TIDMPACL
RNS Number : 8322N
Pacific Alliance China Land Limited
26 September 2019
26 September 2019
Pacific Alliance China Land Limited
Unaudited results for the six months ended 30 June 2019
Pacific Alliance China Land Limited ("PACL" or the "Company"),
an AIM-traded, closed-end investment company, has today announced
its financial results for the six months to 30 June 2019.
Highlights
-- Net asset value as at 30 June 2019 was US$6.9 million,
representing US$2.6056 per share, a 4.2% decrease from 31 December
2018.
-- On 30 June 2019, the Company's share price closed at US$2.63,
representing a 1.9% increase from 31 December 2018 and a 0.9%
discount to the unaudited NAV per share.
-- PACL's NAV and share price have both consistently
outperformed major benchmark indices including the FTSE 350 Real
Estate Index (F3REAES) and the FTSE AIM All-Share Index (AXX) since
inception.
Portfolio and Fund Developments
-- The Company announced a dividend distribution to shareholders
of US$5 million on 5 September 2019.
Patrick Boot, Managing Director, Pacific Alliance Real Estate
Limited commented that:
The Investment Manager will focus on the orderly windup of the
fund and cancellation of the Fund's shares from trading on AIM.
For further information please contact:
MANAGER: LEGAL COUNSEL:
Patrick Boot, Managing Partner Jon Lewis, General Counsel
Pacific Alliance Real Estate Limited PAG
T: (852) 2918 0088 T: (852) 2918 0088
pboot@pag.com jlewis@pag.com
BROKER: NOMINATED ADVISER:
Henry Freeman Philip Secrett
Liberum Capital Limited Grant Thornton UK LLP
T: (44) 20 (0) 20 3100 2000 T: (44) 20 7383 5100
www.liberum.com Philip.J.Secrett@uk.gt.com
INVESTOR RELATIONS:
Niklas Schelander
T: (852) 3719 6382
nschelander@pag.com
Notes to Editors:
About Pacific Alliance China Land Limited
Pacific Alliance China Land Limited ("PACL") (AIM: PACL) is a
closed-end investment company. PACL was 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 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.
For more information about PAG, please visit: www.pag.com
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED
30 JUNE 2019
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
Chairperson's Statement
As of 30 June 2019, the net asset value (NAV) of Pacific
Alliance China Land Limited (the "Fund" or "PACL") was US$6.9
million, or US$2.6056 per share, representing a 4.18% decrease from
31 December 2018.
In line with market expectations, China's Gross Domestic Product
(GDP) grew 6.3% year-on-year in the first half of 2019. Robust
growth in the consumption and services sector continued to
contribute positively to economic performance as tertiary
industries grew by 7% year-on-year in the first six months of the
year. Meanwhile, real estate development investment increased by
10.9% year-on-year over the same period. The Chinese economy still
faces challenges and downward pressure from excess industrial
capacity, as well as continuing trade tensions with its largest
trading partner, the United States. While the macroeconomic
situation is decidedly mixed, China's overall outlook remains
stable despite the ongoing China-U.S. trade disagreement. The
government is committed to continuing its monetary policy support
and fiscal expansion in order to maintain a moderate and
sustainable level of growth.
Most tier-one and tier-two cities saw limited growth in terms of
both price and transaction volumes as a result of the Chinese
government's stricter property tightening measures. New-home prices
increased in 63 of the 70 cities tracked by the Government during
June, compared with 67 in May. Average new-home prices in
first-tier, second-tier, and third-tier cities increased 0.2%,
0.8%, and 0.7% month-on-month, respectively. In June, new-home
prices increased 0.3% in Shanghai, but declined 0.1% in Beijing
month-on-month. The Manager expects that the central government
will continue to adopt differentiated housing policies for
different cities. The government will continue to tighten controls
in tier-one and tier-two cities where housing inventories are low
and continue to loosen controls in lower-tier cities in order to
boost demand and help facilitate a reduction of inventories in
those oversupplied markets.
As all the Fund's investments have been exited, we will focus
all our efforts on the orderly wind up of the Fund and cancellation
of the Fund's shares from trading on AIM. Once the Fund is
delisted, and liquidation of the Fund is completed, which the
Manager expects to take place by the end of the year, all excess
cash will be paid to shareholders in a final distribution.
