TIDMPACL
RNS Number : 1573L
Pacific Alliance China Land Limited
28 April 2020
28 April 2020
Pacific Alliance China Land Limited
Full year results for the period ended 31 December 2019
Pacific Alliance China Land Limited ("PACL" or the "Company"),
an AIM-traded, closed-end investment company has today announced
its full year audited results to 31 December 2019.
Highlights
-- Net asset value as at 31 December 2019 was US$ 1.78 million,
representing US$ 0.6697 per share, a 7 5.37% decrease from 31
December 2018 (US$2.7192 per share).
-- The Company's shares closed at US$ 0.71 on 31 December 2019,
a 72.48% decrease from 31 December 2018 and a 6.0% premium to the
audited NAV per share.
Company Developments
On 9 April 2020, the Company declared a dividend of US$1.3
million (US$0.49 per share, rounded down to the nearest US$0.01),
which is expected to be distributed on 30 April 2020. The Company
has also sent a circular (the "Circular") and notice of
extraordinary general meeting to be held on 12 May 2020 (the "EGM")
for the purpose of proposing a vote on the cancellation of the
admission of the Company's ordinary shares to trading on AIM (the
"De-Listing"), and the subsequent voluntary liquidation of the
Company (the "Proposal").
The detailed reasons for, and background to, the Proposal are
set out in the Circular. The De-Listing requires the approval of
not less than 75 per cent. of the votes cast by Shareholders at the
EGM. Should the Proposal resolutions be approved by shareholders,
cancellation of the admission to trading on AIM of the Company's
ordinary shares is expected to become effective on 13 May 2020.
Upon liquidation, and after setting aside the liquidation
expenses, any excess cash will be paid to shareholders in a final
distribution or paid to a third-party charity nominated by the
shareholders, as determined by the joint voluntary liquidators.
Patrick Boot, on behalf of, Pacific Alliance Real Estate Limited
commented that:
"We look forward to the completion of the delisting and
liquidation and I would also like to thank the shareholders, on
behalf of the board of directors, for all their support over the
many years."
For further information please contact:
MANAGER: LEGAL COUNSEL:
Patrick Boot Jon Lewis
Pacific Alliance Real Estate PAG
Limited T: (852) 2918 0088
T: (852) 2918 0088 jlewis@pag.com
pboot@pag.com
BROKER: NOMINATED ADVISER:
Gillian Martin Philip Secrett
Liberum Capital Limited Grant Thornton UK LLP
T: (44) 20 3100 2000 T: (44) 20 7383 5100
Gillian.Martin@liberum.com Philip.J.Secrett@uk.gt.com
Notes to Editors:
About Pacific Alliance China Land Limited
Pacific Alliance China Land Limited ("PACL") (AIM: PACL) is a
closed-end investment company admitted to trading on the AIM Market
of the London Stock Exchange in November 2007. PACL is focused on
investing in a portfolio of existing properties, new developments,
distressed projects and real estate companies in Greater China.
For more information about PACL, please visit:
www.pacl-fund.com
Pacific Alliance China Land Limited is managed by a member of
PAG (formerly known as Pacific Alliance Group), the Asian
alternative investment fund management group. Founded in 2002, PAG
is now one of the region's largest Asia-focused alternative
investment managers, with funds under management across Private
Equity, Real Estate and Absolute Return strategies. PAG has a
presence across Asia with over 400 staff working in the region.
For more information about PAG, please visit: www.pag.com
Chairperson's Statement
As of 31 December 2019, the net asset value (NAV) of Pacific
Alliance China Land Limited (the "Fund" or "PACL") was US$1.78
million, or US$0.6697 per share, representing a 75.37% decrease
from 31 December 2018.
Following the sale of its assets, PACL no longer has active
investments. Upon liquidation, and after setting aside the
liquidation expenses, any excess cash will be paid to shareholders
in a final distribution, or paid to a third-party charity nominated
by the shareholders, as determined by the joint voluntary
liquidators.
On behalf of the Board of Directors, I would like to thank you
for your continued commitment and support.
Margaret Brooke
Chairperson
Investment Manager's Report
On 31 December 2019, the Fund's share price closed at US$0.71,
representing a 72.48% decrease from 31 December 2018 and a 6.02%
premium to the NAV per share.
