TIDMPAX
RNS Number : 9327S
Pacific Alliance Asia Opp Fd Ld
30 September 2014
30 September 2014
Pacific Alliance Asia Opportunity Fund Limited
Unaudited interim results for the six months ended 30 June
2014
Pacific Alliance Asia Opportunity Fund Limited ("PAX" or the
"Company") (AIM: PAX), an AIM traded feeder fund for Pacific
Alliance Asia Opportunity Fund L.P. (the "Master Fund"), has today
announced its unaudited interim financial results for the six
months ended 30 June 2014.
Financial Highlights
-- Unaudited net asset value as at 30 June 2014 was US$167
million, representing US$1.662 per share, a 4.82% increase from 31
December 2013 (US$159.3 million, representing US$1.586 per share).
The Company's share price closed on 30 June 2014 at US$1.4575, an
11.69% increase from 31 December 2013.
-- The Master Fund's unaudited net asset value was US$1.828 per
US$1.00 capital contributed, a 5.07% increase from its 31 December
2013 audited financial statements.
Portfolio Developments
-- The allocation of the Master Fund remained relatively stable
over the past six months and is well positioned with a base return
of fixed income from the Bridge Financing strategy coupled with
meaningful equity optionality from the Convertible Bond (CB)
Financing and Event/Arbitrage strategies.
-- CB Financing has been a key focus for the Master Fund in the
past year. The Manager slightly increased its allocation to
approximately 30% of the portfolio, and expects to increase it
further to a target of 40% by year end as it continues to earn a
stable yield in a volatile Chinese equities market.
-- Bridge Financing remains a fundamental part of the Master
Fund as it continues to generate steady uncorrelated fixed income
return streams. As some loans have been rolling off in recent
months, the Manager is expected to reduce the allocation to Bridge
Financing to approximately 25% by year end.
-- The Distressed/Secondary strategy continues to perform well
and the Manager expects to maintain the current allocation of
approximately 20%. The Fund continues to target European Banks
selling assets in Japan and Australia/New Zealand, and also sees
emerging opportunities with regional sellers including local banks
and corporates in Korea and Japan.
-- On the public side, the allocation to the Event
Driven/Arbitrage strategy has increased slightly while Equity
Long/Short remains constant. The Event Driven/Arbitrage strategy
has performed well and the Manager sees unique opportunities in
merger arbitrage and the corporate event space. The Equity
Long/Short book remains conservatively positioned and market
neutral.
The Investment Manager believes current market conditions
continue to create market dislocations and inefficiencies that
enable the Master Fund's investment strategy to take advantage of
that, particularly in the credit space, while new industry and
market opportunities continue to emerge for the Fund, particularly
in Convertible Bond Financing.
Over the last 12 months, the Investment Manager has identified
significant opportunities for short term asset lending in Chinese
logistics, State-Owned Enterprise privatization and, most recently,
clean energy companies where the Investment Manager believes
specific catalysts exist that will ultimately drive value in
underlying shares. The strategy delivers a combination of fixed
returns and equity upside and is expected to be the largest
contributor to the Fund's performance this year.
The Investment Manager is pleased with the performance of the
Master Fund. The investor base has been extremely strong and as the
Master Fund continues to grow, the Investment Manager may
selectively increase its capacity from US$2.0 billion to US$2.5
billion over the next 12 to 18 months.
Other Fund Developments
As announced on 22 September 2014, the Company intends to
implement certain initiatives to close the discount between the
Company's market price and net asset value per share as well as to
provide exit opportunities for selling shareholders. A program will
be commenced by the Master Fund to purchase Company shares over the
next six months. This program will be executed by the Master Fund
to allow greater flexibility in the timing of the execution of the
purchases. A share exchange program is also scheduled to occur in
Q2 2015.
A full copy of the Interim Report will be distributed by email
to all shareholders and will be available on the Company's website:
www.pax-fund.com.
For further information please contact:
INVESTMENT MANAGER: NOMINATED ADVISER:
Pacific Alliance Investment Philip Secrett
Management Limited Grant Thornton UK LLP
T: (852) 2918 0088 T: (44) 20 7383 5100
pax@pagasia.com Philip.J.Secrett@uk.gt.com
BROKER: MEDIA RELATIONS:
Hiroshi Funaki Stephanie Barry
Edmond de Rothschild Securities PAG
T: (44) 20 7845 5960 T: (852) 3719 3375
funds@lcfr.co.uk sbarry@pagasia.com/
----------------------------
About Pacific Alliance Asia Opportunity Fund Limited
Pacific Alliance Asia Opportunity Fund Limited (AIM: PAX) serves
as a feeder fund for Pacific Alliance Asia Opportunity Fund L.P.
(the "Master Fund"), a Cayman Islands exempted limited partnership.
