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| Proceeds from issue of shares | | | 55,214,267 |
| | | - | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| Offering cost paid | | | (1,597,910) |
| | | - | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | | |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| Net cash provided by financing activities | | 7,572,441 | 181,867,601 |
+--------------------------------------------------------+---------------------+-----------------------+-----------------------+
| | | -------------------- | -------------------- |
+--------------------------------------------------------+-----------------+---+-----------------------+-----------------------+
The accompanying notes are an integral part of these consolidated financial
statements.
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| Consolidated Statement of Cash Flows (continued) |
+--------------------------------------------------------------------------------------------------------------+
| | | | |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | Period from | |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | 1 July 2008 to | Year ended |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | 31 December | 30 June |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | 2008 | 2008 |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | | |
| | | US$ | US$ |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | | |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| Effect on foreign currencies translation | | (306,960) | 1,482,276 |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | -------------------- | -------------------- |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | | |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| Net decrease in cash and cash equivalents | | (133,136,821) | (241,652,350) |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | | |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| Cash and cash equivalents at beginning of | | | |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| period/year | | 141,726,286 | 383,378,636 |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | | |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| Cash and cash equivalents at end of | | | |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| period/year | | 8,589,465 | 141,726,286 |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | ========== | ========== |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| Supplemental cash flow information | | | |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| Interest paid | | (7,421,806) | (7,601,975) |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
| | | ========== | ========== |
+--------------------------------------------------------+-----+-----------------------+-----------------------+
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to the Consolidated Financial Statements
1 Organisation
ARC Capital Holdings Limited (the "Company") was incorporated with limited
liability and registered in the Cayman Islands as an exempted company under the
Companies Law on 27 July 2005 with the name Asia Retail Consumer Holdings
Limited. On 4 April 2006, the Company changed its name to ARC Capital Holdings
Limited.
The Company is a closed-end investment company trading on AIM, a market operated
by the London Stock Exchange plc. The Company's principal investment objective
is to provide its shareholders with capital appreciation by investing in listed
and unlisted companies in the retail, consumer goods and consumer service
sectors principally in China and in neighbouring Asian countries. The Company
finances these companies for expansion through buy-outs, pre-IPO opportunities
and other equity and mezzanine securities.
The Company is managed by ARC Capital Partners Limited (the "Investment
Manager"). The Investment Manager is responsible for the day-to-day management
of the Company's investment portfolio, including, subject to approval by the
Investment Committee which is appointed by the Investment Manager and approved
by the Company's Board, the day-to-day acquisition and disposal of investments
in accordance with the Company's investment objective and policies.
On 26 February 2008, the board of directors resolved to change the financial
year end date from 30 June to 31 December. The financial statements now
presented cover a period of six months from 1 July 2008 to 31 December 2008.
Accordingly, the comparative figures (which cover a period of twelve months from
1 July 2007 to 30 June 2008) for the consolidated statement of operations,
consolidated statement of changes in shareholders' equity, consolidated
statement of cash flows and other explanatory notes are not comparable with
those for the current period.
2 Summary of significant accounting policies
The following significant accounting policies are in conformity with accounting
principles generally accepted in the United States of America ("US GAAP"). The
Company applies the provision of the AICPA Audit and Accounting Guide for
Investment Companies (the "Guide"). Such policies are consistently followed by
the Company in the preparation of its consolidated financial statements.
(a) Principles of consolidation
These consolidated financial statements include the financial statements of the
Company and its special purpose vehicles (collectively the "Fund"). Special
purpose vehicles ("SPVs") are consolidated from the date on which control is
transferred to the Fund and deconsolidated from the date that control ceases.
Investments held by the SPVs are not subject to consolidation and equity
accounting as they are non-investment company investees with the purpose to
realize a gain upon disposal rather than to provide services to the Company.
Inter-company transactions and balances among the Company and its SPVs are
eliminated upon consolidation.
The Fund uses wholly and partially-owned SPVs to hold and transact in certain
investments. The Fund's policy is to consolidate, as appropriate, those entities
in which the Fund has control over significant operating, financial or investing
decisions of the entity.
(b) Use of estimates
The preparation of consolidated financial statements in conformity with US GAAP
requires the Directors to make estimates and assumptions that affect the
reported amounts and disclosures of financial statements and accompanying notes.
The directors believe that the estimates utilized in preparing the financial
statements are reasonable; however, actual results could differ from these
estimates.
(c) Investments
(i) Recognition, derecognition and measurement
Regular purchase and sale of investments are accounted for on the trade date,
the date the trade is executed. All investment securities are initially
recognised at cost. Costs used in determining net realised gains or losses on
the sale of investment securities are based on average-cost method. Legal and
due diligence fees and other charges associated with acquiring the investments
are capitalised as part of the cost of the investment securities.
Transfer of investments is accounted for as a sale when the Fund has
relinquished control over the transferred assets. Any realized gains or losses
from investments are recognized in the consolidated statement of operations.
Investments are subsequently carried at fair value and changes in fair value are
presented in the consolidated statement of operations.
