TIDMARCH
RNS Number : 3188P
ARC Capital Holdings Limited
30 September 2011
30 September 2011
ARC Capital Holdings Limited
('ARCH' or the 'Company')
Unaudited Interim Results for the six months ended 30 June
2011
ARC Capital Holdings Limited ('ARCH' or the 'Company') (AIM:
ARCH), the AIM-traded, closed-end investment company focussed on
investments in the retail and consumer good sectors principally in
China, has today announced its financial results for the six months
to 30 June 2011.
Financial Highlights
-- Net asset value as at 30 June 2011 was US$520 million,
representing US$1.33 per share, a seven per cent decrease on the
prior six months to 31 December 2010 (US$614 million, representing
US$1.43 per share).
Portfolio and Company Developments
-- Following several successful realisations in the 2010
calendar year, ARCH started to re-invest capital in the first half
of 2011, while at the same time realising more mature investments
and enhancing the value of the existing portfolio.
-- On 25 March, ARCH joined a consortium of other major
shareholders of Funtalk China Holdings to initiate a proposal to
acquire the company's free floating shares at US$7.20 per share,
valuing Funtalk at approximately US$433 million. After a lengthy
due diligence and evaluation process conducted by the consortium,
Funtalk's shareholders approved the transaction which was completed
on 25 August 2011, turning Funtalk into a privately held
company.
-- As announced on 5 July 2011, ARCH made its entry into the
China pharmaceutical market with a minority investment in Buchang
Pharmaceutical Group. This entry is into a new industry sector for
ARCH which the Company sees as having significant future potential
for attractive investment returns.
-- Orient Home continued to struggle with profitability
throughout the period in an unfavourable environment. Under ARCH's
management, the fundamental operations of the company were
successfully upgraded, however high financing costs for working
capital loans and a lack of funding options limited the company's
purchasing power with suppliers and halted expansion plans. In the
first half of 2011, Orient Home reported a year on year drop in
revenue and net profit of 10 per cent and 102 per cent,
respectively. Subsequent to 30 June 2011, the valuation of Orient
Home has been revised to zero. ARCH remains committed to the
company's recovery and is currently in discussions with strategic
investors regarding exit options.
Despite the challenging market conditions in the first half of
2011, ARCH continued to build a strong pipeline of attractive
investments opportunities which strongly correlate to China's
domestic consumption growth. The Company remains committed to its
strategy and confident that the current economic and policy
environment in China will deliver significant new opportunities for
investments and growth.
For more information, please contact:
MANAGER: LEGAL COUNSEL:
Allan Liu, Managing Partner Jon Lewis, General Counsel
c/o ARC Capital Partners PAG
Limited 15/F, AIA Central
15/F, AIA Central 1 Connaught Road
1 Connaught Road Central, Hong Kong
Central, Hong Kong T: (852) 2918 0088
T: (852) 2918 0088 F: (852) 2918 0881
F: (852) 2918 0881 jlewis@ pagasia.com
aliu@pagasia.com
BROKERS: NOMINATED ADVISER:
Hiroshi Funaki Philip Secrett
LCF Edmond de Rothschild Grant Thornton Corporate
Securities Finance
T: (44) 20 7845 5960 T: (44) 20 7383 5100
F: (44) 20 7845 5961 Philip.J.Secrett@uk.gt.com
funds@lcfr.co.uk
David Benda / Hugh Jonathan
Numis Securities Limited
T: (44) 20 7260 1000
F: (44) 20 7260 1001
d.benda@numiscorp.com
INVESTOR RELATIONS: MEDIA RELATIONS:
Chong Min Yi Stephanie Barry
PAG PAG
T: (852) 3719 3319 T: (852) 3719 3375
cyi@pagasia.com sbarry@pagasia.com
Notes to Editors:
ARC Capital Holdings Limited ("ARCH") (AIM: ARCH) is a
closed-end investment company with net assets of US$432.5million as
at 31 August 2011. 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 neighbouring 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 ARC Capital Holdings Limited, please
visit: www.arch-fund.com
ARC Capital Holdings Limited is a member of PAG (formerly known
as Pacific Alliance Group), which is one of the region's largest
Asia-focussed alternative investment managers, with funds under
management across Private Equity, Real Estate and Absolute Returns
strategies. Founded in 2002, PAG now has a presence across Asia
with over 270 staff working in the region.
For more information about PAG, please visit:
www.pagasia.com
Chairman's Statement
On behalf of the Board of Directors, I am pleased to present the
interim financial statements of ARC Capital Holdings Limited
("ARCH" or the "Company") and its subsidiaries (collectively, the
"Fund") for the six months ended 30 June 2011.
The first six months of 2011 have been challenging for the
Company and for the global markets in general. The positive
momentum we saw in the global economy in 2010 receded rapidly as
the impact of the sovereign debt crises in the Eurozone and the
United States were felt around the world. In China, the government
continued its efforts to maintain economic growth by expanding
domestic consumption, but at the same time has continually
tightened monetary policy in an effort to curb rising inflation and
overheating asset prices. Volatility in the capital markets caused
public company valuations to decline sharply on both the Chinese
and international bourses.
NAV and Discount
Against the backdrop of this economic climate, ARCH's NAV per
share decreased by 7 per cent from US$1.43, as at 31 December 2010,
to US$1.33, as at 30 June 2011. Together with a 20 per cent
decrease in ARCH's share price from US$1.27 to US$1.01 over the
period, the discount to NAV per share has increased from 11 per
cent to 27 per cent. This result comes despite significant efforts
to contain the discount. The Investment Manager remains committed
to narrowing the discount to NAV per share.
Key Events
In the first half of 2011, ARCH welcomed Ms. Helen Siu Ming Wong
as its third Independent Non-Executive Director of the Board. Ms.
Wong, who joined the Board on 30 May 2011, brings over 25 years of
financial and operational experience gained in the United States
and Asia, and is already making a valuable contribution to the
Company.