PAX was admitted to trading on the AIM Market of the London Stock
Exchange in September 2006.
The principal investment objective of both PAX and the Master
Fund is to provide their respective investors with capital
appreciation through value, arbitrage and special situations
investments in Asian markets. Target investments include distressed
credit, private equity secondaries, activist investments and other
opportunities offering the possibility of unlocking the underlying
value of a company or asset.
For more information about PAX, please visit:
www.pax-fund.com
Pacific Alliance Asia Opportunity Fund Limited is managed by PAG
(formerly known as Pacific Alliance Group), which is one of the
region's largest Asia-focussed alternative investment managers,
with funds under management across Private Equity, Real Estate and
Absolute Return strategies. Founded in 2002, PAG now has a presence
across Asia with over 330 staff working in the region.
For more information about PAG, please visit:
www.pagasia.com
Chairman's Statement
Pacific Alliance Asia Opportunity Fund Limited (the "Company")
generated an unaudited net return of 4.82% for the six months ended
30 June 2014 with the NAV per share at US$1.662.
The Company announced a 6% distribution in July 2014 by way of a
tender offer.
The Pacific Alliance Asia Opportunity Fund L.P. (the "Master
Fund") - General Partner's Report
The Master Fund generated a net return of +5.07% for the first
six months of 2014.
The Master Fund is well positioned with a base return of fixed
income from the Bridge Financing strategy coupled with meaningful
equity optionality from the Convertible Bond Financing ("CB
Financing") and Event / Arbitrage strategies. The Manager adjusted
the portfolio construction over the past year, and in the process
has reduced cash drag and increased gross exposure. The Manager
believes the Master Fund is well positioned to take advantage of
any further dislocations and inefficiencies in the market, and
remains optimistic that the Master Fund will deliver a strong risk
adjusted return for 2014.
The allocation of the Master Fund remained relatively stable
over the past six months. The Manager has slightly increased the
allocation to CB Financing while reducing Bridge Financings,
trading some of the fixed return for more equity optionality. By
the end of the second quarter, CB Financing made up approximately
30% of the Master Fund. The Manager expects to see the allocation
to CB Financing to reach a target of 40% by year end.
CB Financing has been a key focus for the Master Fund over the
past year. Chinese equities are currently trading at historically
cheap valuations, but given the poor news flow and sentiment
surrounding China, markets are likely to remain volatile. The
Manager believes, however, that CB counterparties have company
specific catalysts which should play out in the near future. By
structuring investments in the form of Convertible Bonds, the
Master Fund earns a stable yield while waiting for these catalysts
to play out.
Apart from the logistics and State-Owned Enterprise ("SOE")
privatization themes which were discussed in previous statements,
clean energy is another industry where the Manager sees attractive
CB opportunities. Project Sonic is an example of a clean energy
play. The Master Fund provided a Convertible Bond financing to a
Hong Kong listed company which is the market leader for polysilicon
in China and supplying electronic wafers to the solar industry. As
the Chinese government is actively promoting clean energy to
improve the environment, the Manager believes this company will
benefit from an increase in solar demand and price recoveries in
the sector. Recently, the company released its earnings which
exceeded expectations. The Manager expects to see further upside
from values of the underlying shares over the course of the next
year. The performance of the CB Financing strategy has been strong
thus far, and the Manager expects this strategy will be the top
contributor for the rest of the year.
Bridge Financings remain a fundamental part of the portfolio
generating steady uncorrelated fixed income streams. As some loans
have been rolling off in recent months, we expect to reduce the
Bridge Financing allocation to approximately 25% by year end.
Credit in China has softened slightly in the past two months as the
government introduced a mini-stimulus to enhance growth due to a
slowdown in GDP. The Manager sees this as short term rebalancing
that will have a minimal effect on its lending strategy. The
deleveraging in China will be a multi-year process and the Manager
remains optimistic that the lending strategy will remain intact
with limited competition. Meanwhile, the demand for loans in
Australia continues to be robust and rates remain attractive.
The Distressed/Secondary strategy continued to perform well in
the first two quarters of 2014. The Manager expects to maintain the
current allocation of approximately 20%. The Manager expects to see
further asset sales from banks as a result of tighter regulations
and the upcoming Asset Quality Review led by the European Central
Bank. The Master Fund's main target remains European Banks selling
assets in Japan and Australia/New Zealand. The Manager is also
seeing regional sellers such as local banks and
corporates emerging in Korea and Japan. The Manager stays in
close contact with various sellers to source and negotiate deals at
steep discounts to intrinsic value.
On the public side, allocation to the Event Driven/Arbitrage
strategy has increased slightly while Equity Long/Short remains
constant. The Event Driven/Arbitrage strategy has performed well
over the past several months. The Manager sees unique opportunities
in merger arbitrage and the corporate event space and has been
working on several situations which look promising. The Equity
Long/Short book remains conservatively positioned and market
neutral, focusing on large caps primarily in Japan.