On behalf of the Board of Directors, I would like to thank you
for your continued commitment and support.
Margaret Brooke
Chairperson
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
Investment Manager's Report
On 30 June 2019, the Fund's share price closed at US$2.63,
representing a 1.94% increase from 31 December 2018 and a 0.94%
discount to the unaudited NAV per share. The Fund's NAV and share
price have both outperformed major benchmark indices including the
FTSE 350 Real Estate Index (F3REAES) and the FTSE AIM All-Share
Index (AXX) on a consistent basis since inception.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
Investment Manager's Report (Continued)
30 June 31 December
2019 2018
US$ US$
Realized Gains/(losses) and other
income
Net realized losses (net with tax
expense) - (5,870,465)
Deposit interest 74,674 1,916,825
------------------ ------------------
74,674 (3,953,640)
Change in Unrealized Gain/(Losses)
Derivatives (46,311) 3,187,209
Share of losses/(gains) receivable
from /(payable to) PACL II 177,614 (209,795)
Foreign exchange (34,062) (2,247,293)
------------------ ------------------
97,241 730,121
------------------ ------------------
171,915 (3,223,519)
Portfolio Summary
As at 30 June 2019, the Fund held cash of US$7.3 million (of
which US$0.09 million was held onshore in RMB), as well as
investments with a cost of approximately US$54,000 and a fair value
of US$7,689.
Investments and Fair value (gross) Type % of total
Cash US$
----------------- -------------------- ------------ -----------
FX Hedging 7,689 Derivatives 0.11%
Cash 7,307,645 Cash (2) 99.89%
----------------- -------------------- ------------ -----------
TOTAL(1) 7,315,334 100.00%
----------------- -------------------- ------------ -----------
Note
(1) The gross investment value includes an amount attributable to PACL II shareholders.
(2) Of the total cash of US$7.3 million, US$0.09 million was held as RMB in PRC banks.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
Investment Manager's Report (Continued)
Distribution
Following the completion of the capital reduction of the Tianjin
WOFE, a dividend distribution to shareholders of US$5 million was
notified on 5 September 2019.
The dividend distribution amount was based on the unaudited 30
June 2019 NAV of US$6.9 million, reduced by estimated operating and
winding up expenses of US$0.5 million, plus a US$1.4 million
reserve. Once the liquidation of the Fund is completed, which the
Manager expects the process to begin by the end of the year, the
excess cash will be paid out as the final distribution.
Conclusion
The Fund no longer has active investments. The Fund will, in due
course, put a proposal to Shareholders to commence an orderly wind
up of the Fund and cancellation of the Fund's shares from trading
on AIM. Once the Fund is delisted, and liquidation of the Fund is
completed, which the Manager expects to take place by the end of
the year, all excess cash will be paid to shareholders in a final
distribution.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
UNAUDITED CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 30 JUNE 2019
As at As at
30 June 31 December
Note 2019 2018
US$ US$
Assets
Derivative contracts, at fair value
(Cost: US$54,000;
2018: US$Nil) 5 7,689 -
Prepayment and other receivables 6 450,000 546,115
Amounts due from PACL II Limited 11(a) 25,479 -
Cash and bank balances 7,307,645 8,035,357
-------------------- --------------------
Total assets 7,790,813 8,581,472
------------------- -------------------
Liabilities
Provision for taxation 8 743,333 743,333
Amounts due to PACL II Limited 11(a) - 152,135
Performance fee payable 10 133,162 133,162
Management fee payable - 315,050
Accrued expenses and other payables 1,509 23,648
-------------------- --------------------
Total liabilities 878,004 1,367,328
------------------- -------------------
Net assets 6,912,809 7,214,144
Analysis of net assets
Share capital 7 26,531 26,531
Retained earnings 6,886,278 7,187,613
-------------------- --------------------
Net assets (equivalent to US$2.6056
per share based on 2,653,078 outstanding
shares; 2018: US$2.7192 per share
based on 2,653,078 outstanding shares) 6,912,809 7,214,144
Approved by the Board of Directors
Director
The accompanying notes on pages 11 to 25 are an integral part of
these consolidated financial statements.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
UNAUDITED CONSOLIDATED CONDENSED SCHEDULE OF INVESTMENTS
AS AT 30 JUNE 2019
AS AT 30 JUNE 2019 AS AT 31 DECEMBER 2018
Investments % of % of Cost/principal Fair % % of Cost/principal Fair
- Assets net effective value of effective value