31 December 31 December
2019 2018
US$ US$
Realized gains/(losses) and other
income
Net realized losses (net with tax
expense) (79,208) (5,870,465)
Other income 35,708 -
Deposit interest 110,108 1,916,825
-------------------- --------------------
66,608 (3,953,640)
Change in unrealized gains/(losses)
Derivatives - 3,187,209
Share of losses/(gains) receivable/(payable
to) from PACL II 263,758 (209,795)
Foreign exchange (34,568) (2,247,293)
-------------------- --------------------
229,190 730,121
-------------------- --------------------
295,798 (3,223,519)
Portfolio Summary
As at 31 December 2019, the Company held cash of US$1.96
million.
Investments and Fair value (gross) Type % of total
Cash US$
----------------- -------------------- --------- -----------
Cash 1,960,474 Cash (1) 100%
----------------- -------------------- --------- -----------
TOTAL
----------------- -------------------- --------- -----------
Note
(1) The gross investment value includes an amount attributable to the PACL II shareholders .
Distribution
The proceeds of the capital reduction of the Tianjin WOFE were
distributed as a dividend of US$5 million to shareholders in
September 2019. The Board of Directors has declared a dividend of
US$1.3 million on 9 April 2020, which is expected to be paid on 30
April 2020.
The Manager expects the Fund to be delisted by the end of Q2
2020, after which a liquidator will be appointed to wind up the
Fund. Once the Fund is delisted, and liquidation is completed,
which the Manager expects to take place over the next few months,
any excess cash will be paid to shareholders in a final
distribution as determined by the appointed liquidators.
Conclusion
The Manager is currently formulating a proposal to Shareholders
to commence an orderly wind up of the Fund and cancellation of the
Fund's shares from trading on AIM.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 31 DECEMBER 2019
Note 2019 2018
US$ US$
Assets
Other receivables 5, 9(d&e) 547,393 546,115
Amounts due from PACL II Limited 9(a) 111,623 -
Cash and bank balances 1,960,474 8,035,357
-------------------- --------------------
Total assets 2,619,490 8,581,472
------------------ ------------------
Liabilities
Provision for taxation 7 743,333 743,333
Amounts due to PACL II Limited 9(a) - 152,135
Performance fee payable 8 - 133,162
Management fee payable 8 43,839 315,050
Accrued expenses and other payables 55,638 23,648
-------------------- --------------------
Total liabilities 842,810 1,367,328
------------------ ------------------
Net assets 1,776,680 7,214,144
Analysis of net assets
Share capital 6 26,531 26,531
Retained earnings 1,750,149 7,187,613
-------------------- --------------------
Net assets (equivalent to US $0.6697
per share based on 2,653,078 outstanding
shares; 2018: US $ 2.7192 per share
based on 2,653,078 outstanding shares) 1,776,680 7,214,144
Approved by the Board of Directors
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARED 31 DECEMBER 2019
Note 2019 2018
US$ US$
Income
Other income 35,708 -
Interest income 110,108 1,916,825
------------------ ------------------
Total income 145,816 1,916,825
----------------- -----------------
Expenses
Management fees 8 (109,365) (2,067,143)
Legal and professional fees (163,378) (392,770)
Other expenses (472,732) (380,720)
------------------ ------------------
Total expenses (745,475) (2,840,633)
----------------- -----------------
Net investment loss (599,659) (923,808)
----------------- -----------------
Realized and change in unrealized gains/losses
from investments, derivatives and foreign
currency
Net realized losses from investments,
derivatives and foreign currency transactions 4 (54,000) (3,456,680)
Tax expense (25,208) (2,413,785)
Net change in unrealized (losses)/gains
from investments, derivatives and losses
on translation of assets and liabilities
in foreign currencies (34,568) 939,916
Net decrease/(increase) in amount payable
to PACL II Limited from gains/(losses)
attributable to PACL II Limited 9(a) 263,758 (209,795)
------------------ ------------------
Net realized and change in unrealized
gains/losses from investments, derivatives
and foreign currency 149,982 (5,140,344)
----------------- -----------------
Net decrease in net assets from operations (449,677) (6,064,152)
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARED 31 DECEMBER 2019
Share capital
and share Retained
Note premium earnings Total
US$ US$ US$
At 1 January 2018 573,564 164,704,719 165,278,283
Repurchase of ordinary
shares 6 (547,033) (151,452,954) (151,999,987)
Net decrease in net assets
from operations - (6,064,152) (6,064,152)
-------------------- -------------------- --------------------
At 31 December 2018 and
1 January 2019 26,531 7,187,613 7,214,144
Dividends paid 6 - (4,987,787) (4,987,787)
Net decrease in net assets
from operations - (449,677) (449,677)
-------------------- -------------------- --------------------
At 31 December 2019 26,531 1,750,149 1,776,680