The Manager is pleased with the performance of the Master Fund
and the Group. The Manager remains focused on further developing
and improving its business, and continues to invest in its systems
and infrastructure. To that end, the Manager has recently added an
experienced senior manager to Public Market Risk to enhance and
strengthen risk management. As always, preservation of capital is
paramount. The Master Fund's investor base has been extremely
strong and as the Master Fund continues to grow, the Manager may
selectively increase capacity to US$ 2.5 billion over the course of
12 to 18 months. Thank you for your support and we look forward to
updating you at year end.
John Alexander
Investment Manager's Report
Portfolio Performance
As at 30 June 2014, the Company's unaudited net asset value per
share ("NAV") was US$1.662, a 4.82% increase from the 31 December
2013 audited financial statements. The Company's share price closed
on 30 June 2014 at US$1.4575, a 11.69% increase from 31 December
2013.
The Company invests substantially all of its assets in Pacific
Alliance Asia Opportunity Fund L.P., a Cayman Islands exempted
limited partnership via Pacific Alliance Asia Opportunity Feeder
Fund III Limited (the "Feeder Fund").
Realized and Unrealized Income
Total income for the period from 1 January 2014 to 30 June 2014
was US$8,071,289.
Realized Income/ (Loss) US$
Deposit Interest 1
Foreign Exchange (973)
------------------
Total (972)
Unrealized Appreciation US$
Investment in Master Fund 8,072,261
------------------
Total 8,072,261
Master Fund Portfolio and Performance as at 30 June 2014
As at 30 June 2014, the Master Fund's unaudited net asset value
("NAV") was US$1.828 per US$1.00 capital contributed, a 5.07%
increase from the 31 December 2013 audited financial
statements.
Realized and Unrealized Income for the Master Fund
Total income for the period from 1 January 2014 to 30 June 2014
was US$165,424,840.
Realized Income/(Losses) US$
Bridge Financing 33,275,539
Event Driven, Relative Value/Arbitrage 20,473,420
Distressed/Secondary 7,644,383
Deposit Interest 7,366,663
Pre-IPO Investments 4,071,979
Closed-end Funds 3,180,458
Equity Long/Short (1,017,523)
CB Financing (3,114,305)
------------------
Total 71,880,614
Unrealized Appreciation/(Depreciation) US$
CB Financing 112,599,854
Distressed/Secondary 17,988,879
Bridge Financing 6,582,531
Equity Long/Short (135,219)
Even Event Driven, Relative Value/Arbitrage (5,322,977)
Foreign Exchange (7,854,931)
Pre-IPO Investments (13,488,932)
Closed-end Funds (16,824,979)
------------------
Total 93,544,226
Master Fund Portfolio Summary
As at 30 June 2014, the Master Fund held investments and cash
with a carrying value of US$2,200 million. The Master Fund
portfolio is diversified across several strategies including Bridge
Financing, CB Financing, Distressed/Secondary, Event Driven,
Relative Value/Arbitrage, Pre-IPO Investment, Equity Long/Short,
and Cash.
Type of Investment Fair Value of Investment % of Total
(US$)
Bridge Financing(1) 800,710,178 36.40%
------------------------- -----------
CB Financing(1) 656,451,854 29.85%
------------------------- -----------
Distressed/ Secondary 453,880,598 20.63%
------------------------- -----------
Event Driven, Relative
Value/ Arbitrage 260,000,100 11.82%
------------------------- -----------
Pre-IPO Investment 38,128,104 1.73%
------------------------- -----------
Equity Long/Short (9,525,040) (0.43%)
------------------------- -----------
Cash(2) - -
------------------------- -----------
Total 2,199,645,794 100.00%
------------------------- -----------
(1) The allocation by strategy as per the Investment Manager's
Report differs from the schedule of investments of the Master
Fund's unaudited interim financial statements. The cost of the
loans receivable disclosed in the schedule of investments
represents the cost of investments for accounting purposes, which
are higher than the respective cost of the loans according to the
terms under the loan agreements. Collection/Repayment of loans
receivable is calculated based upon the effective interest method
in the schedule of investments, whereas in the Investment Manager's
Report and newsletter, the cost is reduced prior to a reduction of
interest in accordance with the definitive agreements.
(2) Cash represents unencumbered cash of the Master Fund.