(ii) Fair value measurement
The Fund is an investment company under the Guide. As a result, the Fund records
its investments on the consolidated statement of assets and liabilities at their
fair value, with unrealized gains and losses resulting from changes in fair
value recognized in the consolidated statement of operations.
The Fund adopted Statement of Financial Accounting Standard No. 157, Fair Value
Measurement ("FAS 157") issued by the Financial Accounting Standards Board
("FASB") on 1 January 2008. Fair value is the amount that would be received to
sell 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, which is established by the Investment
Manager and the Board of Directors.
Although the Valuation Committee uses its best judgement in estimating fair
value, there are inherent limitations in any valuation technique. Estimated
fair value may differ significantly from the value that would have been used had
a readily market for such investments existed and these differences could be
material to the consolidated financial statements. Additional information about
the level of market observability associated with investments carried at fair
value are disclosed in Note 17.
(d) Fair value hierarchy
FAS 157 establishes a fair value hierarchy that prioritizes inputs to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (level 1 measurements) and
the lowest priority to unobservable input (level 3 measurements).
The three levels of the fair value hierarchy under FAS 157 are described below:
Level 1
Inputs to measure fair values are unadjusted quoted prices in active markets
that are accessible at the measurement date for identical, unrestricted assets
or liabilities;
Level 2
Inputs to measure fair values are quoted prices in markets that are not active,
quoted prices for similar assets or liabilities in active markets, or prices or
valuations for which all significant inputs are observable, either directly or
indirectly;
Level 3
Inputs to measure fair values are both significant to the fair value measurement
and unobservable.
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 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.
Investments in securities listed on a stock exchange or traded on any regulated
market are generally classified within level 1 of the fair value hierarchy
because they are valued using quoted market prices, broker or dealer quotations,
or alternative pricing sources with reasonable levels of price transparency.
Assets and liabilities are classified within level 3 of the fair value hierarchy
if they are traded infrequently and/ or have little or no price transparency.
Such assets and liabilities include unlisted equities, convertible bonds and
loans receivable. Their fair values are estimated with reference to the
valuation techniques recommended by the International Private Equity and Venture
Capital Valuation Guidelines and the U.S. Private Equity Valuation Guidelines.
Valuation methodologies utilized by the Valuation Committee include but not
limited to comparable transactions or performance multiples, latest round of
financing, discounted cash flow, and are supported by independent valuations of
underlying assets. The selection of appropriate valuation techniques may be
affected by the availability of reliable inputs. In some cases, one valuation
technique may provide an appropriate estimation of fair value while in other
circumstances, multiple valuation techniques may be appropriate. Once an
appropriate valuation methodology is determined for an asset or liability, it
will continue to be used until a new, more appropriate method is determined.
(e) 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.
(f) Cash and cash equivalents
Cash and cash equivalents comprise cash at banks placed with reputable banking
institutions with an original maturity of less than three months.
(g) Dividend, interest income and expenses
Dividend income is recognised on the ex-dividend date with the corresponding
foreign withholding taxes recorded as an expense.
Interest income is recognised in the consolidated statement of operations on an
accrual basis.
Expenses are accounted for on an accrual basis and charged to the consolidated
statement of operations. Offering costs are charged to the Company's share
premium account upon the issuance of shares.
(h) Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated into US$
at the rates of exchange ruling at the date of consolidated statement of net
assets. Income and expenses denominated in foreign currencies during the period
are translated into US$ at the rates of exchange ruling at the transaction
dates. All exchange differences arising are included in the consolidated
statement of operations.
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 investment securities
held 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)Income Taxes
The Fund may be subject to taxes imposed in countries in which it invests. Such
taxes are generally based on income and/or gains earned. The Fund accrues for
liabilities relating to uncertain tax positions only when such liabilities are
probable and can be reasonably estimated. Such income/or gains are recorded
gross of taxes in the consolidated statement of operations and taxes are shown
as a separate item in the consolidated statement of operations.
Deferred income taxes are recognized when temporary differences exist between
the tax bases of assets and liabilities and their reported amounts in the
consolidated financial statements. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more than likely
that a portion of or all of the deferred tax assets will not be realized.
3 Investment management fee
ARC Capital Partners Limited, the Investment Manager, is entitled to receive an
aggregate investment management fee of two per cent per annum of the Fund's net
asset value and is payable quarterly based on the average month end net asset
value of the Fund of the previous quarter.
For the period ended 31 December 2008, the Fund incurred investment management
fees of US$5,977,990 (for the year ended 30 June 2008: US$10,826,907) and
US$3,052,834 was payable as at 31 December 2008 (for the year ended 30 June
2008: US$922,140).
4 Performance fee
In accordance with paragraph 4.1 of Part 3 of the Investment Management
Agreement entered into between the Fund and the Investment Manager dated 20 June
2006 and amended by Addendum dated 2 January 2008 (collectively the "Investment
Management Agreement"), the Investment Manager shall be entitled to a
performance fee provided that the year end net asset value of the Fund is
greater than (i) the year end net asset value for the last year in which a
performance fee was payable ("High Water Mark"), and (ii) the net asset value on
admission of the Fund to trading on AIM ("NAV on Admission") increased by a
compounded annual hurdle rate of eight per cent ("Hurdle").