assets equity net equity
interest assets interest
held held
US$ US$ US$ US$
Derivatives 0.11% 0.00%
Others 0.11% 54,000 7,689 0.00% - -
-------------------- -------------------- -------------------- --------------------
54,000 7,689 - -
The accompanying notes on pages 11 to 25 are an integral part of
these consolidated financial statements.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODED 30 JUNE 2019
Period from Period from
1 January 1 January
to to
Note 30 June 2019 30 June 2018
US$ US$
Income
Interest income 74,674 1,443,228
------------------ ------------------
Total income 74,674 1,443,228
----------------- -----------------
Expenses
Management fees 10 (65,526) (1,569,260)
Legal and professional fees (99,803) (178,577)
Other expenses (282,713) (278,875)
------------------ ------------------
Total expenses (448,042) (2,026,712)
----------------- -----------------
Net investment losses (373,368) (583,484)
----------------- -----------------
Realized and unrealized gains/(losses)
from investments and foreign currency
Tax expense 9 (25,208) (2,081,274)
Net change in unrealized (losses)
/gains from investments and losses
on translation of assets and liabilities
in foreign currencies 4 (80,373) 386,672
Net decrease/(increase) in payable
to PACL II Limited from gains/(losses)
attributable to PACL II Limited 11(a) 177,614 (274,289)
------------------ ------------------
Net realized and unrealized gains/(losses)
from investments and foreign currency 72,033 (1,968,891)
----------------- -----------------
Net decrease in net assets from operations (301,335) (2,552,375)
The accompanying notes on pages 11 to 25 are an integral part of
these consolidated financial statements.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIODED 30 JUNE 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 tendered
shares 7 (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
Net decrease in net
assets from operations - (301,335) (301,335)
-------------------- -------------------- --------------------
At 30 June 2019 26,531 6,886,278 6,912,809
The accompanying notes on pages 11 to 25 are an integral part of
these consolidated financial statements.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODED 30 JUNE 2019
Period from Period from
1 January 1 January
to to
30 June 31 December
Note 2019 2018
US$ US$
Net decrease in net assets from operations (301,335) (6,064,152)
Adjustments to reconcile net decrease
in net assets from operations to net cash
used in operating activities
Purchase of derivatives (54,000) -
Proceeds from settlement of derivatives - 12,000
Net realized and change in unrealized
gains from investments and derivatives 46,311 269,472
Net (increase)/decrease in amount payable
to PACL ll Limited from (losses)/gains attributable
to PACL II Limited (177,614) 209,795
Change in prepayment and other receivables 96,115 619,015
Change in amounts due to PACL II Limited - (1,200,000)
Change in provision for investment agency
fees (1,415,585)
Change in provision for taxation - (9,242,791)
Change in management fee payable 10 (315,050) 315,050
Change in accrued expenses and other payables (22,139) (30,523)
-------------------- --------------------
Net cash used in operating activities (727,712) (16,527,719)
------------------ ------------------
Cash flows from financing activities
Repurchase of shares 7 - (151,999,987)
-------------------- --------------------
Net cash used in financing activities - (151,999,987)
------------------ ------------------
Net decrease in cash and cash equivalents (727,712) (168,527,706)
Beginning balance 8,035,357 176,563,063
-------------------- --------------------
Ending balance, representing cash and
bank balances 7,307,645 8,035,357
The accompanying notes on pages 11 to 25 are an integral part of
these consolidated financial statements.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
1 Organization
Pacific Alliance China Land Limited (the "Fund") was
incorporated on 5 September 2007 in the Cayman Islands. It is a
closed-end Cayman Islands registered, exempted Fund. The address of
its registered office is PO Box 472, 2nd Floor, Harbour Place,
Grand Cayman KY1-1106, Cayman Islands.
The Fund's ordinary shares are traded on the AIM market of the
London Stock Exchange. The Fund can raise additional capital up to
the authorized share capital as described in Note 7.
The principal investment objective of the Fund and its
subsidiaries (collectively, the "Fund") is to provide shareholders
with capital growth and a regular level of income from investments
in existing properties, new developments, distressed projects and
real estate companies in Greater China.