Breakdown of Investment Holdings Breakdown of Investment Holdings
by Cash and Industry by Cash and Geography
Cash and Industry % of Total Cash and Geography % of Total
----------- ---------------------
Property - Commercial 58.50% Greater China 79.72%
----------- --------------------- ------------
Energy 11.01% Australia 13.53%
----------- --------------------- ------------
Food 8.75% Japan 2.15%
----------- --------------------- ------------
ETF 5.45% Korea 2.02%
----------- --------------------- ------------
Materials 3.23% Singapore 0.75%
----------- --------------------- ------------
Manufacturing 3.20% Thailand 0.66%
----------- --------------------- ------------
Property - Residential 2.65% India 0.51%
----------- --------------------- ------------
Agriculture 1.91% Taiwan 0.30%
----------- --------------------- ------------
Information Technology 1.53% Malaysia 0.23%
----------- --------------------- ------------
Financial Services 1.39% Vietnam 0.14%
----------- --------------------- ------------
Index Hedges 1.19% Indonesia 0.06%
----------- --------------------- ------------
Industrials 1.05% South Africa 0.02%
----------- --------------------- ------------
Utilities 0.54% New Zealand -0.01%
----------- --------------------- ------------
Consumer Discretionary 0.21% United States* -0.08%
----------- --------------------- ------------
Mining 0.16% 100.00%
----------- --------------------- ------------
Health Care 0.04%
-----------
Advisory 0.01%
-----------
Travel Services 0.01%
-----------
Telecommunication Services* -0.18%
-----------
Consumer Staples* -0.26%
-----------
Others* -0.39%
-----------
100.00%
-----------
*represents listed securities
sold short
CONSOLIDATED UNAUDITED STATEMENT OF ASSETS AND LIABILITIES
30 June 31 December
Note 2014 2013
US$ US$
Assets
Investment in Pacific Alliance Asia
Opportunity Fund L.P. through Pacific
Alliance Asia Opportunity Feeder
Fund III Limited, at fair value (Cost:
US$111,680,015; 2013: US$111,680,015) 4 167,403,167 159,330,906
Cash and cash equivalents 25,910 132,902
Other receivables 22,070 55,175
-------------------- --------------------
Total assets 167,451,147 159,518,983
------------------- -------------------
Liabilities
Directors' fee payable 8(e) 126,000 126,000
Accrued expenses and other payables 54,106 68,057
Due to Master Fund 268,270 -
-------------------- --------------------
Total liabilities 448,376 194,057
------------------- -------------------
Net assets 167,002,771 159,324,926
Analysis of net assets
Share capital 6 1,617,398 1,617,398
Share premium 6 160,614,136 160,614,136
Tendered shares 6 (84,852,736) (84,852,736)
Retained earnings 89,623,973 81,946,128
-------------------- --------------------
Net assets (equivalent to US$1.662
per share based on 100,456,123 outstanding
shares) (2013: US$1.586 per share
based on 100,456,123 outstanding
shares) 167,002,771 159,324,926
Approved by the Board of Directors
...........................................
Director
CONSOLIDATED UNAUDITED STATEMENT OF OPERATIONS
Period end Period end
30 June 30 June
Note 2014 2013
US$ US$
Income
Bank interest income 1 61
------------------- -------------------
Expenses
Directors' fees 8(e) 126,000 126,000
Other expenses 267,444 203,723
-------------------- --------------------
Total expenses from fund specific
activities 393,444 329,723
------------------- -------------------
Income and expenses allocated from
Pacific Alliance Asia Opportunity
Feeder Fund III Limited
Income allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited 4 2,130,925 1,178,750
Expenses allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited (5,212,667) (3,799,715)
-------------------- --------------------
Net investment loss allocated from
Pacific Alliance Asia Opportunity
Feeder Fund III Limited (3,081,742) (2,620,965)
------------------- -------------------
Net investment loss (3,475,185) (2,950,627)
------------------- -------------------
Realized and unrealized gains/(losses)
from investments allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited and foreign currencies
Net realized gains from investments
allocated from Pacific Alliance Asia
Opportunity Feeder Fund III Limited 5,287,425 5,493,808
Net change in unrealized gains on
investments allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited 7,886,926 4,396,039
Net foreign exchange losses (973) 813
-------------------- --------------------
Net realized and unrealized gains
from investments allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited and foreign currencies 13,173,378 9,890,660
------------------- -------------------
Net increase in net assets from operations
(before allocation of performance
fee to the General Partner of Pacific
Alliance Asia Opportunity Fund L.P.) 9,698,193 6,940,033
Allocation of performance fee to
the General Partner of Pacific Alliance
Asia Opportunity Fund L.P. (2,020,348) (1,451,892)
-------------------- --------------------
Net increase in net assets from operations 7,677,845 5,488,141
CONSOLIDATED UNAUDITED STATEMENT OF CHANGES IN NET ASSETS
Share
capital
and share Retained
Note premium Earnings Tendered shares Total
US$ US$ US$ US$
At 1 January 2014 162,231,534 81,946,128 (84,852,736) 159,324,926
Repurchase of shares 6 - - - -