Paragraph 4.2 of Part 3 of the Investment Management Agreement states that the
performance fee shall be 20 per cent of the increase in the net asset value, and
shall be paid as follows:
* 0 per cent of the relevant increase in the Fund's year end net asset value if
the year end net asset value is at or below the net asset value increased by the
Hurdle;
* 100 per cent of the relevant increase in the Fund's year end net asset value
above the net asset value increased by the Hurdle but below the net asset value
on Admission increased by a compounded annual rate of 10 per cent (the
"Catch-up"); and
* 20 per cent of the relevant increase in the Fund's year end net asset value
above the Catch-up.
The performance fee shall be calculated in US$ and paid (i) 25 per cent in the
Company's ordinary shares and (ii) 75 per cent in cash. For the period ended 31
December 2008, the Fund incurred no performance fees (for the year ended 30 June
2008: US$10,406,850). The performance fee payable as at 31 December 2008
represented the performance fee for the year ended 30 June 2008 which was not
yet paid. Following the amendment of the Fund's Investment Management Agreement
on 31 March 2009 as set out in note 19, 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 at a discount. Had the Fund opted for issuing
new shares at NAV to settle the outstanding performance fee payable as at 31
December 2008, the total number of issued Company shares would have increased by
2,139,223 from 429,533,424 to 431,672,647, which would have a negligible
dilution effect on the Net Asset Value per share.
5 Directors' fees and expenses
The Company pays each of its directors an annual fee of US$20,000 plus
out-of-pocket expenses. Three directors of the Company have agreed to waive
their Directors fees for so long as they have an equity interest in the
Investment Manager. In September 2008, the Company agreed to increase the annual
fee to its directors to US$30,000 and to pay each of its valuation committee
members an annual fee of US$5,000 with effect from 1 July 2007.
6 Current and deferred income taxes
(a) Current income tax
No income taxes are provided as the Company is not currently subject to income
taxes in the Cayman Islands or any other jurisdiction in which it operates. The
Company has obtained an undertaking from the Governor in Cabinet of the Cayman
Islands that for a period of 20 years from 9 August 2005 that:
(i) no law which is thereafter enacted in the Cayman Islands imposing any tax to
be levied on profits, income, capital gains or appreciations shall apply to the
Company or its operations; and
(ii) no aforesaid tax or withholding tax, nor estate duty or inheritance tax
shall be payable on or in respect of the share debentures or other obligations
of the Company.
The Fund may be subject to taxes imposed in other countries in which it invests.
Such taxes are generally based on income and/or gains generated.
Dividend and interest income received by the Fund may be subject to withholding
tax imposed in the country of origin. This income is recorded gross of such
taxes and the withholding tax, if any, is recognised separately in the
consolidated statement of operations.
No provision for Hong Kong profits tax has been made as the directors believe
that the Fund has no Hong Kong sourced profits during the period (30 June 2008:
Nil).
A reversal of provision of US$131,304 has been made for China taxes on the
Fund's China sourced dividend income (30 June 2008: provision of US$131,304).
(b) Deferred income tax
The deferred income tax is arising from the net change in unrealised loss/gain
on an investment in China.
7 Net asset value
+------------------------------------------+--+--------+--------------+--------------+
| | | Period from | |
+------------------------------------------+-----------+--------------+--------------+
| | | 1 July 2008 to | Year ended |
+------------------------------------------+--+-----------------------+--------------+
| | | 31 December | 30 June |
+------------------------------------------+-----------+--------------+--------------+
| | | 2008 | 2008 |
+------------------------------------------+-----------+--------------+--------------+
| | | US$ | US$ |
+------------------------------------------+-----------+--------------+--------------+
| Per share operating performance (for a share of | | |
+------------------------------------------------------+--------------+--------------+
| stock outstanding throughout the period/year): | | |
+------------------------------------------------------+--------------+--------------+
| Net asset value at beginning of period/year | 1.43 | 1.32 |
+------------------------------------------------------+--------------+--------------+
| Net (decrease)/increase in net assets from | (0.21) | 0.11 |
| operations | | |
+------------------------------------------------------+--------------+--------------+
| Net asset value per share at end of period/year | 1.22 | 1.43 |
+------------------------------------------------------+--------------+--------------+
| | ====== | ====== |
+------------------------------------------+--+--------+--------------+--------------+
8 Investment deposits
As at 31 December 2008, the Fund had placed deposits of US$13,582,980,
equivalent to RMB100,000,000 when deposits were made in December 2007. (30
June 2008: US$40,748,941, equivalent to RMB300,000,000 when deposits were made
in December 2007), with its identified investment targets to secure exclusivity
to the investment targets, in the ordinary course of the Fund's investment
activities.
9 Other assets
At 31 December 2008, the Fund held properties and other financial assets of
US$6,484,764 (30 June 2008: US$10,446,066), which were acquired in the ordinary
course of the Fund's investment activities. The properties were carried at their
fair value, while the other financial assets, being receivables and prepayments
in nature, were carried at their net realisable value.