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2019
Note 2019 2018
US$ US$
Net decrease in net assets from operations (449,677) (6,064,152)
Adjustments to reconcile net change
in net assets from operations to net
cash generated from/(used in) operating
activities
Proceeds from settlement of derivatives (54,000) 12,000
Net realized and change in unrealized
gains/(losses) from investments and
derivatives 54,000 269,472
Net (increase)/ decrease in amount
payable to PACL II Limited from gains/(losses)
attributable to PACL II Limited (263,758) 209,795
Change in other receivables (1,278) 619,015
Change in amounts due to PACL II Limited - (1,200,000)
Change in performance fees payable 8 (133,162) -
Change in provision for investment
agency fees - (1,415,585)
Change in provision for taxation - (9,242,791)
Change in management fee payable 8 (271,211) 315,050
Change in accrued expenses and other
payables 31,990 (30,523)
-------------------- --------------------
Net cash used in operating activities (1,087,096) (16,527,719)
------------------ ------------------
Cash flows from financing activities
Repurchase of shares 6 - (151,999,987)
Dividends paid 6 (4,987,787) -
-------------------- --------------------
Net cash used in financing activities (4,987,787) (151,999,987)
------------------ ------------------
Net decrease in cash and cash equivalents (6,074,883) (168,527,706)
Beginning balance 8,035,357 176,563,063
-------------------- --------------------
Ending balance, representing cash and
bank balances 1,960,474 8,035,357
1 Organization
Pacific Alliance China Land Limited (the "Fund") was
incorporated on 5 September 2007 in the Cayman Islands. It is a
closed-ended Cayman Islands registered, exempted Fund. The address
of its registered office is PO Box 472, 2nd Floor, Harbour Place,
Grand Cayman KY1-1106, Cayman Islands.
The Fund's ordinary shares are traded on the AIM market of the
London Stock Exchange. The Fund can raise additional capital up to
the authorized share capital as described in Note 6.
The principal investment objective of the Fund and its
subsidiaries (collectively, the "Fund") is to provide shareholders
with capital growth and a regular level of income from investments
in existing properties, new developments, distressed projects and
real estate companies in Greater China.
The Fund's investment activities are managed by Pacific Alliance
Real Estate Limited ("PARE" or the "Investment Manager"). The Fund
appointed Sanne Fiduciary Services Limited to act as the custodian
of certain assets of the Fund, and as the administrator and
registrar pursuant to the Administration Custodian and Registrar
Agreement.
On 25 July 2014, the Fund's investment policy changed to
restrict new investment solely to (a) supporting existing
investments, (b) utilizing Renminbi cash assets subject to exchange
control restrictions, for low risk short-term investments, and (c)
to focus future investment management efforts on the realization of
the portfolio and the return of net realization proceeds to
shareholders.
As of 31 December 2019, all investments under management were
realized and all the sale proceeds had been received by underlying
special purpose vehicles.
The consolidated financial statements were approved by the Board
of Directors on 24 April 2020.
2 Summary of significant accounting policies
The following significant accounting policies are in conformity
with accounting principles generally accepted in the United States
of America ("US GAAP"). The Fund applies the provisions of
Financial Accounting Standards Board ("FASB") Accounting Standard
Codification ("ASC") 946-10, Financial Services - Investment
Companies (the "Guide"). The Fund is an investment Fund under the
Guide. Such policies are consistently followed by the Fund in the
preparation of its consolidated financial statements.
(a) Principles of consolidation
These consolidated financial statements include the financial
statements of the Fund. Subsidiaries are fully consolidated from
the date on which control is transferred to the Fund and
deconsolidated from the date that control ceases. Inter-Fund
transactions between group companies are eliminated upon
consolidation.
The Fund uses wholly and partially owned special purpose
vehicles ("SPVs") to hold and transact in certain investments. The
Fund's policy is to consolidate, as appropriate, those SPVs in
which the Fund has control over significant operating, financial or
investing decisions of the entity.
2 Summary of significant accounting policies (Continued)
(b) Use of estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires the Fund's management to make
estimates and assumptions that affect the reported value of assets
and liabilities and disclosures of contingent assets and
liabilities as at 31 December 2019 and the reported amounts of
income and expenses for the year then ended. The areas involving a
higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the financial statements are
disclosed in Note 2(j).