Net increase in net
assets from
operations - 7,677,845 - 7,677,845
-------------------- ------------------ ------------------ --------------------
At 30 June 2014 162,231,534 89,623,973 (84,852,736) 167,002,771
At 1 January 2013 162,231,534 70,938,420 (64,349,046) 168,820,908
Repurchase of shares 6 - - (11,000,000) (11,000,000)
Net increase in net
assets from
operations - 5,488,141 - 5,488,141
-------------------- ------------------ ------------------ --------------------
At 30 June 2013 162,231,534 76,426,561 (75,349,046) 163,309,049
CONSOLIDATED UNAUDITED STATEMENT OF CASH FLOWS
Period end Period end
30 June 30 June
2014 2013
US$ US$
Net increase in net assets from operations 7,677,845 5,488,141
Adjustments to reconcile net increase in
net assets from operations to net cash generated
from operating activities
Income allocated from Pacific Alliance Asia
Opportunity Feeder Fund III Limited (2,130,925) (1,178,750)
Expenses allocated from Pacific Alliance
Asia Opportunity Feeder Fund III Limited 5,212,667 3,799,715
Net realized gains from investments allocated
from Pacific Alliance Asia Opportunity Feeder
Fund III Limited (5,296,903) (5,493,808)
Net unrealized gains from investments allocated
from Pacific Alliance Asia Opportunity Feeder
Fund III Limited (7,877,448) (4,396,039)
Allocation of performance fee to General
Partner of Pacific Alliance Asia Opportunity
Fund LP 2,020,348 1,451,892
Decrease in other receivables 33,105 33,082
Increase/(decrease) in accrued expenses
and other payables (13,951) 101,126
Increase in due to related parties 268,270 -
-------------------- --------------------
Net cash used in operating activities (106,992) (196,641)
------------------- -------------------
Cash flows from financing activities
Repurchase of shares - -
-------------------- --------------------
Net cash used in financing activities - -
------------------- -------------------
Net decrease in cash and cash equivalents (106,992) (196,641)
Beginning balance 132,902 323,005
-------------------- --------------------
Ending balance, representing cash and bank
balances 25,910 128,364
NOTES TO THE CONSOLIDATED UNAUDITED INTERIM FINANCIAL
STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2014
1 Organization
Pacific Alliance Asia Opportunity Fund Limited (the "Company")
was incorporated on 4 May 2006 in the Cayman Islands as a
closed-end Cayman Islands registered exempted company. The
Company's ordinary shares are traded on the AIM market of the
London Stock Exchange. The Company can raise additional capital up
to the authorized share capital as disclosed in Note 6. The
Company's registered office is PO Box 472, 2nd Floor, Harbour
Place, Grand Cayman, Cayman Islands.
Since the reconstruction approved by an extraordinary general
meeting held on 7 May 2009 (the "Reconstruction"), the Company
invests substantially all its assets in Pacific Alliance Asia
Opportunity Fund L.P. (the "Master Fund"), a Cayman Islands
exempted limited partnership, through a 10.15% (2013: 10.86%)
interest in Pacific Alliance Asia Opportunity Feeder Fund III
Limited (the "Feeder Fund"). As at 30 June 2014, the Company
indirectly held approximately a 7.72% (2013: 7.34 %) interest in the Master Fund.
The Company's investment activities are managed by Pacific
Alliance Investment Management Limited (the "Investment Manager").
The Company has appointed Butterfield Trust (Bermuda) Limited to
act as custodian of certain assets of the Company and MUFG Fund
Services (Ireland) Limited (formerly known as Butterfield Fulcrum
Group (Ireland) Limited) to act as the Company's administrator
pursuant to the custodian agreement and administration services
agreement, respectively.
The consolidated financial statements were approved by the Board
of Directors on 30 September 2014.
2 Summary of significant accounting policies
The following significant accounting policies are in conformity
with accounting principles generally accepted in the United States
of America ("US GAAP"). The Company applies the provisions of
Financial Accounting Standards Board ("FASB") ASC 946-10, Financial
Services - Investment Companies (the "Guide"). Such policies are
consistently followed by the Company in the preparation of its
consolidated financial statements.
(a) Principles of consolidation
These consolidated financial statements include the financial
statements of the Company and its subsidiaries (collectively 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-company transactions between group
companies are eliminated upon consolidation.
The Fund uses wholly and partially owned special purpose
vehicles ("SPV") to hold and transact in certain investments and
lending. 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 company provides services to the Fund,
investment in an operating company is carried at fair value (refer
to Note 2(c)(ii) for fair value measurement).
(b) Use of estimates
The preparation of 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 30 June 2014 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 consolidated financial statements are
disclosed in Note 2(h).
(c) Investments
(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.
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 statement
of operations.