The Fund's investment activities are managed by Pacific Alliance
Real Estate Limited ("PARE" or the "Investment Manager"). The Fund
appointed Sanne Fiduciary Services Limited to act as the custodian
of certain assets of the Fund, and as the administrator and
registrar pursuant to the Administration Custodian and Registrar
Agreement.
On 25 July 2014, the Fund's investment policy changed to
restrict new investments solely to (a) supporting existing
investments, (b) utilizing Renminbi cash assets subject to exchange
controls restriction 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 30 June 2019, all investment under management were
realized and all sale proceeds have been received by underlying
special purpose vehicles.
The consolidated financial statements were approved by the Board
of Directors on 26 September.
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.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
2 Summary of significant accounting policies (Continued)
(a) Principles of consolidation
These consolidated financial statements include the financial
statements of the Fund. Subsidiaries are fully consolidated from
the date on which control is transferred to the Fund and
deconsolidated from the date that control ceases. Inter-Fund
transactions between group companies are eliminated upon
consolidation.
The Fund uses wholly and partially owned special purpose
vehicles ("SPVs") to hold and transact in certain investments. The
Fund's policy is to consolidate, as appropriate, those SPVs in
which the Fund has control over significant operating, financial or
investing decisions of the entity.
Except when an operating Fund provides services to the Fund,
investment in an operating Fund is carried at fair value (refer to
Note 2(c) below for fair value measurement).
(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, disclosures of contingent assets and liabilities
as at 30 June 2019, and the reported amounts of income and expenses
for the period 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.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
2 Summary of significant accounting policies (Continued)
(c) Investments (Continued)
(ii) Fair value measurement (Continued)
Investments in securities traded on a recognized exchange are
valued 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. Judgement 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.
In determining fair valuation 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.
However, there are inherent limitations in any valuation technique
due to the lack of observable inputs.
Currency options are valued by the Investment Manager using
observable inputs, such as quotations received from the
counterparty, dealers or brokers, whenever available and considered
reliable.
Estimated fair value may differ significantly from the value
that would have been used had a readily available market for such
investments existed and these differences could be material to the
financial statements. Additional information about the level of
market observability associated with investments carried at fair
value is disclosed in Note 4.
(d) Other receivables and payables
Other receivables and payables are initially measured at fair
value and subsequently measured at amortized cost.
(e) Cash and cash equivalents
Cash represents cash at bank 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.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
2 Summary of significant accounting policies (Continued)
(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
period.
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 gain and loss in the
consolidated statement of operations.
(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 described
in Note 8.
The Fund files tax returns as prescribed by the tax laws of the
jurisdictions in which it operates. The Fund uses the asset and
liability method to provide income taxes on all transactions
recorded in the consolidated financial statements. This method
requires that income taxes reflect the expected future tax
consequences of temporary differences between carrying amounts of
assets or liabilities for book and tax purposes. Accordingly, a
deferred tax asset or liability for each temporary difference is
determined based on the tax rates that the Fund expects to be in
effect when the underlying items of income and expense are
realized.
(i) Recognition of income and expenses
Interest income on bank balances is accrued as earned using the
effective interest method.
Expenses are recorded on an accrual basis. Provision of deferred
expenses is made as if the investments are liquidated and realized
at value stated as at the period end.
(j) Critical accounting estimates and assumptions
Estimates and judgements 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 period.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
3 Concentration of risks
(a) Market risk
Market risk represents the potential loss in value of financial
instruments caused by movements in market variables, such as equity
prices.
Investments were made with a focus on Greater China. Political
or economic conditions and the possible imposition of adverse laws
or currency exchange restrictions in that region could cause the
Fund's investments and the respective markets to become less liquid
and also the prices to become more volatile.
The Fund's investments had concentration in a particular
industry or sector and performance of that particular industry or
sector had a significant impact on the Fund. The Fund's
concentration of investments in a particular industry or sector is
presented on the consolidated condensed schedule of
investments.
The Fund's investments were subject to the risk associated with
investing in private equity securities. Investments in private
equity securities were illiquid and subject to various restrictions
on resale and there can be no assurance that the Fund will be able
to realize the value of such investments in a timely manner.
(b) Interest rate risk
Interest rate risk arises from the fluctuations in the
prevailing levels of market interest rates which affect the fair
value of financial assets and liabilities and future cash flows.
