RNS Number:7663G
London Asia Chinese Private Equity
01 November 2007
LONDON ASIA CHINESE PRIVATE EQUITY FUND LIMITED
RESULTS FOR THE PERIOD 23 FEBRUARY 2006 TO 31 March 2007
Highlights:
* Net assets at 31 March 2007 of #66.5 million, equal to 133.05 pence per share;
* Profit for the period of #18.4 million, equal to 36.75p per share;
* Company substantially invested in 14 investments;
* Investments up 52% on cost; and
* 59% of portfolio by value quoted.
Suspension
In accordance with the AIM Rules, on 27 September 2007 all trading of the Ordinary Shares and Warrants was
temporarily suspended, pending the publication of the Company's audited financial statements.
The audited financial statements will be available on the Company's website and will also be posted to
Shareholders on 1 November 2007. Suspension of the Ordinary Shares and Warrants is expected to be lifted
at the opening of trading on 1 November 2007.
For further information please visit www.londonasiafunds.com or contact:
John West / Andrew Dunn Robert Leighton Simon Littlewood Hugh Field
Tavistock Communications Chairman Director Collins Stewart Europe Limited
Tel: +44 20 7920 3150 Tel: +44 7918 034 315 Tel: +852 9840 5412 Tel: +44 20 7523 8000
CHAIRMAN'S STATEMENT
I am pleased to present the first audited results of the Company for the period ended 31 March 2007.
The Company was incorporated on 23 February 2006. On 15 March 2006 the Company raised gross proceeds of #50.0 million
(net proceeds of #48.1 million) through the issue of 50 million Ordinary Shares at 100.0 pence each with Warrants
attached on the basis of one Warrant for every five Ordinary Shares issued. The Company's issued securities began
trading on AIM, a market operated by the London Stock Exchange, on 15 March 2006.
Results
As detailed in the following statements, your company made strong progress during the period from launch to 31 March
2007. The Company achieved a net profit for the period ended 31 March 2007 of #18.4 million, representing a profit per
Ordinary Share of 36.75 pence. The net asset value at 31 March 2007 was #66.5 million (133.05 pence per Ordinary
Share).
During the period the Company built up an investment portfolio of fourteen investments at a cost of #43.5 million. At
31 March 2007 the investments had a fair value of #65.9 million, an unrealised gain of 51.6% on cost. Details of these
investments are set out in the Investment Consultant's Report. #11.6 million (17.6%) of the investments have been
stated at original cost. Investments with an original cost of #31.9 million have been shown at a fair value of #54.3
million. Fair value was determined based on market price where the stock was quoted, latest financing valuation where
follow on financing was achieved, or a multiple of post tax profits of 8 for those investments not quoted or
re-financed. As part of the audit, an independent third party valuation firm was appointed to review the valuation
method, for those investments not listed on SESDAQ or carried at cost, and report to the auditors.
Of the fourteen investments, three were already listed in Singapore at the time we invested, and four floated on the
UK's PLUS market post our investment. 58.9% of our investment portfolio (by fair value) is quoted, providing
Shareholders with visibility as to the value of the assets in the Company.
Investment Environment
Three of our investments were in listed companies because it is our belief that the market price of these businesses
did not reflect their true potential (and one has been sold since the period end at a considerable profit).
In addition, in September 2006 revised regulations governing the transfer of Chinese assets outside China, "Ordinance
10", as it is called, came into effect. The Chinese Government subsequently brought in additional measures to regulate
investment by foreigners in Chinese assets and their listing outside China. The impact of these various rules is to
restrict the ability of non-Chinese investors to acquire assets in China, and for Chinese businesses to list outside
China, with the assumption that permission will only be given in circumstances where the same result cannot be achieved
without foreign involvement. Many of the tax preferences that foreign invested businesses in China received have also
been removed, levelling the playing field between foreign and local investors. This is part of the Chinese
Government's plans to develop their domestic financial services businesses and expand the range of savings products
offered to Chinese citizens.
These regulations considerably restrict the range of assets that non-Chinese investors, such as the Company, can invest
in. The Chinese stock market has re-opened, and been one of the best performing markets worldwide, encouraging Chinese
businesses to raise money and list locally, rather than looking overseas. Foreign incorporated businesses are
currently excluded from listing on the Chinese markets, so those Chinese businesses that accept foreign rather than
local investment risk excluding themselves from the ability to list in China, where valuations for Chinese businesses
are generally considerably higher than can be achieved outside China.