In addition to the appointment of Ms. Wong, the Company has
sought to further enhance its fund management capabilities The
Investment Manager has redeveloped and improved the investment
review process to follow best practices. Administrative processes
have also been enhanced following a review of internal procedures
and the Company's administrator, Sanne Trust Company Limited has
recently received a clean SAS 70 report from KPMG in Jersey on
their listed funds desk which specifically covers the ARCH NAV
calculation and sign-off process.
To strengthen shareholder relationships and coverage, Numis
Securities Limited was appointed as joint broker to work alongside
LCF Edmond de Rothschild Securities Limited.
ARCH was involved in a number of transactions during the period,
most notably its participation in the consortium that acquired the
free floating shares of Funtalk China Holdings which was initiated
on 25 March 2011. This transaction, which was completed on 25
August 2011, converted Funtalk into a privately held company, with
its shares scheduled to be delisted from the NASDAQ Global Market.
ARCH remains a substantial shareholder in Funtalk and has not
acquired or disposed of any of its interest in Funtalk as a result
of the transaction.
As announced on 5 July 2011, ARCH made its entry into the China
pharmaceutical market with a minority investment in Buchang
Pharmaceutical Group. This marks the first new investment for ARCH
since the revision of its distribution and re-investment policy and
a new industry sector which the Company sees as having significant
future potential for attractive investment returns.
Further details on all of ARCH's investment activities during
the period are provided in the Investment Manager's Report.
Valuation
Valuations of all ARCH investments are reviewed and approved by
the Valuation Committee following consideration of quarterly
independent valuation reports produced by one of the "Big Four"
international accountancy firms. The valuations are prepared in
accordance with US GAAP and US private equity valuation guidelines
and are based on the 30 June 2011 financials of the investee
companies held in the portfolio.
Unlisted portfolio investments, where appropriate, are valued
using the median of earnings multiples of listed comparables, while
applying liquidity discounts to the listed companies. The selected
comparables include both Chinese and non-Chinese listed companies.
As a result, recent movements in the public markets were factored
into the valuations of individual investments and are reflected in
the NAV. In determining the fair value of a portfolio investment,
other events which may provide a reasonable indication of value,
such as the price of recent transactions involving the investee
company or similar assets, are also considered.
Closing Remarks
Despite a difficult global investment environment, ARCH has
continued to build a strong pipeline of attractive investment
opportunities highly correlated to China's domestic consumption
growth. The Company has a solid strategy and continues to
strengthen its fund management capabilities. The Board is confident
that ARCH is well positioned to exploit new opportunities and
investments to further enhance its performance.
As always, I would like to acknowledge the ongoing hard work and
dedication of the Investment Manager's team, and extend my sincere
gratitude to our shareholders for their continued support.
Michael Guy Hilliard Heald
Chairman
30 September 2011
Investment Manager's Report
Changing global economic conditions and volatility in the
capital markets dominated the first six months of 2011 and largely
dictated the Fund's performance to 30 June 2011. Despite what was a
difficult investment environment, the Investment Manager remained
focussed on realising its mature investments, identifying ways in
which existing portfolio companies could be positioned for future
growth and evaluating new investment opportunities.
Investment Environment and the ARCH Strategy
While the global markets are expected to continue their downward
trend well into the second half of 2011, ARCH sees continuing
opportunities in the Chinese economy despite the country's
tightening monetary policy and rising inflation. The Investment
Manager remains optimistic about the growth potential in a range of
sectors that are expected to benefit from the continued growth in
domestic consumption, rapid urbanisation rates, the ongoing
emergence of a Chinese middle class, improvements in the standard
of living and increased disposable income in China. The Investment
Manager believes that certain industries and categories such as
food & beverage, lifestyle, healthcare and logistics are poised
to benefit from China's continued growth. Hence, ARCH will focus on
these sectors and actively seek attractive new investment
opportunities, as well as maintain its efforts to realise full
value from the existing portfolio to provide returns and
distributions to shareholders.
Portfolio Activities
Following several successful realisations in the 2010 calendar
year, ARCH started to re-invest capital in new opportunities in the
first half of 2011, while at the same time realising more mature
investments and enhancing the value of the existing portfolio.
On 25 March 2011, ARCH joined a consortium of other major
shareholders of Funtalk China Holdings to initiate a proposal to
acquire the company's free floating shares at US$7.20 per share,
valuing Funtalk at approximately US$433 million. After a lengthy
due diligence and evaluation process conducted by the consortium,
Funtalk's shareholders approved the transaction which was completed
on 25 August 2011, turning Funtalk into a privately held
company.
On 31 March 2011, ARCH received an early repayment of its loan
to UCCAL in the form of principal and interest totalling US$1.7
million. The remaining US$3 million of outstanding principal on the
loan is expected to be repaid in instalments by the end of 2012.
ARCH originally invested US$10.8 million in UCCAL in 2006. A
portion of the investment was later converted into a loan after
ARCH exercised its option to recover its equity investment. The
initial investment amount is expected to be recovered in full plus
a small interest payment.
On 11 April 2011, ARCH completed the sale of its entire
remaining stake in Hainan Airport for a total consideration of
US$50.7 million. This transaction followed ARCH's initial sale
which was completed in February 2010. In total, ARCH received
US$96.0 million which represents a 1.4x gross cash multiple on its
investment.
As part of the transaction, the special purpose vehicle holding
the investment in Hainan Airport, of which ARCH has a significant
minority stake, was granted certain options to purchase shares in
Hainan Meilan International Airport Company Limited (0357 HK).
These options are exercisable subject to a number of conditions and
may provide further upside to ARCH's initial investment.
On 5 July 2011, ARCH announced a US$13 million investment for a
minority interest in Buchang Pharmaceutical Group, a leading
non-state owned Chinese pharmaceutical company and the largest
traditional Chinese medicine company by net profit in 2009. ARCH
believes China's pharmaceutical market is poised for significant
growth given the low expenditure as a percentage of GDP compared to
other countries, China's largely ageing population and rising
disposable income, favourable government policies and broadening
insurance coverage promoted by regulators, and a rapidly growing
number of hospitals and pharmacies supported by government
spending.