The Fund has bank deposits that expose the Fund to interest rate
risk. The Fund has direct exposure to interest rate changes in
respect of the valuation and cash flows of its interest bearing
assets and liabilities.
(c) Currency risk
The Fund has assets and liabilities denominated in currencies
other than the US$, the functional currency. The Fund is therefore
exposed to currency risk as the value of assets and liabilities
denominated in other currencies may fluctuate due to changes in
exchange rates. The net assets of the Fund before the impact of
currency hedging are denominated in the following currencies:
As at As at
30 June 31 December
2019 2018
US$ US$
Renminbi 1,423,025 8,382,900
Pounds Sterling (1,234,793) (1,234,793)
Singapore Dollars 71 71
Hong Kong Dollars (96,686) (96,686)
The Investment Manager manages the Fund's currency exposure
through use of currency options. Refer to Note 5.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
3 Concentration of risks (Continued)
(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 30 June 2019, the main concentrations of credit
risk to which the Fund is exposed arise from derivative contracts,
prepayments and other receivables, and cash and bank balances.
As at 30 June 2019, the Fund has cash and bank balances
amounting to US$7,307,645 (2018: US$8,035,357) held in multiple
different bank accounts with a number of different financial
institutions. The Fund attempts to minimize its credit risk
exposure on its cash and bank balances by monitoring the size of
its credit exposure to any one counterparty and by only entering
into banking relationships with reputable financial
institutions.
(e) Liquidity risk
The Fund was exposed to liquidity risk as the majority of the
investments of the Fund were illiquid while some of the Fund's
liabilities were with short maturity as of 30 June 2019. Illiquid
investments included 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. As at 30 June 2019, all investments
were fully realized and currently assets are held in cash.
Management considered that there was no such liquidity risk exposed
by the Fund as of 30 June 2019.
China currently has foreign exchange restrictions, especially in
relation to the repatriation of foreign funds. Any unexpected
foreign exchange control in China may cause difficulties in the
repatriation of funds. The Fund invests in China and is therefore
exposed to the risk of repatriating funds out of China on a timely
basis to meet its obligations. Please refer to Note 3(c) above for
the Fund's exposure to Renminbi.
The Fund is closed-end and, thus, not exposed to redemptions of
shares by its shareholders.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
4 Investments
The Fund discloses the fair value of its investment in a
hierarchy that prioritizes the inputs to valuation techniques used
to measure the fair value. The hierarchy gives the highest priority
to valuations based upon unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the
lowest priority to valuations based upon unobservable inputs that
are significant to the valuation (Level 3 measurements). Three
levels of the fair value hierarchy are as follows:
Level 1
Inputs that reflect unadjusted quoted prices in active markets
for identical assets or liabilities that the Fund has the ability
to access at the measurement date.
Level 2
Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly or
indirectly, including quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not considered to
be active, inputs other than quoted prices that are observable for
the asset or liability, and inputs that are derived principally
from or corroborated by observable market data by correlation or
other means.
Level 3
Unobservable inputs based on the best information available in
the circumstances, to the extent observable inputs are not
available (including the Fund's own assumptions used in determining
the fair value of investments).
Inputs to measure fair values broadly refer to the assumptions
that market participants use to make valuation decisions, including
assumptions about risk. Inputs may include price information,
volatility statistics, specific and broad credit data, liquidity
statistics and other factors. An asset or a liability's level
within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. However,
the determination of what constitutes "observable" requires
significant judgment. The Valuation Committee considers observable
data to be such market data which is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary
and provided by multiple, independent sources that are actively
involved in the relevant market. The categorization of an asset or
a liability within the hierarchy is based upon the pricing
transparency of the asset or liability and does not necessarily
correspond to the Valuation Committee's perceived risk of that
asset or liability.
As at 30 June 2019, the Fund did not hold any Level 1 and 3
instruments. In determining an instrument's placement within the
hierarchy, the Valuation Committee follows the following guidance
for investments held by the Fund:
Level 2 Investments in illiquid listed stocks and derivatives
are valued using the last traded prices of the listed stocks and
derivatives after factoring in discounts for liquidity. Such
investments are generally classified within Level 2 of the fair
value hierarchy.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
4 Investments (Continued)
The following table summarizes the fair value of all instruments
within the fair value hierarchy:
Level 1 Level 2 Level 3 Total
US$ US$ US$ US$
As at 30 June 2019
Investments -
derivatives - 7,689 - 7,689
-------------------- -------------------- -------------------- --------------------
- 7,689 - 7,689
There is no investment held by the Fund as at 31 December
2018.