The Chinese Government has been actively encouraging the creation of venture capital and private equity funds within
China, often as joint ventures with foreign groups who are faced with restrictions on their ability to get access to
Chinese deals in the current environment. There is substantial liquidity within China, as a result of the profits
generated by Chinese businesses, the booming economy and stock market, money raised for the big Chinese banks from
their stock market listings, and foreign direct investment.
With the Company substantially invested and holding a portfolio of Chinese assets, we see the new rules and current
investment environment as being beneficial to our business. Those businesses already listed outside China or
restructured under the old regulations are likely to have increased value, as there are fewer opportunities for foreign
investors to invest in new Chinese deals. Therefore, investors are forced to look at existing deals that fall outside
the new regulations. The increasing liquidity within China pushes up the value of Chinese assets, which should feed
through to the value of our portfolio businesses.
Suspension
In accordance with the AIM Rules, on 27 September 2007 all trading of the Ordinary Shares and Warrants was temporarily
suspended, pending the publication of the Company's audited financial statements.
The delay in the publication of the financial statements arose from unforeseen requirements resulting from the audit
process. The independent Directors initiated a review of the implementation of certain contractual and operational
procedures and the Board is committed to ensuring that issues that impacted the publication of this year's audited
financial statements will not affect future reporting deadlines.
The audited financial statements will be available on the Company's website and will also be posted to Shareholders on
1 November 2007. Suspension of the Ordinary Shares and Warrants will be lifted on 1 November 2007.
Outlook
The current financial year has started well. Since the period end one more investment has been made, at a cost of #2.7
million, and the investment in Devotion Energy Group was sold in May 2007 for #2.6 million, a realised gain of #1.6
million.
Given the significant discount to published net assets that the Company's share price is currently trading at, and the
changed investment environment since the Company was launched, the Board does not feel it is in Shareholders' interests
at this point to expand the Company via the issue of new shares. The Company is focusing on realising the value of the
portfolio through trade sales, IPOs and follow on financings. Since the period end, we have assisted two of our
portfolio businesses to raise a total of US$80 million in follow-on funding. The Board will take a view at the time
that it realises investments as to whether to reinvest, return cash to shareholders, buy back shares, or take some
other action, dependent on the circumstances and likely returns for Shareholders. With the basis of the valuation of
the portfolio now established and endorsed, we hope to be able to provide more regular and timely updates going
forward.
I would like to take the opportunity to thank the former Chairman John Manser, Chris Hill and Duncan Baxter, all
original directors at the time of the float of the Company who have now left the Board, for their contribution to the
success of the Company.
Having been a visitor to China for thirty years I see no end in sight to China's re-emergence as a powerful trading
nation, and increasing allocation of global funds to Asia as international investors weigh up the relative growth
prospects and risks. We look forward to continuing to realise value for Shareholders.
R Leighton
31 October 2007
INVESTMENT CONSULTANT'S REPORT
1. Overview
The Company had a successful first year of operation and fully committed the #48 million raised at IPO within its first
year of operation. There has already been one complete exit and several other businesses have achieved a listing on the
UK's PLUS market since our investment, as a result of which 59% of the investment portfolio is currently quoted, giving
transparency as to the portfolio value.
The investment portfolio is showing a 52% increase over cost, a considerable achievement given that the bulk of the
investment was made in the second half of the year.
The bulk of the funds have been invested in the energy and environment sector, where the Investment Consultant has
particular expertise, and where we believe there are significant opportunities. The remainder is invested in the
consumer sector, which is benefiting strongly from the increasing wealth of Chinese and the development of the economy
from an agricultural to a manufacturing and consumer led economy.
2. The Investment Environment
Since the Company was launched, there have been a number of macro factors influencing the investment strategy and
performance of the Company:
* The implementation in September 2006 and since of a range of measures designed to restrict investment by foreign
funds in Chinese businesses and assets, and list Chinese businesses overseas. The Chinese Government continues
to discourage foreign private equity investment, other than in specific types of transactions where the investor is
bringing more than just cash, such as expertise or technology that is not readily available in China;
* The re-opening of China's stock market, and surge in its valuations and liquidity. With the number of retail
brokerage accounts surging past the 100 million level, a slug of the estimated US$1.3 trillion of personal savings
is being diverted into the Chinese Stock Market, causing surging liquidity and valuations to levels considerably
higher than could be achieved for similar assets outside China. The Chinese Government has on several occasions
recently publicly announced that it would like to see fewer listings of Chinese businesses overseas and more
listings locally;
* The emergence of private equity firms within China, often backed by provincial or national Government.