(c) Investments
The Fund may hold both listed securities and unlisted
securities, which by nature have limited marketability.
(i) Recognition and derecognition
Regular purchase and sale of investments are accounted for on
the trade date, the date the trade is executed. Costs used in
determining realized gains and losses on the disposal of
investments are based on the specific identification method for
unlisted or unquoted investments. Cost includes legal and due
diligence fees associated with the acquisition of investments.
Transfer of investments is accounted for as a sale when the Fund
has relinquished control over the transferred assets. Any realized
gains and losses from investments are recognized in the
consolidated statement of operations.
(ii) Fair value measurement
The Fund is an investment Fund under the Guide. As a result, the
Fund records and re-measures its investments on the consolidated
statement of assets and liabilities at fair value, with unrealized
gains and losses resulting from changes in fair value recognized in
the consolidated statement of operations.
Fair value is the amount that would be received to dispose of
the investments in an orderly transaction between market
participants at the measurement date, i.e. the exit price. Fair
value of investments is determined by the valuation committee of
the Fund, which is established by the Investment Manager and the
Board of Directors.
Investments in securities traded on a recognized exchange are
value at the traded price on the exchange in which such security
was traded on the last business day of the period.
The fair values of unlisted or unquoted securities are based on
the Fund's valuation models, including earnings multiples (based on
the budgeted earnings or historical earnings of the issuer and
earnings multiples of comparable listed companies) and discounted
cash flows. The valuation committee also considers the relevant
developments since acquisition of the investments, the original
transaction price, recent transactions in the same or similar
instruments, completed third-party transactions in comparable
instruments, reliable indicative offers from potential buyers and
rights in connection with realization. Judgment is used to adjust
valuation as necessary for factors such as non-maintainable
earnings, tax risk, growth stage, and cash traps. Cross-checks of
primary techniques are made against other secondary valuation
techniques.
2 Summary of significant accounting policies (Continued)
(c) Investments (Continued)
(ii) Fair value measurement (Continued)
In determining the fair value of certain unlisted securities,
the valuation committee uses as reference valuations made by
independent valuers which rely on the financial data of investees
and on estimates made by the management of the investee companies
as to the effect of future developments. The independent valuers
also assist in the selection of valuation techniques and models.
Loans receivable are recorded at fair and the valuation techniques
applied usually take into account the estimated future cash flows,
liquidity, credit, market and interest rate factors. However, there
are inherent limitations in any valuation technique due to the lack
of observable inputs.
Currency options are valued by the Investment Manager using
observable inputs, such as quotations received from the
counterparty, dealers or brokers, whenever available and considered
reliable.
Estimated fair value may differ significantly from the value
that would have been used had a readily available market for such
investments existed and these differences could be material to the
financial statements.
(d) Other receivables and payables
Other receivables and payables are initially measured at fair
value and subsequently measured at amortized cost.
(e) Cash and cash equivalents
Cash represents cash at banks and does not include restricted
cash such as fixed deposits pledged as security for bank loans.
Cash equivalents are defined as short-term, highly liquid
investments which mature within three months or less of the date of
purchase.
(f) Share capital
Ordinary shares are classified as equity. Where the Fund
purchases the Fund's equity share capital, the consideration paid
is deducted from equity until the shares are cancelled or reissued.
Where such ordinary shares are subsequently reissued, any
consideration received is included in equity.
(g) Foreign currency translation
The books and records of the Fund are maintained in United
States Dollars ("US$"), which is also the functional currency.
Assets and liabilities, both monetary and non-monetary, denominated
in foreign currencies are translated into US$ by using prevailing
exchange rates as at financial reporting date, while income and
expenses are translated at the exchange rates in effect during the
year.
Gains and losses attributed to changes in the value of foreign
currencies for investments, cash balances and other assets and
liabilities are reported as foreign exchange gains and losses in
the consolidated statement of operations.
2 Summary of significant accounting policies (Continued)
(h) Taxation
The Fund may be subject to taxes imposed in jurisdictions in
which it invests and operates. Such taxes are generally based on
income and gains earned. Taxes are accrued on investment income,
realized gains, and unrealized gains, as appropriate, when the
income and gains are earned. The Fund accrues for liabilities
relating to uncertain tax positions only when such liabilities are
probable and can be reasonably estimated in accordance with the
authoritative guidance contained in ASC 740 Income Taxes as
described in Note 7.