(ii) Fair value measurement
The Fund is an investment company under the Guide. As a result,
the Fund records and re-measures its investment in the Feeder Fund
on the consolidated statement of assets and liabilities at fair
value. The fair value of the Fund's investment in the Feeder Fund
is based on the net asset value ("NAV") of the Feeder Fund as
determined by its administrator and Investment Manager. The Feeder
Fund is open to subscription on a monthly basis and redemption on a
quarterly basis, based on the NAV calculated by its administrator
and the Investment Manager considers that it is an appropriate
basis for the fair value of the Fund's investment in the Feeder
Fund.
The Fund records its proportionate interest in the net assets of
the Feeder Fund. The Fund records and reflects its proportionate
share of the Feeder Fund's income, expenses, and realized and
unrealized gains and losses from investments in the consolidated
statement of operations. As a result, no realized and unrealized
gains or losses from investment in the Feeder Fund are recognized.
In addition, the Fund accrues its own income and expenses. The
performance of the Fund is directly affected by the performance of
the Master Fund. Attached are the unaudited interim consolidated
financial statements of the Master Fund, including the consolidated
schedule of investments, valuation policy and period end investment
valuation, which should be read in conjunction with these
consolidated financial statements.
(d) 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 and highly liquid
investments that are readily convertible to known amounts of cash
and have original maturities of three months or less.
(e) 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 rate 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.
(f) 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/or gains earned. Taxes are accrued and applied to net
investment income, net realized gains and net unrealized gains, as
applicable, when the income and/or 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 FASB ASC
740 described in Note 5.
The Fund uses the asset and liability method to provide for
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.
(g) 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.
The Fund also records its proportionate share of the Feeder
Fund's income and expenses. Please refer to note 2(c)(ii) for
details.
(h) 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. The 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 are addressed below.
(i) Fair value of investment in the Feeder Fund
As discussed in note 2(c)(ii), the fair value of the Fund's
investment in the Feeder Fund is based on the NAV of the Feeder
Fund as determined by its administrator and Investment Manager. The
Feeder Fund invests substantially all its assets in the Master
Fund. The fair value of unlisted or unquoted securities in the
Master Fund is determined by using valuation techniques. The
valuation committee of the Master Fund ("Valuation Committee"),
with assistance from independent valuers, uses their judgment to
select a variety of methods and make assumptions that are mainly
based on market conditions existing at the end of each reporting
period.
Although the Valuation Committee uses their best judgment in
estimating fair value, there are inherent limitations in any
valuation technique. Estimated fair value may differ significantly
from the value that would have been used had a readily available
market for such investments existed and these differences could be
material to the Fund's consolidated financial statements.
Additional information about the level of market observability
associated with investments carried at fair value is disclosed in
Note 4 below.
(ii) Taxation
The Fund may be subject to income taxes in jurisdictions in
which it invests and operates. Significant judgment is required in
determining the worldwide provision for income taxes. There are
many transactions and calculations for which the ultimate tax
determination is uncertain. The Fund recognizes liabilities for
anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these
matters is different from the amounts that were initially recorded,
such differences will impact the current and deferred income tax
assets and liabilities in the period in which such determination is
made.
3 Concentration of risks
(a) "Master-feeder" structure
Since the Reconstruction, the Fund operates a "master-feeder"
structure and invests solely in the Master Fund through the Feeder
Fund. The "master-feeder" structure presents certain risks to the
Fund. The Feeder Fund will incur expenses and liabilities that will
be paid prior to making distributions to the Fund. The Fund may be
materially affected by the actions of other investors in the Master
Fund and the Feeder Fund. Consequently, if other investors redeem
from the Master Fund and the Feeder Fund, the Fund may experience
higher pro-rata operating expenses. The financial risks of the Fund
are associated with those of the Master Fund which are discussed in
Note 3 of the Master Fund's financial statements.
(b) Market risk
Market risk represents the potential loss in value of financial
instruments caused by movements in market variables, such as equity
prices.
The market risk that the Fund is exposed to is from the
investments held by the Master Fund, of which the investments are
typically 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 Master Fund's
investments and the respective markets to become less liquid and
also the prices to become more volatile.
(c) 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 and the Master Fund has certain
investments that collectively expose the Fund to interest rate
risk.
(d) Currency risk
Foreign currency risk arises as the value of future
transactions, recognised monetary assets and monetary liabilities
denominated in other currencies, fluctuates due to changes in
foreign exchange rates.
As at 30 June 2014 and 31 December 2013, the majority of the
Fund's assets and liabilities are denominated in US$, the
functional currency. As such, the Fund is not subject to material
currency risk. However, the Fund is indirectly exposed to currency
risks from the investments held by the Master Fund.
(e) Credit risk
The main credit risk to which the Fund is exposed arises from
the Fund's indirect investment in the Master Fund which is closely
monitored by the Investment Manager.