Whilst there are considerable numbers of businesses in China that fall outside the various regulations, or have a
genuine commercial reason for seeking overseas funds or listings, the cumulative effect of these various changes has
been to:
* Restrict the number of deals that are available to foreign financial investors, as Chinese businesses seek to
list locally, raise funds locally, or are prevented by the regulations from accepting foreign cash;
* The consequent shortage of deal flow, coupled with a surge in foreign funds raised for investment in China,
has pushed up the valuations of Chinese private businesses which are suitable for foreign investment, with more
money chasing fewer deals.
Given the above, the market for our existing investments is very strong, as there is continued oversupply of cash and
shortage of deals that foreign investors can invest in. We are seeking next round financing for a number of our
portfolio businesses, similar to the US$80 million raised recently for our investee companies, Asia Water Technology and
China New Energy, the last of which was done at a multiple of the value we invested at last year.
Conversely, competition for new deals to invest in is cut-throat. The smart money has switched to investing in Chinese
businesses just prior to an IPO in China, taking advantage of the high valuations and liquidity in China. The Company
as currently structured faces restrictions doing this.
More recently, the Chinese Government has begun implementing measures to allow Chinese citizens to invest some of their
capital in stocks listed on the Hong Kong Stock Exchange ("HKSE"). Whilst the details are yet to be finalised, with a
recent announcement indicating that the total amount to be invested will be limited to US$100 billion, the effect has
been to create a renewed surge in valuations on the HKSE, with the market up considerably since the announcement. We are
looking at ways that we can take advantage of this to list some of our investments in Hong Kong, though this is only
suitable for part of the portfolio as investors in the Hong Kong market tend to be focused on larger deals than the
Company typically invests in.
The recent collapse in confidence in the value of a range of financial assets in the US and Europe has not so far had a
significant effect on Chinese assets, as they tend to be less geared and there are considerable levels of cash in the
region. If anything, we are seeing increasing allocation of assets away from Europe and the US towards Asia.
3. Outlook
With the Company substantially invested, and continued enthusiasm for Chinese assets, we look forward to a busy year
realising the potential of the investment portfolio.
S Littlewood and V Ng
31 October 2007
The financial information set out in this announcement does not constitute the Company's statutory
financial statements for the period ended 31 March 2007. The results for the period ended 31 March 2007
are audited.
INCOME STATEMENT
for the period from 23 February 2006 to 31 March 2007
23 February 2006 to
31 March 2007
Note #'000
Income
Net unrealised change in fair value of investments 4 22,428
Other income 1,516
------------
Total income 23,944
------------
Expenses
Provision for performance fee (3,345)
Investment Consultant's fees (1,009)
Introductory fees (832)
Administration fees (131)
Directors' fees (93)
Audit fees (29)
Custodian fees (18)
Other expenses (113)
------------
Total expenses (5,570)
------------
Profit for the period 18,374
------------
Earnings per share - basic and fully-diluted 3 36.75p
All the items in the above statement are derived from continuing operations.
BALANCE SHEET
as at 31 March 2007
Note 31 March 2007
#'000
Non-current assets
Investments at fair value through profit and loss 4 65,905
----------
Current assets
Financial asset at fair value through profit and loss 5 335
Other receivables and prepayments 54
Cash and cash equivalents 12,321
----------
12,710
----------
Total assets 78,615
----------
Current liabilities
Payables and accruals 6 (12,092)
----------
Net assets 66,523
----------
Capital and reserves attributable to equity holders of the Company
Called-up share capital 500
Warrant reserve 2,293
Distributable reserves 63,730
----------
Total equity shareholders' funds 66,523
----------
Net Asset Value per Ordinary Share - basic 7 133.05p
Net Asset Value per Ordinary Share - fully diluted 7 130.87p
STATEMENT OF CHANGES IN EQUITY
for the period from 23 February 2006 to 31 March 2007
Share Share Warrant Distributable
capital premium reserve reserve
Total
#'000 #'000 #'000 #'000 #'000
Gross proceeds of placing 500 47,207 2,293 - 50,000
Issue costs - (1,851) - - (1,851)
Cancellation of share premium - (45,356) - 45,356 -
Profit for the period - - - 18,374 18,374
---------- ---------- ---------- ---------- ----------
Balance at 31 March 2007 500 - 2,293 63,730 66,523
---------- ---------- ---------- ---------- ----------
STATEMENT OF CASH FLOW
for the period from 23 February 2006 to 31 March 2007
23 February 2006 to
31 March 2007
Note
#'000
Operating activities
Bank interest received 1,486
Investment Consultant's fees paid (1,009)
Introductory fees paid (636)
Administration fees paid (100)
Directors' fee paid (63)
Other expenses paid (150)
----------
Net cash outflow from operating activities 8 (472)
Investing activities
Purchase of fair value through profit or loss investments (35,021)
Loan to investee company 5 (335)
----------
Net cash outflow from investing activities (35,356)
----------
Financing activities
Issue of Ordinary Shares and Warrants 50,000
Issue costs (1,851)
----------
Net cash inflow from financing activities 48,149
----------
----------
Net increase in cash and cash equivalents 12,321
----------
NOTES TO THE RESULTS
for the period from 23 February 2006 to 31 March 2007
1. General information
The Company is a closed-ended investment company domiciled and incorporated as a limited liability company under the
laws of Guernsey.