The Fund files tax returns as prescribed by the tax laws of the
jurisdictions in which it operates. The Fund uses the asset and
liability method to provide income taxes on all transactions
recorded in the consolidated financial statements. This method
requires that income taxes reflect the expected future tax
consequences of temporary differences between carrying amounts of
assets or liabilities for book and tax purposes. Accordingly, a
deferred tax asset or liability for each temporary difference is
determined based on the tax rates that the Fund expects to be in
effect when the underlying items of income and expense are
realized.
(i) Recognition of income and expenses
Interest income on bank balances is accrued as earned using the
effective interest method.
Expenses are recorded on an accrual basis. Provision of deferred
tax expenses is made based on the capital gain from realization of
investments as at the year-end.
(j) Critical accounting estimates and assumptions
Estimates and judgments are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. The resulting accounting estimates will, by
definition, seldom equal the related actual results. There are no
estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
3 Concentration of risks
(a) Market risk
Market risk represented the potential loss in value of financial
instruments caused by movements in market variables, such as equity
prices.
Since the Fund no longer holds any investment as at 31 December
2019 and 2018, the directors consider that the Fund is not exposed
to market price risk.
(b) Interest rate risk
Interest rate risk arises from the fluctuations in the
prevailing levels of market interest rates which affect the fair
value of financial assets and liabilities and future cash flows.
The Fund has bank deposits that expose the Fund to interest rate
risk. The Fund has direct exposure to interest rate changes in
respect of the valuation and cash flows of its interest bearing
assets and liabilities.
3 Concentration of risks (Continued)
(c) Currency risk
The Fund has assets and liabilities denominated in currencies
other than the US$, the functional currency. The Fund is therefore
exposed to currency risk as the value of assets and liabilities
denominated in other currencies may fluctuate due to changes in
exchange rates. The net assets of the Fund before the impact of
currency hedging are denominated in the following currencies:
2019 2018
Net assets Net assets
US$ US$
equivalent equivalent
Renminbi 1,331,472 8,382,900
Pounds Sterling - (1,234,793)
Singapore Dollars 71 71
Hong Kong Dollars - (96,686)
The Investment Manager manages the Fund's currency exposure
through use of currency options. Refer to Note 4.
(d) Credit risk
The Fund is exposed to credit risk, which is the risk that a
counterparty to or an issuer of a financial instrument will cause a
financial loss for the other party by failing to discharge an
obligation. As at 31 December 2019 and 2018, the main
concentrations of credit risk to which the Fund is exposed arise
from other receivables, and cash and bank balances.
As at 31 December 2019, the Fund has cash and bank balances
amounting to US$1,960,474 (2018: US$8,035,357) held in multiple
different bank accounts with same financial institution. The Fund
attempts to minimize its credit risk exposure on its cash and bank
balances by monitoring the size of its credit exposure to single
counterpart and by only entering into banking relationships with
reputable financial institution.
As at December 31, 2019, the Fund had other receivables of
US$547,393 (2018: US$546,115), which mainly consists of the
consideration US$95,503 (2018: nil) arising from the transfer of
SPVs (see Note 9(d) for details), receivable of tax reserve
amounting to US$450,000 (2018: US$450,000) in relation to the tax
provision of Project HNA (refer to Note 9(e) for details), and
amount due from PACL II Limited of US$111,623 (2018: Nil) relating
to cash allocation (refer to Note 9(a) for details). All the
counterparties are not rated by any credit agencies.
The Fund does not anticipate any material loss as a result of
credit risk.
3 Concentration of risks (Continued)
(e) Liquidity risk
Liquidity risk is the risk that the Fund will encounter
difficulty in settling a liability or selling an asset at close to
its fair value. The Fund manages liquidity risk by maintaining a
sufficient amount of liquid assets to ensure operational
requirements are fulfilled.
The contractual maturity date of all financial liabilities
disclosed in the balance sheet is less than 1 year and balances due
within 1 year equal their carrying amounts, as the impact of
discounting is not significant. Since the Fund has reserved enough
cash to settle expected future obligation, the directors consider
the liquidity risk of the Fund to be minimal.
As at 31 December 2019, the Fund has net current assets of
US$1,776,680 (2018: US$7,214,144).
The Fund is closed-ended, thus, not exposed to redemptions of
shares by its shareholders.
4 Derivative instruments
The Fund transacts in derivative instruments including options
with each instrument's primary risk exposure being equity, credit
or foreign exchange. The Fund enters into currency options to hedge
itself against foreign currency exchange rate risk for its foreign
currency denominated assets and liabilities due to adverse foreign
currency fluctuations against the US dollar.