Orient Home continues its struggle to maintain profitability in
an unfavourable environment restricted by austerity measures and
stringent credit tightening by the government designed to cool down
residential property prices, resulting in slowing growth in the
home improvement sector. Under ARCH's management, the fundamental
operations of the company were successfully upgraded. However, high
financing costs for working capital loans and a lack of funding
options limited the company's purchasing power with suppliers and
halted expansion plans. In the first half of 2011, Orient Home
reported a year on year drop in revenue and net profit of 10% and
102%, respectively.
Subsequent to 30 June 2011, the valuation of Orient Home has
been revised to zero as a result of the recent change in the
liquidity positioning of Chinese banks. ARCH remains committed to
the company's recovery and is currently in discussions with
potential strategic investors regarding exit options. For details,
please refer to note 17(a) of the interim report.
ARCH continues to hold investment deposits to Orient Home's real
estate portfolio totalling US$87.8 million, including a US$74.3
million (or RMB480 million) deposit for securing an investment as
detailed in the announcement dated 16 December 2010. To date the
value of such investment deposits is not deemed to have been
negatively affected by the change in the liquidity positioning of
Chinese banks.
Variance between the published NAV per share and Interim
Report
In line with our valuation policy, the Company has revised its
NAV per share as at 30 June 2011 to US$1.33, a US$0.05 per share
reduction on the NAV previously released for the same period on 15
July 2011. The revision comes following the release of an
independent valuation report which became available subsequent to
our initial announcement which led to adjustments in the valuation
of a number of unlisted investments. The NAV published in this
Interim Report reflects the most accurate valuation for the
portfolio as at 30 June 2011.
Tender Offer and Share Buyback Programme
ARCH completed its first distribution to shareholders on 4
January 2011, following a December 2010 announcement of a tender
offer of up to 10 per cent of ARCH's ordinary shares at US$1.45 per
share, which was the price equal to the unaudited NAV per share as
of 30 November 2010. Shareholders tendered 9.25 per cent of all
outstanding ordinary shares for total consideration of
approximately US$57.7 million.
Up to the date of this report, ARCH deployed approximately
US$7.0 million to repurchase 7.1 million shares in a series of
transactions, representing approximately 1.7 per cent of ARCH's
ordinary shares, at an average cost of US$0.98 per share. Details
of the transactions are set out in note 17.
Conclusion
Just after period end, the global markets experienced
substantial volatility which saw share prices fall across equity
markets. The resulting decline in share price of a number of ARCH's
investee companies, such as Huiyan and Goodbaby which fell by 60%
and 48% respectively between 30 June 2011 and 30 September 2011,
has had a negative impact on the net asset value of ARCH. The
latest month end share prices of these investments are reflected in
the NAV released monthly according to ARCH's valuation policy.
Despite the continuing uncertainty in the global economy and
volatility in world capital markets, China has maintained its
growth momentum, largely due to government policies to stimulate
domestic consumer demand. With the consumer and retail sectors at
the core of ARCH's strategy, the Investment Manager is confident of
its ability to continue to identify attractive opportunities and
capitalise on its experience to provide value to its investee
companies and most importantly its shareholders.
ARC Capital Partners Limited
Investment Manager
30 September 2011
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
FOR THE PERIOD ENDED 30 JUNE 2011
30 June 31 December
2011 2010
Note US$ (unaudited) US$ (audited)
------------------------------------ ------ ---------------- --------------
Assets
Investments, at fair value
(Cost: 30 June 2011: US$
334,418,020;
31 December 2010: US$ 375,747,550) 3 321,694,353 433,606,189
Investment deposits 9 100,843,852 86,302,540
Other assets 41,496,441 24,723,051
Cash and cash equivalents 10 82,388,801 116,523,731
Fixed deposit-pledged 10 - 21,664,369
------------------------------------ ------ ---------------- --------------
Total assets 546,423,447 682,819,880
------------------------------------ ------ ---------------- --------------
Liabilities
Borrowings 11(a) - 20,000,000
Deferred tax 7 12,265,733 12,225,952
Tax payable 7 907,153 19,584,845
Other payables and accruals 8 13,146,567 17,054,563
------------------------------------ ------ ---------------- --------------
Total liabilities 26,319,453 68,865,360
------------------------------------ ------ ---------------- --------------
Net assets 520,103,994 613,954,520
------------------------------------ ------ ---------------- --------------
Shareholders' equity
Share capital 12 4,295,334 4,295,334
Share premium 12 529,989,036 529,989,036
Treasury shares 12 (57,675,579) -
Retained earnings 38,484,798 77,717,123
Foreign currency translation
reserve 5,010,405 1,953,027
------------------------------------ ------ ---------------- --------------
520,103,994 613,954,520
------------------------------------ ------ ---------------- --------------
Net asset value per share 16(a) 1.33 1.43
------------------------------------ ------ ---------------- --------------
Approved by the Board of Directors on 30 September 2011.