In addition, included in the other assets is an amount of RMB100,000,000
(approximately USD14.7 million) due from an investee company in which the Fund
has a controlling interest. Such amount is unsecured and repayable on demand.
10 Bank loans and short-term loan payable
(a) Bank loans
+----------------------------------+---------+----------------+-------------+
| | | Period from | |
+----------------------------------+---------+----------------+-------------+
| | | 1 July 2008 to | Year ended |
+----------------------------------+---------+----------------+-------------+
| | | 31 December | 30 June |
+----------------------------------+---------+----------------+-------------+
| | | 2008 | 2008 |
+----------------------------------+---------+----------------+-------------+
| | | US$ | US$ |
+----------------------------------+---------+----------------+-------------+
| Bank loans repayable within 1 | | 60,823,685 | 53,251,244 |
| year | | | |
+----------------------------------+---------+----------------+-------------+
| | | ========= | ========= |
+----------------------------------+---------+----------------+-------------+
In order to finance investment projects, the Fund obtained a RMB365,000,000 loan
facility from a bank on 5 November 2007. On 20 November 2008, the Fund and the
bank mutually agreed to reduce the loan facility to RMB315,000,000. As at 31
December 2008, the loan facility has been fully drawn down to RMB315,000,000,
approximately equivalent to US$46,167,375 (30 June 2008: RMB365,000,000,
approximately equivalent to US$53,251,244). The bank loan is repayable within
one year and secured by a pledged fixed deposit of US$51,030,000 (30 June 2008:
US$56,080,721) and the agreed interest rate is 110% of the benchmark interest
rate as stipulated by the People's Bank of China during the corresponding
period. As at 31 December 2008, the interest rate is 5.544% (30 June 2008:
7.227%).
In addition, the Fund entered into a bank loan agreement for a term loan of
RMB100,000,000 (or approximately US$14,656,310) with another bank in July 2008.
The bank loan is repayable within one year and secured by a pledged fixed
deposit of USD17,277,755 (30 June 2008: Nil). The agreed interest rate is a
fixed rate of 6.8985%.
The fair value of current bank loans equals their carrying amount, as the impact
of discounting is not significant.
The table below summarises the Fund's pledged fixed deposits at fair value:
+------------------------------------------------+------------------+----------+-----------------+
| | | | |
+------------------------------------------------+------------------+----------+-----------------+
| | Interest | | US$ |
+------------------------------------------------+------------------+----------+-----------------+
| | rate | | Equivalent |
+------------------------------------------------+------------------+----------+-----------------+
| As at 30 Jun 2008 | | | |
+------------------------------------------------+------------------+----------+-----------------+
| | | | |
+------------------------------------------------+------------------+----------+-----------------+
| Fixed deposit maturing within 1 month | 1.42% | | 36,893,413 |
+------------------------------------------------+------------------+----------+-----------------+
| Fixed deposit maturing within 1 month | 1.98% | | 19,187,308 |
+------------------------------------------------+------------------+----------+-----------------+
| | | | |
+------------------------------------------------+------------------+----------+-----------------+
| | | | 56,080,721 |
+------------------------------------------------+------------------+----------+-----------------+
| | | | ========== |
+------------------------------------------------+------------------+----------+-----------------+
| As at 31 Dec 2008 | | | |
+------------------------------------------------+------------------+----------+-----------------+
| | | | |
+------------------------------------------------+------------------+----------+-----------------+
| Fixed deposit maturing within 1 month | 1.33% | | 51,030,000 |
+------------------------------------------------+------------------+----------+-----------------+
| Fixed deposit maturing within 3 month | 1.38% | | 17,277,755 |
+------------------------------------------------+------------------+----------+-----------------+
| | | | |
+------------------------------------------------+------------------+----------+-----------------+
| | | | 68,307,755 |
+------------------------------------------------+------------------+----------+-----------------+
| | | | ========== |
+------------------------------------------------+------------------+----------+-----------------+
(b) Short-term loan payable
The carrying amount of the Fund's short-term loan borrowing is denominated in
the following currency:
+----------------------------------+---------+----------------+-------------+
| | | Period from | |
+----------------------------------+---------+----------------+-------------+
| | | 1 July 2008 to | Year ended |
+----------------------------------+---------+----------------+-------------+
| | | 31 December | 30 June |
+----------------------------------+---------+----------------+-------------+
| | | 2008 | 2008 |
+----------------------------------+---------+----------------+-------------+
| | | | |
+----------------------------------+---------+----------------+-------------+
| US dollar | | 75,000,000 | 75,000,000 |
+----------------------------------+---------+----------------+-------------+
| | | ========= | ========= |
+----------------------------------+---------+----------------+-------------+
In January 2008, the Fund entered into a US$75,000,000 facility agreement with a
group of financial institutions ("Lenders") enabling the Fund to borrow up to
US$75,000,000 for a period of 12 months at an annual rate of 10.5% per annum
payable monthly. In April 2008, the facility agreement was amended and restated
to waive the mandatory repayment of the loan after the Fund has received
proceeds for its issuance of shares. In the event that the amounts utilised
under the facility agreement are due but unpaid, Lenders could exercise their
charge over the bank accounts, directly held investments and shares in each of
the directly owned subsidiaries of the Fund.