As at 30 June 2019, derivatives of US$7,689 (31 December 2018:
US$Nil) were held directly by the Fund.
All Level 3 investments held had been disposed as at 31 December
2018, therefore there was no valuation review of Level 3
investments as at 30 June 2019.
5 Derivative instruments
The Fund transacts in derivative instruments including options
with each instrument's primary risk exposure being equity, credit
and 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.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
5 Derivative instruments (Continued)
The Partnership held Level 2 derivative contracts as
follows:
As at 30 June 2019 Fair Value Contractual/notional
amounts
Assets Liabilities Assets Liabilities
US$ US$ US$ US$
Currency options 7,689 - 7,000,000 -
There were no Level 2 derivative contracts held by the Fund as
at 31 December 2018.
The following table indicates the gains and losses on
derivatives, by contract type, as included in the consolidated
statement of operations.
Period ended 30 June 2019
Average Average Change in Realized gains/(losses)
notional number of unrealized
contracts gains/losses
US$ US$ US$
Currency options 7,000,000 1 (46,311) -
Year ended 31 December 2018
Average Average Change in Realized gains/(losses)
notional number of unrealized
contracts gains/losses
US$ US$ US$
Currency options 59,000,000 1 3,187,209 (3,456,680)
Average notional amounts are derived from the total outstanding
contracts at each quarter end. The above realized and unrealized
gains/losses on derivatives are included in realized and change in
unrealized gains from investments, derivatives and foreign currency
in the consolidated statement of operations.
As at 30 June 2019 and 31 December 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.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
6 Prepayment and other receivables
As at As at
30 June 31 December
2019 2018
US$ US$
Interest receivable - 96,115
Prepayment and other receivables 450,000 450,000
------------------ ------------------
450,000 546,115
7 Share capital, and tendered shares
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 2,653,078 26,531 26,531
-------------------- ---------------- --------------------
As at 30 June 2019 2,653,078 26,531 26,531
As at 30 June 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 30 June 2019, the Fund had
2,653,078 (2018: 2,653,078) ordinary shares in issue.
8 Taxation
The Fund adopted the authoritative guidance contained in FASB
ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which required 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%
likelihood of being realized upon ultimate settlement with the
relevant taxing authority.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2018
8 Taxation (Continued)
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 30 June 2019, the Investment Manager has analyzed the open
tax years of all jurisdictions subject to tax examination and the
provision deferred tax and uncertain tax amounted to US$Nil (2018:
US$Nil) and US$743,333 (2018: US$743,333) respectively. The
Investment Manager has reviewed the structure of the investment
portfolio and assessed the potential withholding tax implications
and considered adequate provision to China tax has been made on the
Fund's consolidated financial statements.
The Investment Manager has reviewed the structure of the Fund's
investment portfolio and considered the Fund's exposure to
countries in which it invests to be properly reflected in the
Fund's consolidated financial statements.
Under current Cayman Islands legislation applicable to an
exempted Fund, there is no income tax, capital gains or withholding
tax, estate duty, or inheritance tax payable by the Fund in the
Cayman Islands.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
9 Tax Expense
A reconciliation of tax expense is as follows:
Period from
1 January
to 30 June
2019
US$
Corporate Income Tax 25,208
Tax Expense 25,208
10 Management fees 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
period ended 30 June 2019, total management fees amounted to
US$65,526 (30 June 2018: US$1,569,260); payable amounted to US$Nil
(31 December 2018: US$315,050).
The Investment Manager is also entitled to receive performance
fees from the Fund in the event that the year-end NAV is greater
than the higher of (a) the year-end NAV for the last year in which
a performance fee was payable ("High Water Mark"); and (b) the NAV
on Admission increased by a non-compound annual hurdle rate of 8%
("Hurdle").
The performance fees will be calculated as follows:
-- 0% of the relevant increase in the year-end NAV if the
year-end NAV is at or below the Hurdle;
-- 100% of the relevant increase in the year-end NAV above the
Hurdle up to a non-compound annual rate of 10% (the "Catch-up");
and
-- 20% of the relevant increase in the year-end NAV above the Catch-up.