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED SCHEDULE OF INVESTMENTS
FOR THE PERIOD ENDED 30 JUNE 2011
30 June 2011 31 December 2010
% of
Cost Fair value net Cost Fair value % of net
Investment Instrument US$ US$ assets US$ US$ assets
---------------- ------------ ------------ ------------ ------- ------------ ------------ ---------
Mobile phone
retail, China
Funtalk China
Holdings Ltd
(formerly Pypo
Digital Common
Company Stocks and
Limited) Warrants 90,000,044 103,757,186 19.95% 90,000,044 101,051,037 16.46%
---------------- ------------ ------------ ------------ ------- ------------ ------------ ---------
Child products,
China
Common
Goodbaby Group Stocks 17,559,932 70,285,646 13.51% 17,559,932 99,865,960 16.27%
Goodbaby Group Loan - - - 4,500,000 6,787,250 1.11%
---------------- ------------ ------------ ------------ ------- ------------ ------------ ---------
Fashion retail,
China
UCCAL Holdings
Ltd. Loans 3,000,000 3,134,028 0.60% 4,335,162 4,785,537 0.78%
---------------- ------------ ------------ ------------ ------- ------------ ------------ ---------
Airport, China
HNA Airport
Holding
(Group)
Company Common
Limited Stocks - - - 35,494,368 50,750,000 8.27%
Hainan Meilan
International
Airport
Company
Limited # Option - 4,188,368 0.81% - - -
---------------- ------------ ------------ ------------ ------- ------------ ------------ ---------
Home appliance
retail, China
Huiyin
Household
Appliances
(Holdings) Common
Co., Ltd. Stocks 42,302,055 40,061,372 7.70% 42,302,055 51,278,928 8.35%
---------------- ------------ ------------ ------------ ------- ------------ ------------ ---------
Home decoration
retail, China
Orient Home
Decoration &
Building
Materials Co.,
Ltd. ("Orient Common
Home") Stocks 91,382,477 26,000,000 5.00% 91,382,477 41,900,000 6.82%
Orient Home -
Bridging Loan Loan 7,373,000 3,867,753 0.74% 7,373,000 3,787,477 0.62%
---------------- ------------ ------------ ------------ ------- ------------ ------------ ---------
Dairy, China
Ningxia Xiajin
Dairy Co., Common
Ltd. Stocks 18,130,000 26,000,000 5.00% 18,130,000 22,800,000 3.71%
---------------- ------------ ------------ ------------ ------- ------------ ------------ ---------
Education,
China
Beijing Science
Technology
Management Common
College Stocks 21,863,663 11,800,000 2.27% 21,863,663 12,400,000 2.02%
Shaanxi Da De
Education
(formerly Xian Common
University) Stocks 42,806,849 32,600,000 6.27% 42,806,849 38,200,000 6.22%
---------------- ------------ ------------ ------------ ------- ------------ ------------ ---------
Total 334,418,020 321,694,353 61.85% 375,747,550 433,606,189 70.63%
------------------------------ ------------ ------------ ------- ------------ ------------ ---------
# The SPV holding the investment in HNA Airport Holdings (Group)
Company Limited ("HNA"), of which the Fund has a significant
minority stake, was granted certain options to purchase shares of
Hainan Meilan International Airport Company Limited (0357 HK), as
part of the consideration for the sale of HNA.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED 30 JUNE 2011
6 months 6 months
ended 30 June ended 30 June
2011 2010
Note US$ (unaudited) US$ (unaudited)
---------------------------------- ------ ---------------- ----------------
Investment income
Interest and sundry income 3,851,056 38,515
Dividend income 1,456,598 796,284
Total investment income 5,307,654 834,799
---------------------------------- ------ ---------------- ----------------
Expenses
Investment management fee 4 5,763,945 5,764,696
Performance fee 5 - -
Administration, custodian and
registrar fee 215,739 197,998
Professional fees 423,833 1,164,722
Directors' fees 6 53,973 54,167
Finance costs 11(b) 216,203 8,664,691
Other expenses 582,574 521,061
Total expenses 7,256,267 16,367,335
---------------------------------- ------ ---------------- ----------------
Net investment loss before income
tax expense (1,948,613) (15,532,536)
---------------------------------- ------ ---------------- ----------------
Income tax expense 7 (1,062,307) 9,523,642
Net investment loss (886,306) (25,056,178)
---------------------------------- ------ ---------------- ----------------
Net (loss)/gain on investments,
properties and foreign
currencies
Net realised gain on investments 18,043,481 10,462,197
Net unrealised (loss)/gain on
investments (56,865,078) 13,530,022
Net realised gain on properties 1,035,868 -
Net unrealised loss on properties (583,448) -
Net realised and unrealised gain
on foreign currencies 23,158 31,447
Net (loss)/gain on investments,
properties and foreign
currencies (38,346,019) 24,023,666
---------------------------------- ------ ---------------- ----------------
Net decrease in net assets from
operations (39,232,325) (1,032,512)
---------------------------------- ------ ---------------- ----------------
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED 30 JUNE 2011
Retained Foreign
earnings/ currency
Share Share Treasury (accumulated translation
capital premium shares losses) reserve Total
US$ US$ US$ US$ US$ US$
At 1 January
2010 4,295,334 529,989,036 - 49,410,990 1,228,251 584,923,611
------------- ---------- ------------ ------------- ------------- ------------ -------------
Net
investment
loss - - - (25,056,178) - (25,056,178)
Net realised
gain on
investments - - - 10,462,197 - 10,462,197
Net
unrealised
gain on
investments - - - 13,530,022 - 13,530,022
Net realised
and
unrealised
gain on
foreign
currencies - - - 31,447 - 31,447
Foreign
currencies
translation
difference - - - - (150,039) (150,039)
------------- ---------- ------------ ------------- ------------- ------------ -------------
At 30 June
2010 4,295,334 529,989,036 - 48,378,478 1,078,212 583,741,060
------------- ---------- ------------ ------------- ------------- ------------ -------------
At 1 January
2011 4,295,334 529,989,036 - 77,717,123 1,953,027 613,954,520
Repurchase
of shares - - (57,675,579) - - (57,675,579)
Net
investment
loss - - - (886,306) - (886,306)
Net realised
gain on
investments - - - 18,043,481 - 18,043,481
Net
unrealised
loss on
investments - - - (56,865,078) - (56,865,078)
Net realised
and
unrealised
gain on
foreign
currencies - - - 23,158 - 23,158
Net realised
gain on
properties - - - 1,035,868 - 1,035,868
Net
unrealised
loss on
properties - - - (583,448) - (583,448)
Foreign
currencies
translation
difference - - - - 3,057,378 3,057,378
------------- ---------- ------------ ------------- ------------- ------------ -------------
At 30 June
2011 4,295,334 529,989,036 (57,675,579) 38,484,798 5,010,405 520,103,994
------------- ---------- ------------ ------------- ------------- ------------ -------------
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 JUNE 2011
6 months ended 6 months ended
30 June 30 June
2011 2010
Note US$ (unaudited) US$ (unaudited)
Cash flows from operating
activities
Net decrease in net assets from
operations (39,232,325) (1,032,512)
Adjustments to reconcile net
decrease
in net assets from operation to
net cash
provided by operating activities:
Net change in realised and
unrealised loss/(gain) from
investments 38,821,597 (24,724,997)
Proceeds from sale of investments 59,373,010 53,891,823
Increase in investment deposits (14,541,312) -
Increase in other assets (3,056,161) (651,699)
Decrease in fixed
deposits-pledged 21,664,369 -
Decrease in investment management
fee payable - (6,546,401)
Increase in deferred tax
liabilities 39,781 9,523,643
Decrease in tax payable (18,677,692) -
(Decrease)/increase in other
payable and accruals (3,907,996) 6,363,371
Net cash provided by operating
activities 40,483,271 36,823,228
Cash flows from financing
activities
Proceeds from borrowing 11(a) - 501,217
Repayment of borrowing 11(a) (20,000,000)
Repurchase of shares 12 (57,675,579) -
Net cash (used in)/provided by
financing activities (77,675,579) 501,217
Effect on foreign currency
translation 3,057,378 (150,039)
Net (decrease)/increase in cash
and cash and cash equivalents (34,134,930) 37,174,406
Cash and cash equivalents at
beginning of period 116,523,731 5,817,051
Cash and cash equivalents at end
of period 10 82,388,801 42,991,457
Supplemental cash flow
information - Interest paid (216,203) (6,498,012)
Supplemental cash flow (412,236) -
information - Tax paid
The accompanying notes are an integral part of these
consolidated financial statements.