The fair value of these derivative instruments is included
within the consolidated statement of assets and liabilities with
changes in fair value reflected as net realized gains/(losses) from
investments or net change in unrealized gains/(losses) from
investments within the consolidated statement of operations. The
Fund does not designate derivatives as hedging instruments under
FASB ASC 815.
There were no derivative contracts held by the Fund as at 31
December 2019 and 2018.
The following table indicates the gains and losses on
derivatives, by contract type, as included in the consolidated
statement of operations.
Year ended 31 December 2019
Average Average Change in Realized
notional number of contracts unrealized losses
gains/losses
US$ US$ US$
Currency options 3,500,000 1 - (54,000)
Year ended 31 December 2018
Average Average Change in Realized
notional number of unrealized losses
contracts gains/losses
US$ US$ US$
Currency options 59,000,000 1 3,187,209 (3,456,680)
Average notional amounts is derived from the total outstanding
contracts at each quarter end. The above realized and unrealized
gains/losses on derivatives are included in realize and change in
unrealized gains from investments, derivatives and foreign currency
in the consolidated statement of operations.
4 Derivative instruments (Continued)
As at 31 December 2019 and 2018, the Partnership does not have
any derivative assets or cash collateral being used by
counterparties to offset derivatives liabilities on its statements
of assets, liabilities and partner's capital.
5 Other receivables
2019 2018
US$ US$
Interest receivable - 96,115
Other receivables 547,393 450,000
------------------ ------------------
547,393 546,115
6 Share capital, tendered shares and dividend
Number of
shares Share
outstanding capital Total
US$ US$
As at 1 January 2018 57,356,356 573,564 573,564
Re-purchase of tendered
shares (54,703,278) (547,033) (547,033)
-------------------- ---------------- --------------------
As at 31 December 2018 and
1 January 2019, 31 December
2019 2,653,078 26,531 26,531
As at 31 December 2019, the total number of authorized ordinary
shares was 10,000,000,000 (2018: 10,000,000,000) with par value of
US$0.01 (2018: US$0.01) per share. As at 31 December 2019, the
Company had 2,653,078 (2018: 2,653,078) ordinary shares in
issue.
During the year ended 31 December 2019, the Fund had a
distribution to shareholders of US$5,000,000 by way of a dividend
of US$1.88 per share, from the proceeds of the capital reduction of
the Tianjin WOFE used for the Project Beijing Olympic.
7 Taxation
The Fund adopted the authoritative guidance contained in FASB
ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which require the directors to determine whether a tax
position of the Fund is more likely than not to be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. For tax positions meeting the more likely than not
threshold, the tax amount recognized in the financial statements is
reduced by the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the
relevant taxing authority.
The uncertain tax positions identified by the directors mainly
include:
(a) Whether any of the Fund and its offshore SPVs would be
deemed as a China Tax Resident Enterprise ("TRE") under the China
Corporate Income Tax ("CIT") Law. If an offshore entity is deemed
as a China TRE, its income would be subject to China CIT at 25%
(rate could be reduced to a lower rate of 9% in certain
jurisdiction in China).
(b) Whether any of the Fund and its offshore SPVs that may
derive income would be deemed as having an establishment or place
in China. If an offshore entity has an establishment or place in
China, income derived by the offshore entity that is derived from
China by the establishment or place or income that is effectively
connected to the establishment or place would be subject to China
CIT at 25% (rate could be reduced to a lower rate of 9% in certain
jurisdiction in China).
(c) Whether any of the Fund and its offshore SPVs is subject to
Hong Kong profits tax. An entity would be subject to Hong Kong
profits tax if (i) the entity carries on a trade, profession or
business in Hong Kong; (ii) profits are derived from that trade,
profession or business carried on in Hong Kong (excluding gains of
a capital nature); and (iii) the profits arise in or are derived
from Hong Kong, i.e. have a Hong Kong source.
The Investment Manager has assessed that the Fund and its
offshore SPVs are not TREs in China and do not have any
establishment or place of business in China. Gains from the
disposal of investments in China by the Fund or its SPVs may be
subject to China withholding tax at 10% without considering the
potential relief that may be available under any tax treaty between
the tax jurisdiction of the transferor and China. In addition,
where Chinese equity investments are held via an offshore
intermediate holding fund, exit of the Chinese equity investment
disposal of shares in the offshore intermediate holding fund could
be regarded as an indirect transfer of the Chinese equity
investment. According to the General Anti Avoidance Rules under the
China CIT Law, if an investment holding structure and investment
exit via indirect transfer do not have a reasonable commercial
purpose, the Chinese tax authority is empowered to disregard such
arrangement and impose withholding tax on the gains from such an
indirect transfer. The directors have reviewed the structure of the
investment portfolio and assessed the potential withholding tax
implications and considered adequate provision to China tax has
been made on the Fund's financial statements.