In August 2008, the Fund amended and restated the US$75,000,000 facility
agreement such that the maturity date of US$75,000,000 loan was extended to 15
August 2009.
As of 31 December 2008, the Fund has fully utilised the US$75,000,000 loan
facility with the entire amount due for repayment on 15 August 2009.
Although the Fund has only US$8,589,465 cash and cash equivalents as at 31
December 2008, the directors are of the opinion that the Fund will be able to
finance its repayment of US$75,000,000 short term loan repayable given that:
(i) The Fund has been in discussions with Lenders to extend the current facility
of US$75,000,000 and are actively negotiating with a number of other financial
institutions to secure replacement loans or banking facilities;
(ii) The Fund has been actively discussing with prospective investors to divest
or co-invest in its investments.
If the Fund could not meet this obligation, certain investments might be
required to be sold at prices below their carrying values in a short period and
this would result in a reduction in value of the Fund.
11 Other payables and accruals
Included in the other payables and accruals is an amount of RMB100,000,000
(approximately USD14.7 million) due to an investee company in which the Fund has
a controlling interest. Such amount is unsecured, repayable on demand and used
for financing the operating activities of another investee company as set out in
Note 9.
12 Share capital and share premium
The Company issued 1,121,034 ordinary shares at the subscription price of
US$1.74 per share in February 2008 and 32,677,096 ordinary shares at the
subscription price of US$1.63 per share in April 2008. All shares were admitted
to trade on the AIM market of the London Stock Exchange plc, and dealing
commenced on 8 February 2008 and 30 April 2008, respectively.
(a) Share capital
+--------------------------+-----------------+---------------+-----------------+---------------+
| | 31 December 2008 | 30 June 2008 |
+--------------------------+---------------------------------+---------------------------------+
| | No of | | No. of | |
+--------------------------+-----------------+---------------+-----------------+---------------+
| | shares | Amount | shares | Amount |
+--------------------------+-----------------+---------------+-----------------+---------------+
| | | US$ | | US$ |
+--------------------------+-----------------+---------------+-----------------+---------------+
| Authorised: | | | | |
+--------------------------+-----------------+---------------+-----------------+---------------+
| | | | | |
+--------------------------+-----------------+---------------+-----------------+---------------+
| Ordinary shares at | | | | |
| US$0.01 | | | | |
+--------------------------+-----------------+---------------+-----------------+---------------+
| each | 500,000,000 | 5,000,000 | 500,000,000 | 5,000,000 |
+--------------------------+-----------------+---------------+-----------------+---------------+
| | | | | |
| | ========== | ========== | ========== | ========== |
+--------------------------+-----------------+---------------+-----------------+---------------+
(a) Share capital (continued)
+--------------------------+-----------------+---------------+-----------------+---------------+
| | 31 December 2008 | 30 June 2008 |
+--------------------------+---------------------------------+---------------------------------+
| | No of | | No. of | |
+--------------------------+-----------------+---------------+-----------------+---------------+
| | shares | Amount | shares | Amount |
+--------------------------+-----------------+---------------+-----------------+---------------+
| | | US$ | | US$ |
+--------------------------+-----------------+---------------+-----------------+---------------+
| | | | | |
+--------------------------+-----------------+---------------+-----------------+---------------+
| Issued and fully paid: | | | | |
+--------------------------+-----------------+---------------+-----------------+---------------+
| | | | | |
+--------------------------+-----------------+---------------+-----------------+---------------+
| Ordinary shares at | | | | |
| US$0.01 | | | | |
+--------------------------+-----------------+---------------+-----------------+---------------+
| each | 429,533,424 | 4,295,334 | 429,533,424 | 4,295,334 |
+--------------------------+-----------------+---------------+-----------------+---------------+
| | | | | |
| | ========== | ========== | ========== | ========== |
+--------------------------+-----------------+---------------+-----------------+---------------+
(b) Share premium
+----------------------+-----------------+------------------+-----------------+------------------+
| | 31 December 2008 | 30 June 2008 |
+----------------------+------------------------------------+------------------------------------+
| | No of | | No. of | |
+----------------------+-----------------+------------------+-----------------+------------------+
| | shares | Amount | shares | Amount |
+----------------------+-----------------+------------------+-----------------+------------------+
| | | US$ | | US$ |
+----------------------+-----------------+------------------+-----------------+------------------+
| | | | | |
+----------------------+-----------------+------------------+-----------------+------------------+
| Issued shares | 429,533,424 | 545,918,933 | 429,533,424 | 545,918,933 |
+----------------------+-----------------+------------------+-----------------+------------------+
| Less: Offering cost | - | (15,929,897) | - | (15,929,897) |
+----------------------+-----------------+------------------+-----------------+------------------+
| | | | | |
+----------------------+-----------------+------------------+-----------------+------------------+
| At end of | 429,533,424 | 529,989,036 | 429,533,424 | 529,989,036 |
| period/year | | | | |
+----------------------+-----------------+------------------+-----------------+------------------+
| | | | | |
| | =========== | =========== | =========== | =========== |
+----------------------+-----------------+------------------+-----------------+------------------+
13 Concentration of risks
The Fund's activities (including both investments and loans) may expose it to a
variety of risks: mainly market risk, industry risk, credit risk and foreign
exchange risk.