Notes to the Consolidated Financial Statements
1 General
(a) Organisation
ARC Capital Holdings Limited (the "Company") was incorporated
with limited liability in the Cayman Islands as an exempted company
under the Companies Law on 27 July 2005. On 4 April 2006, the
Company changed its name from Asia Retail Consumer Holdings Limited
to ARC Capital Holdings Limited.
The Company is a close-ended investment company trading on the
AIM Market of 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 of Directors, the day-to-day acquisition and disposal of
investments in accordance with the Company's investment objective
and policies.
(b) Investment policy
(i) Geographical focus
At least 70 per cent of the Company's gross assets will be
invested in China. Up to a maximum of 30 per cent of the Company's
gross assets may also be invested in Greater China and other
countries in Asia, should the Board consider that such investments
offer potentially attractive returns. Any investment made in
countries outside of Greater China must be approved by the
Board.
(ii) Company focus
The Company targets (i) late stage companies with growth, back
up or performance enhancement potential; and (ii) expansion stage
companies with proven management and significant growth
potential.
(iii) Sector focus
The Company invests primarily in listed and unlisted companies
engaged in retailing, providing services that support the retail
industry (such as consumer finance, distribution and logistics),
manufacturing or distributing consumer products or services,
developing or managing property with a focus on retailing, and
other retail and consumer-related firms.
(iv) Investment vehicle
The Company makes its investments either directly or through
investee companies which are special purpose vehicles established
specifically for each investment or by way of co-investment with
other reputable investors. The Company may also invest in other
funds which themselves invest in the same target regions and
sectors as the Company.
(v) Control of investments
The Company seeks to own a controlling interest in its
investments by owning a direct or indirect controlling
participating interest in the investments. In the event the Company
holds a minority interest in an investee company, it seeks to
secure structured exit alternative and adequate minority protection
rights.
(vi) Realisation of investments
The Company aims to realise individual investments within two to
five years of investment when the Board, with the advice of the
Investment Manager and the Investment Committee, believes the
realisation would be in the best interests of the Company and
fulfil its investment objective. The Company intends to effect
exits through trade sales to institutional and private investors,
recapitalisations and initial public offerings.
(vii) Investment size
The Investment Manager aims to achieve a balance in the
Company's exposure to different sectors. Furthermore, no single
investment may at the time of investment exceed 20 per cent of the
Company's NAV.
(viii) Collective investment schemes and cross-holdings
The Company may invest not more than 20 per cent of the gross
asset value of the Company in units or shares in collective
investment schemes, in other listed close-ended investment funds or
in other managed investment companies, including those managed,
operated or advised by the Investment Manager or an associate.
(ix) Leverage
The Investment Manager may use leverage to enhance returns on
individual investments provided any leverage or guarantee at the
Company level is approved by the Board in advance and provided that
such leverage is on a non-recourse basis to the Company.
(x) Distribution policy
Pursuant to the announcement made on 1 December 2010, the Board
has authorised the Investment Manager to utilise undistributed cash
corresponding to the returned principal of each investment (or in
the case of realisation at less than cost, the proceeds received)
for reinvestment. Subject to retaining sufficient cash to meet
operating costs, liabilities and contractual follow-on investment
commitments, the Board intends to direct the Company to distribute
substantially all income and net profits generated from the
realisations of each investment in an effort to continue to
minimise any share price discount to NAV. Such distributions may be
effected through additional tender offers, share buy-backs or other
methods of returning capital, as determined by the Board from time
to time.
2 Summary of significant accounting policies
These consolidated financial statements of the Company and its
subsidiaries (collectively, the "Fund") are prepared in accordance
with accounting principles generally accepted in the United States
of America ("US GAAP"), which includes the application of the
provision of the AICPA Audit and Accounting Guide for Investment
Companies (the "Guide"). The following are the significant
accounting policies adopted in the preparation of these financial
statements.
(a) Use of estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the data of the consolidated financial statements and the reported
amounts of revenues and expense during the reporting period. Actual
results could differ from those estimates.
(b) Principles of consolidation
These consolidated financial statements include the financial
statements of the Company and its special purpose vehicles. Special
purpose vehicles ("SPVs") are consolidated from the date on which
control is transferred to the Fund and are 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 of realising a
gain upon disposal rather than provide services to the Company.