(f) Liquidity risk
As the Company is closed-ended, it is not exposed to redemptions
of shares by its shareholders.
The Fund is exposed to liquidity risk as the Fund's investments
in the Feeder Fund are largely illiquid. Redemptions of interest in
the Feeder Fund are subject to a 12 months lock up in the first
year of investment and an additional notice period of 180 days.
The Fund has the ability to borrow in the short term but subject
to certain limitations, including the total amount of all
borrowings outstanding at any time shall not exceed 50% of the
Fund's total assets at such time.
4 Investments in Pacific Alliance Asia Opportunity Fund L.P.
As at 30 June 2014, the Feeder Fund was 10.15% (2013: 10.86%)
held by the Fund and 89.85% (2013: 89.14%) held by unrelated
investors. As at 30 June 2014, the Feeder Fund held 76.11% in the
Master Fund (2013: 67.64%).
In accordance with FASB ASC 820-10, Fair Value Measurement and
Disclosures, the Fund categorizes the fair value of its investments
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). FASB ASC 820-10-35-39 to 55 provides three levels of
the fair value hierarchy 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 to measure fair values are quoted prices in markets that
are not active, quoted prices for similar assets in active markets
or prices or valuations for which all significant inputs are
observable, either directly or indirectly. 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; and
Level 3
Inputs that are unobservable and significant to the overall fair
value measurement.
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 Investment Manager 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 Investment
Manager's perceived risk of that asset or liability.
In determining an instrument's placement within the hierarchy,
the Investment Manager follows the following guidance for
investments held by the Fund:
Level 1
Investments in listed stocks, bonds and derivatives are valued
using quoted prices in active markets and are therefore generally
classified within Level 1 of the fair value hierarchy.
As at 30 June 2014 and 31 December 2013, the Fund did not have
any investments that were categorized as Level 1 within the fair
value hierarchy.
Level 2
It may be possible that the NAV of unlisted investment funds
represents their fair value based on observable inputs such as
ongoing subscription and/or redemption activities. In these cases,
the NAV is considered as a Level 2 input.
The NAV of the Feeder Fund is used to value the Fund's
investment in the Feeder Fund as the Investment Manager believes it
represents the fair value based on observable data such as ongoing
redemption and/or subscription activities. As at 30 June 2014 and
31 December 2013, the Fund's investment in the Feeder Fund is
included in Level 2.
Level 3
Assets are classified within Level 3 of the fair value hierarchy
if they are traded infrequently and therefore have little or no
price transparency. As at 30 June 2014 and 31 December 2013, the
Fund had no investments that were categorized as Level 3 within the
fair value hierarchy. The investments within the Master Fund range
from Level 1 to Level 3.
The Fund accounts for and reflects in the consolidated financial
statements the proportionate share of the investment in the Feeder
Fund. The table below summarizes the investment income allocated
from the Master Fund through the Feeder Fund during the period
ended 30 June 2014 and 30 June 2013:
30 June 30 June
2014 2013
US$ US$
Loan origination income - 15,666
Interest income 1,107,174 197,352
Bank interest income 589,998 203,875
Dividend income 431,846 676,643
Other income 1,907 85,214
---------------- ----------------
Income allocated from the Master Fund
through the Feeder Fund 2,130,925 1,178,750
5 Taxation
The Fund adopted the authoritative guidance contained in FASB
ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which requires the Investment Manager 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. The Investment Manager has analyzed the tax positions
and tax years in the jurisdictions that the Fund may be subject to.
For tax positions meeting the more likely than not threshold, the
tax amount recognized in the consolidated 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 Investment Manager have reviewed the operation and
investment structure of the Fund and considered there is no
material uncertain tax position at 30 June 2014.
Under current Cayman Islands legislation applicable to an
exempted company, the Fund is not subject to income tax, capital
gains or withholding tax, estate duty, or inheritance tax.
6 Share capital, share premium and tendered shares
Share Share Tendered
Number of capital premium Shares Total
shares US$ US$ US$ US$
At 1
January
2014 100,456,123 1,617,398 160,614,136 (84,852,736) 77,378,798
Repurchase
of shares - - - - -
-------------------- -------------------- -------------------- -------------------- --------------------
At 30 June
2014 100,456,123 1,617,398 160,614,136 (84,852,736) 77,378,798
At 1
January
2013 113,689,591 1,617,398 160,614,136 (64,349,046) 97,882,488
Repurchase
of shares - - - (11,000,000) (11,000,000)
-------------------- -------------------- -------------------- -------------------- --------------------
At 30 June
2013 113,689,591 1,617,398 160,614,136 (75,349,046) 86,882,488
As at 30 June 2014, the total authorised number of ordinary
shares was 5,000,000,000 (2013: 5,000,000,000) shares with a par
value of US$0.01 (2013: US$0.01) per share. As at 30 June 2014, the
Company had 161,739,827 (2013: 161,739,827) ordinary shares in
issue, of which 61,283,704 (2013: 61,283,704) were held as tendered
shares.