(a) Market risk
Market risk is the risk that the value of a financial instrument will fluctuate
as a result of changes in market variables such as interest, foreign exchange
rates and equity prices, whether those changes are caused by factors specific to
the particular security or factors that affect ail securities in the markets.
Investments are typically made with a specific focus on Greater China and thus
are concentrated in that region. Political or economic conditions and the
possible imposition of adverse governmental laws or currency exchange
restrictions in that region could cause the Fund's investments and their markets
to be less liquid and prices more volatile. The Fund is exposed to market risk
on all of its investments.
(b) Industry risk
The Fund's investments may have concentration in a particular industry or sector
and performance of that particular industry or sector may have a significant
impact on the Fund. The Fund's investments may also be subject to the risk
associated with investing in private equity securities. Investments in private
equity securities may be illiquid and subject to various restrictions on resale
and there can be no assurance that the Fund will be able to realise the value of
such investments in a timely manner.
(c) Credit risk
Credit risk is the risk that an issuer/counterparty will be unable or unwilling
to meet its commitments to the Fund. Financial assets that are potentially
subject to significant credit risk consist of cash and cash equivalents,
investments in convertible bonds and receivables.
The maximum credit risk exposure of these items are their carrying value.
(d) Currency risk
The Fund has assets and liabilities denominated in currencies other than the
US$, the functional currency. The Fund is therefore exposed to currency risk as
the value of assets and liabilities denominated in other currencies will
fluctuate due to changes in exchange rates.
The table below summarises the Fund's cash and cash equivalents at their fair
values as at 31 December 2008 and 30 June 2008.
+---------------------------------------------------+----------+-------------------+-------------------+
| | | Original | US$ |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | currency | equivalent |
+---------------------------------------------------+----------+-------------------+-------------------+
| As at 31 December 2008 | | | |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | |
+---------------------------------------------------+----------+-------------------+-------------------+
| Cash at banks | US$ | 4,898,775 | 4,898,775 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | RMB | 25,127,333 | 3,682,738 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | HK$ | 62,028 | 7,952 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | 8,589,465 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | =========== |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | |
+---------------------------------------------------+----------+-------------------+-------------------+
| Fixed deposits - pledged | US$ | 68,307,755 | 68,307,755 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | =========== |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | |
+---------------------------------------------------+----------+-------------------+-------------------+
| As at 30 June 2008 | | | |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | |
+---------------------------------------------------+----------+-------------------+-------------------+
| Cash at banks | US$ | 119,601,812 | 119,601,812 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | RMB | 151,064,217 | 22,115,054 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | HK$ | 73,479 | 9,420 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | 141,726,286 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | =========== |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | |
+---------------------------------------------------+----------+-------------------+-------------------+
| Fixed deposits - pledged | US$ | 56,080,721 | 56,080,721 |
+---------------------------------------------------+----------+-------------------+-------------------+
| | | | =========== |
+---------------------------------------------------+----------+-------------------+-------------------+
In addition, as at 31 December 2008, the net assets of the Fund is predominately
denominated in US$, Renminbi and HK$ with net assets carrying at US$362,181,260,
US$148,965,478 and US$11,249,710 (30 June 2008: US$443,735,293, US$154,602,436
and US$16,585,951), respectively.
(e) Liquidity risk
The Fund is exposed to liquidity risk as the Fund's investments are largely
illiquid while the majority of the Fund's liabilities are with short maturity.
The Fund's bank loans are fully collateralized with cash. Illiquid investments
include any securities or instruments which are not actively traded on any major
securities market or for which no established secondary market exists where the
investments can be readily converted into cash. Reduced liquidity resulting from
the absence of an established secondary market may have an adverse effect on the
prices of the Fund's investments and the Fund's ability to dispose of them where
necessary to meet liquidity requirements. As a result, the Fund may be exposed
to significant liquidity risk.
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 exposed to the risk of repatriating funds out of China to meet its
obligations on a timely basis.
14 Related party transactions
(a) Management and performance fees paid to a related party
During the period, the Company paid management and performance fees to its
related Investment Manager, ARC Capital Partners Limited. See note 3 and note 4
for details of such fees.
(b) Company shares held by the Investment Manager
As at 31 December 2008, ARC Capital Partners Limited and its subsidiary held
1,477,034 ordinary shares of the Company (30 June 2008: 1,295,034).