Inter-company transactions and balances have been eliminated in
consolidation.
The Fund uses SPVs to hold and transact in certain investments.
The Fund's policy is to consolidate, as appropriate, those entities
in which the Group has control over significant operating,
financial or investing decisions of the entity.
(c) Investments
(i) Recognition, derecognition and measurement
Regular purchase and sale of investments are accounted for on
the trade day, which is the day 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.
Transfer of investments is accounted for as a sale when the Fund
has relinquished control over the transferred assets. Any realised
gains or losses from investments are recognised 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 unrealised gains
and losses resulting from changes in fair value recognised in the
consolidated statement of operations.
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 Board of Directors.
The Valuation Committee uses its best judgement in estimating
fair value. In determining the fair value, the Valuation Committee
engages third party valuation agents to assist in the selection of
valuation techniques and models. However, there are inherent
limitations in any valuation technique due to the lack of
observable inputs. Estimated fair values may differ significantly
from the values that would have been used had a ready market
existed for the securities, and the differences could be material
to the financial statements. Additional information about the level
of market observability associated with investment carried at fair
value is disclosed in Note 3.
(d) Fair value hierarchy
Generally accepted accounting principles establish a fair value
hierarchy that prioritises 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 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 categorisation of an asset or 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.
Securities traded on a securities exchange are stated at the
last reported sales price on the day of valuation. To the extent
these securities are actively traded and valuation adjustments are
not applied, they are categorised in Level 1 of the fair value
hierarchy. Preferred stock and other equities traded on inactive
markets or valued by reference to similar instruments are
categorised in Level 2.
Restricted securities for which quotations are not readily
available are valued at fair value as determined by the Valuation
Committee. Restricted securities issued by publicly traded
companies are generally valued at a discount to similar publicly
traded securities. Depending on the relative significance of
valuation inputs, these instruments may be classified in either
Level 2 or Level 3 in the fair value hierarchy.
Investments are classified within Level 3 of the fair value
hierarchy if they are traded infrequently and therefore have little
or no price transparency. Such assets and liabilities include
unlisted equities and convertible bonds. 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 utilised by the Valuation Committee include
but are 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 the best indication 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 more appropriate method is determined.
(e) 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.
(f) Income and expenses
Dividend income is recognised on the ex-dividend date with the
corresponding foreign withholding taxes recorded as an expense.
Withholding taxes on dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules
and rates.
Interest income and all expenses are accounted for on an
accruals basis. Offering costs are charged to the Company's share
premium account upon the issuance of shares.
(g) Foreign currency translation
Assets and liabilities denominated in foreign currencies are
translated into US$ at the rates of exchange ruling at the
reporting date. Income and expenses denominated in foreign
currencies during the year 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 Fund does not isolate that portion of the results of
operations resulting from changes in foreign currency exchange
rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included
with the net realised and unrealised gain or loss from
investments.
Net realised foreign exchange gains or losses arise from sales
of foreign currencies, currency gains or losses realised between
the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books, and the US$
equivalent of the amounts actually received or paid. Net realised
foreign exchange gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in
securities at fiscal period end, resulting from changes in exchange
rates.
If a subsidiary's functional currency is a foreign currency,
translation adjustments result from the process of translating that
entity's financial statements into the reporting currency.
Translation adjustments shall not be included in determining net
income but shall be reported separately and accumulated in a
separate component of equity.
(h) Income taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognised for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognised in
the consolidated statement of operations in the period that
includes the enactment date.
The Fund has adopted the authoritative guidance contained in
FASB ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which requires management to determine whether a tax
position of the Fund is more likely than not to be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. For tax positions meeting the more likely than not
threshold, the tax amount recognised in the financial statements is
reduced by the largest benefit that has a greater than 50 per cent
likelihood of being realised upon ultimate settlement with the
relevant taxing authority.
3 Securities valuation
The following table summarises the inputs used to value the
Fund's investments as of 30 June 2011 and as of 31 December
2010.
30 June 31 December
2011 2010
US$ US$
Level 1 143,818,557 -
Level 2 64,491,963 246,402,241
Level 3 113,383,833 187,203,948
Total investments 321,694,353 433,606,189
------------------- ------------ ------------
The following is a reconciliation of investments for which Level
3 inputs were used in determining fair value:
30 June 31 December
2011 2010
US$ US$
Balance as at beginning of
period/year 187,203,948 499,820,697
--------------------------------------- ------------- --------------
Cost of purchases - 17,118,326
Proceeds from sales (59,373,010) (236,382,917)
Net unrealised loss on investments (32,490,586) (100,685,779)
Realised gain on sale of investments 18,043,481 88,113,553
Transfer out of Level 3 - (80,779,932)
Balance as at end of period/year 113,383,833 187,203,948
--------------------------------------- ------------- --------------
Net unrealised loss on investment
before tax included in consolidated
statement of operations attributable
to Level 3 investments still
held as at 30 June 2011 and
31 December 2010 (14,808,994) (50,928,015)
--------------------------------------- ------------- --------------
During the period, investments with an aggregate carrying amount
of US$143,818,557 were transferred from Level 2 to Level 1 as they
were listed on stock exchanges. The investments were valued based
on their quoted prices from the stock exchanges as at 30 June 2011
upon expiry of the applicable lock-up period.
4 Investment management fee
The Investment Manager is entitled to receive an investment
management fee at two per cent per annum of the Fund's net asset
value ("NAV") calculated at the beginning of each quarter based on
the average month end NAV of the Fund of the previous quarter and
payable in arrears.
For the period ended 30 June 2011, the Fund incurred an
investment management fee of US$5,763,945 (for the period to 30
June 2010: US$5,764,696), of which none was payable as at 30 June
2011 (none as of 31 December 2010).