7 Dividends
The directors do not recommend the payment of a dividend for the
period ended 30 June 2014 and 30 June 2013.
8 Related-party transactions
The Fund had the following significant related-party
transactions.
(a) Investment in Pacific Alliance Asia Opportunity Fund L.P.
The Fund invests in the Master Fund via the Feeder Fund, both of
which are managed by the Investment Manager. Please refer to Note 4
for details.
(b) Company's shares held by the Investment Manager and its subsidiary
During the period 30 June 2014, the Investment Manager and its
subsidiary entered into the following transactions in the Company's
shares:
- transferred 574,161 shares of the Company to directors or
management of the Investment Manager and its subsidiaries.
During the year ended 31 December 2013, the Investment Manager
and its subsidiary entered into the following transactions in the
Company's shares:
- tendered 659,873 shares of the Company at US$1.530 for
repurchase by the Company in July 2013;
- tendered 560,804 shares of the Company at US$1.570 for
repurchase by the Company in December 2013;
- transferred 865,425 shares of the Company to directors or
management of the Investment Manager and its subsidiaries.
As at 30 June 2014, the Investment Manager and its subsidiary
held 4,809,901 (2013: 5,384,062) shares of the Company,
representing 4.8% (2013: 5.4%) of the Company's total outstanding
shares.
(c) Company's shares held by the Master Fund
During the period ended 30 June 2014, the Master Fund purchased
20,730,708 shares of the Company on the open market (for the period
ended 30 June 2013: purchased Nil and sold Nil shares). As at 30
June 2014, the Master Fund held 27,397,526 (2013: 6,666,818) shares
of the Company, representing 27.27% (2013: 6.6%) of the Company's
total outstanding shares.
(d) Management fees and performance allocations to the Investment Manager
Before the Reconstruction, the Fund paid management fees and
performance allocations directly to the Investment Manager. The
Investment Manager is no longer entitled to receive management fees
or performance allocations from the Fund.
(e) Directors' fees and expenses
The Company pays each of its directors an annual fee of
US$70,000 (2013: US$70,000) plus out-of-pocket expenses and its
valuation committee an annual fee of US$14,000 (2013:
US$14,000).During the period ended 30 June 2014, two directors of
the Fund, Christopher Marcus Gradel and Anthony Murray Miller,
agreed to waive their annual fees.
9 Financial highlights
NAV per share at the end of the period is as follows:
Period end Period end
30 June 2014 30 June 2013
US$ US$
Per share data
(for a share outstanding throughout
the period):
At beginning of the period 1.586 1.485
Net investment loss (0.035) (0.006)
Net realized and unrealized gains from
investments 0.131 0.087
Allocation of performance fee (0.020) (0.033)
------------ ------------
At end of the period 1.662 1.533
The following represents the ratios to average net assets and
other supplemental information:
Period end Period end
30 June 2014 30 June 2013
Total return (1) 4.64% 3.23%
Ratios to average net assets (2)
Total expenses (other than performance
fee) (3) (9.22%) (6.57%)
Net investment loss (3.32%) (2.59%)
(1) Total return represents the change in NAV, adjusted for cash
flows in relation to capital transactions for the period.
(2) Average net assets is derived from the beginning and ending
monthly NAV, adjusted for cash flows related to capital
transactions for the period ended 30 June 2014. For the period
ended 30 June 2014, the average net assets amounted to
US$165,467,766 (2013: US$168,876,492).
(3) The total expenses ratio represents the total expenses of
the Fund including both general and investment level expenses.
10 Commitment and contingency
In the normal course of business, the Fund, the Master Fund and
the Feeder Fund may enter into arrangements that contain a variety
of representations and warranties that provide general
indemnification under certain circumstances. The Fund, the Master
Fund and the Feeder Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that
may be made against the Fund, the Master Fund and the Feeder Fund
that have not yet occurred. However, based on experience, the
Investment Manager expects the risk of loss to be remote and,
therefore, no provision has been recorded.
11 Subsequent events
The Investment Manager has performed a subsequent events review
from 1 July 2014 through to 30 September 2014, being the date that
the consolidated financial statements were authorized for issuance.
Management concluded there is no material subsequent event that
required additional disclosure in these consolidated financial
statements.
The Company announced a 6% distribution in July 2014 by way of a
tender offer and was fully settled by early September 2014.
A program will be commenced by the Master Fund to purchase
Company shares up to US$30,00,000 over the next six months. This
program will be executed by the Master Fund to allow greater
flexibility in the timing of the execution of the purchases given
the terms of the program.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UKARRSRAKUUR
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