As at 31 December 2019, the Investment Manager has analyzed the
open tax years of all jurisdictions subject to tax examination and
the provision for deferred tax and uncertain tax amounted to US$Nil
(2018: US$Nil) and US$743,333 (2018: US$743,333) respectively. The
Investment Manager has reviewed the structure of the investment
portfolio and assessed the potential withholding tax implications
and considered adequate provision for China tax has been made on
the Fund's consolidated financial statements.
7 Taxation (Continued)
The Investment Manager has reviewed the structure of the Fund's
investment portfolio and considered the Fund's exposure to
countries in which it invests to be properly reflected in the
Fund's consolidated financial statements.
Under current Cayman Islands legislation applicable to an
exempted Fund, there is no income tax, capital gains or withholding
tax, estate duty, or inheritance tax payable by the Fund in the
Cayman Islands.
8 Management fee and performance fees
Pursuant to the Investment Management Agreement dated 20
November 2007, the Investment Manager was appointed to manage the
investments of the Fund. The Investment Manager will receive an
aggregate management fee of 2% per annum of the quarterly Net Asset
Value ("NAV"). The management fee is paid quarterly in advance
based on the NAV at the first day of each fiscal quarter. For the
year ended 31 December 2019, total management fee amounted to
US$109,365 (2018: US$2,067,143); There was US$43,839 management fee
payable as at 31 December 2019 (2018: US$ 315,050).
The Investment Manager is also entitled to receive performance
fees from the Fund in the event that the year-end NAV is greater
than the higher of (a) the year-end NAV for the last year in which
a performance fee was payable ("High Water Mark"); and (b) the NAV
on admission increased by a non-compound annual hurdle rate of 8%
("Hurdle").
The performance fees will be calculated as follows:
-- 0% of the relevant increase in the year-end NAV if the
year-end NAV is at or below the Hurdle;
-- 100% of the relevant increase in the year-end NAV above the
Hurdle up to a non-compound annual rate of 10% (the "Catch-up");
and
-- 20% of the relevant increase in the year-end NAV above the Catch-up.
For the year ended 31 December 2019, total performance fees
amounted to US$ Nil (2018 : Nil). As at 31 December 2019,
performance fees payable amounted to US$ Nil (2018 :
US$133,162).
Under the Investment Management Agreement, the performance fees
earned by the Investment Manager shall be paid 75% in cash and 25%
in the Fund's ordinary shares ("share portion"). The Fund may elect
to meet its share obligation either by issuing new shares at NAV or
purchasing the equivalent number of shares in the market.
9 Related party transactions
Apart from the related party transactions disclosed in Note 8,
the Fund also had the following significant related-party
transactions.
(a) Restructuring with PACL II Limited
On 2 March 2009, the Fund held an extraordinary general meeting
to approve a tender offer that allowed shareholders to exchange all
or part of their shares for shares in PACL II Limited ("PACL II"),
a Cayman Islands private vehicle that would be used to realize and
distribute cash from exited investments based on the investment and
asset positions held by the Fund as at 31 December 2008 ("Tender
Offer Portfolio"). PACL II is also managed by the Investment
Manager. It was due to, without any further action on the part of
its shareholders, automatically wind up and dissolve 3 years after
its ordinary shares were first issued. On 5 January 2012, the
duration of PACL II was extended by 1 year to 2 March 2013 upon the
written election by the Investment Manager. On 28 February 2013,
the duration of PACL II was further extended by 2 years to 4 March
2015 upon the written election by the Investment Manager and a
major of the shareholders. On 30 January 2015, the Investment
Manager made an election to extend the duration of PACL II by 1
year to 4 March 2016.
As part of this restructuring, the Fund repurchased 180,166,107
shares at a tender price of US$1.01 per share in exchange for
holders of these shares receiving the same number of shares in PACL
II.