5 Performance fee
In accordance with paragraph 4.1 of Part 3 of the Investment
Management Agreement entered into between the Company and the
Investment Manager dated 20 June 2006 and amended by Addendum dated
2 January 2008 and 1 April 2009 (collectively, the "Investment
Management Agreement"), the Investment Manager shall be entitled to
a performance fee provided that the NAV of the Fund as at year end
is greater than (i) the NAV of the Fund as at latest year end on
which a performance fee was charged ("High Water Mark"), and (ii)
the NAV on admission of the Company to trading on AIM ("NAV on
Admission") increased by a compounded annual hurdle rate of eight
per cent (the "Hurdle").
Paragraph 4.2 of Part 3 of the Investment Management Agreement
states that the performance fee shall be calculated and paid as
follows:
- zero per cent if the NAV as at year end is at or below the
Hurdle;
- 100 per cent of the relevant increase in the NAV as at year
end above the Hurdle but below the NAV on Admission increased by a
compounded annual rate of 10 per cent (the "Catch-up"); and
- 20 per cent of the relevant increase in the NAV as at year end
above the Catch-up.
The performance fee shall be calculated in US$ and paid (i) 50
per cent in the Company's ordinary shares, and (ii) 50 per cent in
cash. For the period ended 30 June 2011, the Fund incurred no
performance fees (period to 30 June 2010: US$ Nil).
In addition, any performance fee earned by the Investment
Manager can only be paid from realised profits on sale of
investments. The Investment Manager shall forfeit unconditionally
any accrued performance fee that cannot be paid due to the lack of
sufficientrealisedprofits following therealisationof the last
remaining investment.
6 Directors' fees and remuneration
The Company pays each of its directors an annual fee of
US$50,000. During the period, two directors of the Company,
including Allan Hui Liu and Christopher Marcus Gradel, have agreed
to waive their annual fees for so long as they have an equity
interest in the Investment Manager.
7 Current and deferred income taxes
(a) No provision for Cayman Islands taxes are provided as the
Company is not currently subject to income taxes in the Cayman
Islands in which it operates. The Company has obtained an
undertaking from the Governor in Cabinet of the Cayman Islands that
for a period of 20 years from 9 August 2005 that:
- no law which is thereafter enacted in the Cayman Islands
imposing any tax to be levied on profits, income, capital gains or
appreciations shall apply to the Company or its operations; and
- no aforesaid tax or withholding tax, nor estate duty or
inheritance tax shall be payable on or in respect of the share
debentures or other obligations of the Company.
(b) The Fund may be subject to taxes imposed in other countries
in which it invests. Such taxes are generally based on income
and/or gains generated. Dividend and interest income received by
the Group may be subject to withholding tax imposed in the country
of origin. This income is recorded gross of such taxes and the
withholding tax, if any, is recognised separately in the
consolidated statement of operations.
The directors have reviewed the structure of the Fund's
investment portfolio and considered the Fund's exposure to Hong
Kong and China profits tax has been properly reflected in the
Fund's consolidated financial statements.
8 Other payables and accruals
At 30 June 2011 and 31 December 2010, other payables and
accruals were as follows:
30 June 31 December
2011 2010
US$ US$
Payable for an investment 11,391,326 11,391,326
Other creditors 1,755,241 5,693,237
Total other payables and accruals 13,146,567 17,054,563
----------------------------------- ----------- ------------
The payable for an investment represents the remaining
consideration to be paid to the vendor of Orient Home in line with
the Fund's acquisition of Orient Home in 2007. The Fund is also
committed to providing additional equity capital into Orient Home
as detailed in note 15.
9 Investment deposits
The Fund placed investment deposits of US$100,843,852 (31
December 2010: US$86,302,540) to secure its exclusivity to the
right of investments in the ordinary course of the Fund's
investment activities.
10 Cash and cash equivalents and fixed deposit - pledged
Cash and cash equivalents at 30 June 2011 and 31 December 2010
consisted of:
30 June 31 December
2011 2010
US$ US$
US$ 49,982,593 91,125,087
RMB 32,399,806 25,392,304
HK$ ______6,402 ______6,340
82,388,801 116,523,731
========== ==========
Fixed deposit - pledged at 30 June 2011 and 31 December 2010
consisted of:
30 June 31 December
2011 2010
US$ US$
RMB - 21,664,369
========== ==========
11 Borrowings and finance costs
(a) Borrowings
As at 30 June 2011 and 31 December 2010, borrowings were
repayable as follows:
30 June 31 December
2011 2010
US$ US$
Within one year - 20,000,000
========== ==========
In May 2011, bank loan of US$20 million as at 31 December 2010
was fully repaid.
(b) Finance costs
The finance costs include interest expenses, loan arrangement
fees and refinancing costs.
12 Share capital, share premium and treasury shares
30 June 2011 31 December 2010
No. of shares Amount No. of shares Amount
US$ US$
Authorised:
Ordinary shares
at
US$0.01each 500,000,000 5,000,000 500,000,000 5,000,000
========== ========== ========== ==========
Issued and fully
paid:
Ordinary shares
at
US$0.01each 429,533,424 4,295,334 429,533,424 4,295,334
========== ========== ========== ==========
Number of Share Treasury
shares outstanding capital Share premium shares Total
US$ US$ US$ US$
As at 1
January
2010 429,533,424 4,295,334 529,989,036 - 534,284,370
Repurchase
of shares - - - - -
-------------------- -------------------- -------------------- -------------------- --------------------
As at 31
December
2010 429,533,424 4,295,334 529,989,036 - 534,284,370
Repurchase
of shares (39,776,261) - - (57,675,579) (57,675,579)
-------------------- -------------------- -------------------- -------------------- --------------------
As at 30
June 2011 389,757,163 4,295,334 529,989,036 (57,675,579) 476,608,791
========== ========== ========== ========== ==========
13 Concentration of market, industry, credit, foreign exchange
and liquidity 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, foreign exchange risk and liquidity 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 all 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 any of
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 be concentrated in a particular
industry or sector and performance of the 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, can be 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, investment deposits and receivables.
The maximum credit risk exposure of these items is their
carrying value.