The Company's objective is to provide Shareholders with capital growth from investing in a portfolio of companies whose
business operations are based in China. The Company invests as sole or lead investor in profitable, well-managed
businesses whose business operations are based in China, and which the Executive Directors and Investment Consultant
believe could generate significant growth in profits from the investment of additional capital.
The Company's investment activities are managed by London Asia Capital (S) PTE Limited, with the administration
delegated to Elysium Fund Management Limited.
The Company's Ordinary Shares and Warrants are traded on AIM, a market operated by the London Stock Exchange.
2. Critical Accounting Estimates and Judgements
The Board of Directors and the Investment Consultant makes estimates and assumptions concerning the future. 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 outlined below:
Fair value of unquoted and PLUS quoted securities
The fair value of unquoted securities that are not quoted in active markets is determined by using valuation techniques
in accordance with the International Private Equity and Venture Capital Guidelines. The valuations used to determine
fair values are validated and periodically reviewed by experienced personnel. The valuations are based on a mixture of:
- third party financing (if available);
- PE ratios;
- cost, where the investment has been made during the period and no further information has been available to
indicate that cost is not an appropriate valuation; and
- bid prices of PLUS quoted investments to support any of the three techniques mentioned above.
Functional currency
The Board of Directors considers Sterling to be the currency that most faithfully represents the economic effect of the
underlying transactions, events and conditions
3. Earnings per Ordinary Share
The earnings per share is based on profit for the period of #18,374,000 and on a weighted average number of 50 million
Ordinary Shares in issue during the period.
The average price of the Ordinary Shares during the period, of 112.25p, was less than the exercise price of the Warrants
(120.0p). Therefore, there was no dilution in the return per Ordinary Share.
4. Investments at Fair Value Through Profit and Loss
23 February 2006 to
31 March 2007
#'000
Designated at fair value through profit and loss:
Opening valuation -
Purchases at cost 43,477
Net unrealised change in fair value of investments 22,428
---------------
Closing valuation 65,905
---------------
Closing book cost 43,477
Closing unrealised gain 22,428
---------------
Closing valuation 65,905
---------------
The results include an amount of #7,312,000 recognised in the Income Statement relating to a change in fair
value using a price earnings multiple of comparable companies.
As part of the audit, an independent third party valuation firm was appointed to review the valuation method,
for those investments not listed on SESDAQ or carried at cost, and report to the auditors.
5. Financial Asset at Fair Value Through Profit and Loss
On 3 January 2007 the Company paid Devotion Energy Group S$1 million (#333,444). This unsecured loan bears
interest at 18.0% in Singapore Dollars and was repaid in full on 30 April 2007.
6. Payables and Accruals
31 March 2007
#'000
Investments awaiting settlement 8,456
Provision for performance fee 3,345
Introductory fees payable 196
Other creditors and accruals 95
---------------
12,092
---------------
7. Net asset value per Ordinary Share
Basic
The basic net asset value per Ordinary Share is based on the net assets attributable to equity shareholders of
#66,523,000 and on 50 million Ordinary Shares in issue at the end of the period.
Fully-diluted
The 31 March 2007 price of the Ordinary Shares, of 120.5p, was above the exercise price of the Warrants (exercise price
of 120.0p). Therefore, the fully-diluted net asset value per share is based on net assets of #78,523,000 and on 60
million Ordinary Shares.
8. Reconciliation of Net Profit Before Investment Result to Net Cash Outflow from Operating Activities.
23 February 2006
to 31 March 2007
#'000
Net profit for the period 18,374
Unrealised gain on revaluation of investments (22,428)
Movement in receivables and prepayments (54)
Movement in payables and accruals (excluding investments awaiting settlement) 3,636
---------------
Net cash outflow from operating activities (472)
---------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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