15 Commitment and contingency
As of 31 December 2008, the Fund is committed, subject to the meeting of all
funding conditions by the investees, to fund additional capital to existing
investees detailed as follows:
+-----------------------------------------------+------+----------------+-----------------+
| | 31 December | 30 June |
+-----------------------------------------------+-----------------------+-----------------+
| | 2008 | 2008 |
+-----------------------------------------------+-----------------------+-----------------+
| | US$ | US$ |
+-----------------------------------------------+-----------------------+-----------------+
| | | |
+-----------------------------------------------+-----------------------+-----------------+
| Shaanxi Dade Education Development Co., Ltd. | 28,400,000 | 71,000,000 |
+------------------------------------------------------+----------------+-----------------+
| Orient Home Decoration & Building Material Co., | 11,400,000 | - |
| Ltd. | | |
+------------------------------------------------------+----------------+-----------------+
| Yangzhou Huiyin Household Appliance Co., | - | 6,340,000 |
| Ltd. | | |
+-----------------------------------------------+-----------------------+-----------------+
| Beijing Science Technology Management College | 22,717,000 | 22,610,000 |
+-----------------------------------------------+-----------------------+-----------------+
| Shanghai Jiadeli Supermarket Co., Ltd. | - | 4,100,000 |
+-----------------------------------------------+-----------------------+-----------------+
| | | |
+-----------------------------------------------+-----------------------+-----------------+
| | 62,517,000 | 104,050,000 |
+-----------------------------------------------+-----------------------+-----------------+
| | =========== | |
| | | =========== |
+-----------------------------------------------+------+----------------+-----------------+
In June 2008, the Fund committed to acquire a 45% equity interest in a private
university in Shaanxi for approximately US$71 million over the next six months.
The first tranche payment of US$42.6 million was completed in August 2008. The
second tranche payment of US$28.4 million remained as a commitment as at 31
December 2008.
In July 2008, the Fund committed to acquire an equity interest in a DIY home
improvement store chain in the PRC for RMB561 million (approximately US$75.9
million). 85% of the purchase price of RMB477 million (approximately US$64.5
million) was fully paid by August 2008 following an initial deposit of RMB200
million (approximately US$27.1 million) paid in December 2007 and an additional
payment of RMB277 million (approximately US$37.4 million) upon closing in August
2008. The remaining 15% of the purchase price of RMB84 million (approximately
US$11.4 million) will be retained as holdback for post closing adjustments.
In the normal course of business, the Fund may enter into arrangements that
contain a variety of representations and warranties and which provide general
indemnification. The Fund's maximum exposure under these arrangements is
unknown, and this involves future claims that may be made against the Fund and
which have not yet occurred. However, based on experience, the directors expect
the risk of loss to be remote.
16 Financial highlights
The financial highlights presented below consist of the Fund's operating
expenses and net operating loss ratios for the period ended 31 December 2008 and
year ended 30 June 2008, and the internal rate of return ("IRR") since the
Fund's admission to trading on AIM, net of all expenses, including performance
fees to the Investment Manager:
+------------------------------------------+--+--------+--------------+--------------+
| | | Period from | |
+------------------------------------------+-----------+--------------+--------------+
| | | 1 July 2008 to | Year ended |
+------------------------------------------+--+-----------------------+--------------+
| | | 31 December | 30 June |
+------------------------------------------+-----------+--------------+--------------+
| | | 2008 | 2008 |
+------------------------------------------+-----------+--------------+--------------+
| | | US$ | US$ |
+------------------------------------------+-----------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| Net operating loss | *(2.4%) | (5.0%) |
+------------------------------------------------------+--------------+--------------+
| | ===== | ===== |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| Operating expenses before performance fee | *(5.0%) | (4.8%) |
+------------------------------------------------------+--------------+--------------+
| Performance fee | - | (1.9%) |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| Operating expenses after performance fee | *(5.0%) | (6.7%) |
+------------------------------------------------------+--------------+--------------+
| | ===== | ===== |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| Cumulative IRR since inception through the | (1.3%) | 11.9% |
| period/year end | | |
+------------------------------------------------------+--------------+--------------+
| | ===== | ===== |
+------------------------------------------+--+--------+--------------+--------------+
* The net operating loss and operating expenses ratios are computed as a
percentage of the Fund's average net asset value during the period. Both ratios
are presented on an annualized basis with the exception of one-time costs.
The IRR is computed based on the Fund's actual dates of the cash inflows
(capital contributions), outflows (cash and stock distributions) and the ending
net asset value at the end of the period/year (residual value) as of each
measurement date.
17 Fair value hierarchy
The following table summarizes the results carried on the consolidated statement
of assets and liabilities by captions and by level within the fair value
hierarchy.