(d) Currency risk
The Fund has assets and liabilities denominated in currencies
other than the US$, the functional currency. The Fund is therefore
exposed to currency risk as the value of assets and liabilities
denominated in other currencies will fluctuate due to changes in
exchange rates.
The table below summarises the Fund's net exposure to each
currency as at 30 June 2011 and 31 December 2010.
30 June 31 December
2011 2010
US$ US$
RMB 157,712,213 156,199,240
HK$ 104,559,735 145,357,544
262,271,948 301,556,784
========== ==========
(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 of short term maturity. The Fund's borrowings are secured by
fixed deposits. 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) Certain directors of the Company are shareholders and
directors of the Investment Manager, which provides investment
management service to the Company and earns an investment
management fee (see note 4) and a performance fee (see note 5).
(b) As at 30 June 2011, the Investment Manager and its
subsidiary held 3,504,080 ordinary shares of the Company (as at 31
December 2010: 3,504,080).
15 Commitment and contingency
As at 30 June 2011, the Fund is legally committed to funding
additional capital to existing investees detailed as follows:
30 June 31 December
2011 2010
US$ US$
Orient Home 49,130,000 49,130,000
49,130,000 49,130,000
=========== ===========
As well as US$49.1 million commitment made to Orient Home, the
Fund also has a US$11.4 million remaining consideration to be paid
to the vendor of Orient Home as a result of the acquisition of
Orient Home first made in 2007. For details, please refer to note
8.
16 Financial highlights
(a) Per share operating performance
6 months ended 6 months ended
30 June 30 June
2011 2010
US$ US$
Net asset value
per share, at
start of
period 1.43 1.36
------------------------- -------------------------
Income from
Investment
operations:
Net investment
loss 0.00 (0.06)
Net realised
and unrealised
gain/(loss) on
investments
and foreign
currencies (0.10) 0.06
---------------------------- ----------------------------
Total from
investment
operations (0.10) -
------------------------- -------------------------
Net asset value
per share at
end of period 1.33 1.36
============== ==============
(b) Ratios to average net assets and other supplemental
information
6 months ended 6 months ended
30 June 30 June
2011 2010
US$ US$
Ratio of net investment profit
to average net assets (annualised) (0.3%) (5.4%)
============= =============
Ratio of expenses to average
net assets
Operating expenses before performance
fee (2.7%) (5.7%)
Performance fee - -
Total expenses (2.7%) (5.7%)
============= =============
Cumulative internal rate of return
("IRR") since inception through
the period end 1.9% 2.8%
============= =============
(1) Both ratios are presented on an annualised basis with the
exception of one-time costs.
(2) The IRR is computed net of all incentives based on the
Fund's actual dates of the cash inflows (capital contributions),
outflows (cash and stock distributions) and the NAV at the end of
the period (residual value) as of each measurement date.
17 Subsequent events
(a) During the period, ARCH made a RMB 100 million loan to one
of its investee companies, Orient Home, which was repaid prior to
the period end. On 4 July 2011, ARCH provided a second short term
loan of RMB 100 million to Orient Home in order to facilitate
Orient Home to extend its credit lines and renew its working
capital loans. The loan carries interest at 1.2% per month and the
maturity date of the loan is 25 November 2011.
The fair value of both the Orient Home equity and debt
investments shown on the balance sheet are based upon independent
valuation and considered by the Valuation Committee to be
representative of the fair value as at 30 June 2011. However,
subsequent to 30 June 2011, a change in the liquidity positioning
of Chinese banks, as a result of the tightening monetary policy
imposed by the government throughout the first half of the year,
will likely have a negative effect on Orient Home's ability to roll
over its bank debts.
Given these circumstances, the Valuation Committee has taken a
conservative approach in valuing both the Orient Home equity and
debt investments at zero as of the date of this report. Had such a
mark down been reflected in the NAV as at 30 June 2011, the NAV
would have declined by 8.7%. The Investment Manager is currently
pursuing a sale of Orient Home and the Fund may potentially recover
some value as a result of the sale, however there is uncertainty as
to when and if this sale will be concluded.
(b) On 5 July 2011, the Company announced that it had invested
US$13 million in cash for a minority interest in Buchang
Pharmaceutical Group, which is included in investment deposits as
at 30 June 2011.
(c) In August 2011, the Company entered into an irrevocable,
nondiscretionary share buy back programme with Numis Securities
Limited, the Company's joint broker, to purchase shares to be held
as treasury shares, through ARCH Share Trading Limited, a
wholly-owned subsidiary of the Company.
This non-discretionary Share Buy Back Programme shall operate
for the duration of the Company's close period from 29 July 2011 to
30 September 2011.
Share buy back details are disclosed as below:
% of the
No. of shares Price Company's
Date purchased per share ordinary shares
01/08/2011 1,500,000 US$ 1.043640 0.35
09/08/2011 1,000,000 US$ 1.013535 0.23
15/08/2011 600,000 US$ 0.993465 0.14
23/08/2011 800,000 US$ 0.973395 0.19
30/08/2011 600,000 US$ 0.968378 0.14
05/09/2011 800,000 US$ 0.958343 0.19
13/09/2011 800,000 US$ 0.953325 0.19
19/09/2011 600,000 US$ 0.938273 0.14
27/09/2011 300,000 US$ 0.857565 0.07
29/09/2011 135,500 US$ 0.852975 0.03
Following the repurchases, the Company has a total of
429,533,424 ordinary shares in issue, of which 46,911,761 are held
to effectively replicate a treasury share facility by ARCH Share
Trading Limited.
(d) On 25 August 2011, one of the Company's investees companies,
Funtalk China Holdings Limited ("Funtalk") announced that it had
completed the "going-private" transaction following the
extraordinary general meeting of shareholders held on 22 August
2011. As a result, Funtalk has become a privately held company and
its ordinary shares have been delisted from the NASDAQ Global
Market. The Company remains a substantial shareholder of Funtalk
and has not acquired or disposed of any of its interest in Funtalk
as part of the going private transaction.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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