For the period ended 30 June 2019, total performance fees
amounted to US$Nil (30 June 2018: US$Nil). As at 30 June 2019,
performance fees payable amounted to US$133,162 (31 December 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.
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2019
11 Related party transactions
Apart from the related party transactions disclosed in Note 10,
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 will 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 in three years
upon when its ordinary shares were first issued. On 5 January 2012,
the duration of PACL II was extended by one 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 two years to
4 March 2015 upon the written election by the Investment Manager
and a majority of the shareholders. On 30 January 2015, the
Investment Manager made an election to extend the duration of PACL
II by one year to 4 March 2016.
As part of this restructuring, the Fund repurchased 180,166,107
shares at a tender price of US$1.01 per share in exchange for
holders of these shares receiving the same number of shares in PACL
II.
Under the terms of the tender offer, PACL II is entitled to
receive 50.33% of the proceeds from the Tender Offer Portfolio,
which reflects a 5% discount of its proportionate share of the
Tender Offer Portfolio. As such, the amount due to PACL II is
recorded as a payable by the Fund, adjusted at each period end
based on the movement in the fair value of the underlying assets
and the income and expense attributable to the Tender Offer
Portfolio. The amount is unsecured and non-interest bearing.
The following table summarizes the movements in amount due
from/(to) PACL II.
As at As at
30 June 31 December
2019 2018
US$ US$
Opening (152,135) (1,142,339)
Fund transfer from PACL II to the
Fund - 1,200,000
Net decrease/(increase) in payable
from gains/(losses) attributable
to PACL II 177,614 (209,796)
------------------ ------------------
Closing 25,479 (152,135)
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2019
11 Related party transactions (Continued)
(b) Directors' remuneration
The Fund pays each of its Directors an annual fee of 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$5,000. During the
period ended 30 June 2019, Jon-Paul Toppino agreed to waive his
directors' fees and committee fees.
(c) Share capital held by funds managed by fellow subsidiaries of the Investment Manager
As at 30 June 2019, PAX LP held 358,173 (2018:358,173) shares of
the Fund, representing 13.5% (2018:13.5%) of total outstanding
shares of the Fund.
PAX LP is managed by a fellow subsidiary of the Investment
Manager.
12 Financial highlights
Net asset value per share at the end of the period is as
follows:
2019 2018
US$ US$
Per share data (for a share outstanding
throughout the period)
Net asset value as at opening of the
period 2.7192 2.8816
Net investment losses (0.1407) (0.0419)
Net realized and unrealized gains/(losses)
from investments 0.0271 (0.1205)
-------------- --------------
Net asset value as at closing of the
period 2.6056 2.7192
The following represents the ratios to average net assets and
other supplemental information:
From 1 January From 1 January
to to
30 June 2019 30 June 2018
Total return before performance fees
(1) (4.18%) (2.88%)
Performance fees 0.00% 0.00%
Total return after performance fees
(1) (4.18%) (2.88%)
Ratios to average net assets (2)
Total expenses (6.21%) (1.47%)
Net investment loss (5.18%) (0.42%)
(1) Total return represents the change in NAV (before and after
performance fees), adjusted for cash flows in relation to capital
transactions for the period.
(2) Average net assets is derived from the beginning and ending
NAV, adjusted for cash flows in relation to capital transactions
for the period. For the period ended 30 June 2019, the average net
assets amounted to US$7,209,502 (2018: US$95,670,321).
PACIFIC ALLIANCE CHINA LAND LIMITED
(Incorporated in the Cayman Islands with limited liability)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2019
13 Commitment and contingency
In the normal course of business, the Fund may enter into
arrangements that contain a variety of representations and
warranties that provide general indemnification under certain
circumstances. The Fund's maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made
against the Fund and which have not yet occurred. However, based on
experience, the Directors expect the risk of loss to be remote,
and, therefore, no provision has been recorded.
For the period ended 30 June 2019 and year ended 31 December
2018, there is no unfunded commitment in investments.
14 Subsequent events
The Manager has performed a review of subsequent events from 1
July 2019 through to 26 September, being the date that the
financial statements were available to be issued.
There is a distribution to shareholders of US$ 5.0 million by
way of a dividend of US$1.88 per share on 20 September 2019.
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
IR LFMJTMBMTBIL
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September 26, 2019 09:24 ET (13:24 GMT)
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