+------------+---------------+--------------+--+--------------+--+--------------+
| | | Level 1 | | Level 3 | | Total |
+------------+---------------+--------------+--+--------------+--+--------------+
| Portfolio | | US$ | | US$ | | US$ |
+------------+---------------+--------------+--+--------------+--+--------------+
| | | | | | |
+----------------------------+--------------+--+--------------+--+--------------+
| As at 31 Dec 2008 | | | | | |
+----------------------------+--------------+--+--------------+--+--------------+
| Investments | 11,249,710 | | 551,345,598 | | 562,595,308 |
+----------------------------+--------------+--+--------------+--+--------------+
| Short-term loans | - | | 11,828,155 | | 11,828,155 |
| receivable | | | | | |
+----------------------------+--------------+--+--------------+--+--------------+
| | 11,249,710 | | 563,173,753 | | 574,423,463 |
+----------------------------+--------------+--+--------------+--+--------------+
| As at 30 Jun 2008 | | | | | |
+----------------------------+--------------+--+--------------+--+--------------+
| Investments | 16,585,951 | | 507,341,486 | | 523,927,437 |
+----------------------------+--------------+--+--------------+--+--------------+
| Short-term loans | - | | | | 4,500,000 |
| receivable | | | 4,500,000 | | |
+----------------------------+--------------+--+--------------+--+--------------+
| | 16,585,951 | | 511,841,486 | | 528,427,437 |
+------------+---------------+--------------+--+--------------+--+--------------+
The following table sets forth a summary of changes in the fair value of the
Fund's level 3 assets.
+----------------------------------------+--------------+
| | US$ |
+----------------------------------------+--------------+
| Balance as at 30 June 2008 | 511,841,486 |
+----------------------------------------+--------------+
| Net unrealized loss from investments | (76,028,147) |
| and foreign currencies | |
+----------------------------------------+--------------+
| Purchase of investments | 120,032,259 |
+----------------------------------------+--------------+
| Increase in short-term loans | 7,328,155 |
| receivable | |
+----------------------------------------+--------------+
| Balance as at 31 December 2008 | 563,173,753 |
+----------------------------------------+--------------+
| | |
+----------------------------------------+--------------+
+-----------------------------------------------------+------------------+
| | US$ |
+-----------------------------------------------------+------------------+
| Balance as at 30 June 2007 | 107,690,000 |
+-----------------------------------------------------+------------------+
| Net unrealized gain from investments and foreign | 61,061,907 |
| currencies | |
+-----------------------------------------------------+------------------+
| Net realized gain from investments and foreign | 3,846,150 |
| currencies | |
+-----------------------------------------------------+------------------+
| Purchase of investments | 334,743,429 |
+-----------------------------------------------------+------------------+
| Increase in short-term loans receivable | 4,500,000 |
+-----------------------------------------------------+------------------+
| Balance as at 30 June 2008 | 511,841,486 |
+-----------------------------------------------------+------------------+
| | |
+-----------------------------------------------------+------------------+
18 Comparative data
Certain prior year comparatives have been reclassified to be consistent with
current period disclosures.
19 Subsequent events
(a) Early repayment of US$12 million convertible bond
On 23 February 2009, the Fund and New Focus Auto Tech Holdings Limited ("NFA")
agreed to terminate the Subscription Agreement in respect of US$12 million
redeemable convertible bond. Subject to Early Repayment Compensation (as defined
in the paragraph below), NFA shall repay to the Fund the full amount of
principal by three instalments as follows:
* US$3 million was paid in US$ on 25 February 2009 (the "First Instalment");
* US$4 million payable in US$ on or before 30 April 2009 (the "Second
Instalment");
* US$5 million payable in US$ or its equivalent in HK$ on or before 30 June 2009
(the "Third Instalment").
If no Event of Default (as defined in the paragraph below) has occurred, NFA
shall be entitled to reduce the amounts of repayment in accordance with the
following:
* if NFA repays the First Instalment and the Second Instalment on or before the
respective due dates set out above, NFA shall be entitled to deduct US$500,000
from the Third Instalment payable on or before 30 June 2009; or
* if NFA is able to make a repayment of the Third Instalment on or before 30 April
2009 after having fully repaid the First Instalment and the Second Instalment on
or before the respective due dates set out above, NFA shall be entitled to
deduct US$700,000 from the Third Instalment.
(b) Amendment of the Fund's Investment Management Agreement
Pursuant to the board resolution passed on 31 March 2009 and announced on 1
April 2009, the Fund's Investment Management Agreement was amended to reflect
the change in the payment method of the performance fee with effective from 31
March 2009. The details are set out below.
(i) 50% (previously 25%) of any performance fee earned by the Investment Manager
is paid in Shares at a price equivalent to the prevailing NAV per Share at the
end of the relevant calculation period (previously fair market value). The Fund
may elect to meet this obligation either by issuing new Shares at NAV or
purchasing the equivalent number of Shares in the market at a discount. Any
benefit from acquiring such Shares at a discount accrues to the Fund, not the
Investment Manager.
(ii) 50% (previously 75%) of any performance fee earned by the Investment
Manager is paid in cash from the profits of realized investments. No
performance fees will be paid to the Investment Manager from return of
principal, thus incentivising profitable exits.
The financial information set out in this announcement does not constitute the
Group's statutory accounts for the year ended 31 December 2008 but is derived
from those accounts. The full audited accounts of ARC Capital Holdings Limited
for the year ended 31 December 2008 will be sent to registered shareholders
shortly and will also be available, free of charge, from ARC Capital Partners
Limited, c/o ARC Advisors (HK) Limited, 13/F., St John's Building, 33 Garden
Road, Central, Hong Kong. A copy of the report will be posted on the Company's
website (www.arch-fund.com).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSAFLISUSEII
Grafico Azioni Arc Capital (LSE:ARCH)
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