Under the terms of the tender offer, PACL II is entitled to
receive 50.33% of the proceeds from the Tender Offer Portfolio,
which reflects a 5% discount of its proportionate share of the
Tender Offer Portfolio. As of 31 December 2019 and 2018, the amount
due from/to PACL II is recorded as a receivable from/payable by the
Fund, adjusted at each period end based on the movement in the fair
value of the underlying assets and the income and expense
attributable to the Tender Offer Portfolio. The amount is
unsecured, non-interest bearing and repayable on demand.
9 Related party transactions (Continued)
(a) Restructuring with PACL II Limited (Continued)
The following table summarizes the movements in amount due
from/to PACL II.
2019 2018
US$ US$
At 1 January (152,135) (1,142,339)
Fund transfer to PACL II from the Fund - 1,200,000
Share of operating expenses paid to/by
the Fund (263,195) 302,181
Exchange gains/(losses) 526,953 (511,977)
------------------ ------------------
At 31 December 111,623 (152,135)
(b) Directors' remuneration
The Fund pays each of its directors an annual fee and the total
fees incurred amounts to US$30,000 (2018: US$30,000). If a director
is a member of the valuation committee or audit committee, the
director also receives an additional annual fee of US$10,000, and
the chairman of either committee receives an additional annual fee
of US$5,000. During the year 2019 and 2018, Jon-Paul Toppino agreed
to waive his directors' fees and committee fees.
(c) Share capital held by funds managed by fellow subsidiaries of the Investment Manager
Pacific Alliance Asia Opportunity Master Fund ("PAX LP") is
managed by a fellow subsidiary of the Investment Manager.
PAX LP's interest in the Fund remains unchanged at 13.5%. As at
31 December 2019, PAX LP held 358,173 shares of the Company,
representing 13.5% of total outstanding shares of the Company.
PAX LP is managed by a fellow subsidiary of the Investment
Manager.
(d) SPVs transfer
As at 31 December 2019, the Fund transferred its interest in the
SPVs, Empire Growth Holding Limited (BVI) and Kingdom Right Limited
(HK), to PAX LP and the transfer consideration was amounting to
US$95,503.
(e) Other receivable from fellow subsidiaries of the Investment Manager
As at 31 December 2019, the other receivable US$450,000 from PAX
LP is related to the tax provision for Project HNA (the "Proceed").
The Proceed was paid to PAX LP as the reserve for the tax
provision.
10 Financial highlights
Net asset value per share at the end of the year is as
follows:
2019 2018
US$ US$
Per share data (for a share outstanding
throughout the year)
Net asset value at 1 January 2.7192 2.8816
Net investment loss (0.2260) (0.0419)
Dividend paid (1.8800) -
Net realized and unrealized losses
from investments 0.0565 (0.1205)
-------------- --------------
Net asset value at 31 December 0.6697 2.7192
The following represents the ratios to average net assets and
other supplemental information:
2019 2018
Total return before performance fees
(1) (75.37%) (5.64%)
Performance fees 0.00% 0.00%
Total return after performance fees
(1) (75.37%) (5.64%)
Ratios to average net assets (2)
Total expenses (13.92%) (2.97%)
Net investment loss (11.20%) (0.97%)
(1) Total return represents the change in NAV (before and after
performance fees), adjusted for cash flows in relation to capital
transactions for the year.
(2) Average net assets is derived from the beginning and ending
NAV, adjusted for cash flows in relation to capital transactions
for the year. For the year ended 31 December 2019, the average net
assets amounted to US$5,353,739 (2018: US$95,670,321).
11 Commitment and contingency
In the normal course of business, the Fund may enter into
arrangements that contain a variety of representations and
warranties that provide general indemnification under certain
circumstances. The Fund's maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made
against the Fund and which have not yet occurred. However, based on
experience, the directors expect the risk of loss to be remote,
and, therefore, no provision has been recorded.
For the years ended 31 December 2019 and 2018, there is no
unfunded commitment in investments.
12 Subsequent events
Management has performed a subsequent events review from 1
January 2020 through to 24 April 2020 being the date that the
financial statements were available to be issued. On 10 February
2020, the Fund received US$450,000 from PAX LP, which was paid to
PAX LP as the tax reserve for the Project HNA (see Note 9(e) for
details), as the chance for the payment of the withholding tax for
Project HNA is remote. Hence, the Board of Directors decided to
reverse the tax provision amounting to US$743,333 on 6 February
2020.
The Investment Manager expects the Fund to be delisted by the
end of June 2020 and will start the liquidation process. The Board
of Directors has declared a dividend of US$1.3 million on 9 April
2020, which is expected to be paid on 30 April 2020.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EANLPALFEEEA
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