ADAM.L Regulatory News (ADAM)

ADAMAS FINANCE ASIA LIMITED

Proposed Change to the Investing Policy and Notice of General Meeting

The Board of ADAM announces that a circular in relation to a proposed change to the Investing Policy and incorporating a notice of General Meeting is today being sent to Shareholders and will be available on the Company's website at www.adamasfinance.com with effect from 23 March 2015.

Background to and reasons for the change to the Investing Policy

The Company's current Investing Policy, as set out in the Company's admission document of 30 January 2014 (the "Admission Document") (as amended by resolution 4(C) approved at an annual general meeting of the Company held on 11 July 2014), is as follows:

· The transactions will be structured as senior debt, bridge loans, mezzanine finance and other types of structured private financing.

· Target companies will be SMEs in Asia with a focus on Greater China.

· The Company is generally sector agnostic, but will focus on agriculture, clean energy, consumer, food and beverage, healthcare, new materials, real estate and resources.

· The average maturity of the transactions will range from 6 to 24 months.

· Each new asset will have a targeted internal rate of return of 20% per annum.

· The investment in each new asset will not represent more than 20% of the Company's net asset value immediately following the transaction.

· The Company has an indefinite life and is targeting both capital and income returns over time for its Shareholders.

· Assets will be managed actively, including through appropriate investor protections which will be negotiated on each transaction.

· The Company will not use debt to finance individual investments, but may take on debt at the Company level with no specific limit.

· The Company is designed for investors seeking exposure to yield-producing investment opportunities in Asia.

Following the reverse takeover which completed on 18 February 2014, the Company's principal assets were indirect interests in five companies based in mainland China. On 18 December 2014, the Company announced that it had agreed the redemption of the whole of the convertible bond held in the pharmaceutical company, Global Pharm Holdings Group Inc., for an aggregate cash consideration of US$25 million (the "Redemption"). Of this sum, US$2.4 million has been received with a further US$9 million due on 31 March 2015 and a final payment of US$13.6 million on 30 April 2015.

The Redemption is in line with the Company's strategy of realising value from the current asset portfolio to generate cash for reinvestment in accordance with the Investing Policy.

In advance of the receipt of the majority of the funds from the Redemption, the Company is proposing the Resolution to amend the Investing Policy to the following:

1. The Company has an indefinite life and is targeting both capital and income returns over time for its Shareholders.

2. The Company will provide credit finance to companies, principally SMEs in Asia with a focus on Greater China. It will seek to do this by either:

· providing finance directly to companies, in particular where such companies are held through offshore structures or are otherwise already majority owned or controlled by non-PRC investors ("Direct Financings"); and

· providing finance indirectly to companies, whereby the Company will become a limited partner or shareholder in an existing affiliated or third party fund which itself has a strategy to invest in underlying companies which need credit finance ("Financing Through Funds").

3. The key parameters of the financing transactions in which the Company will participate, whether as Direct Financings or Financing Through Funds, are:

· target companies are SMEs in Asia with a focus on Greater China;

· financing will be generally sector agnostic, but will focus on agriculture, clean energy, consumer, food and beverage, healthcare, new materials, real estate and natural resources; and

· the average maturity of transactions will range from 3 to 24 months.

4. Direct Financings will:

· on a per investment basis, not represent more than 20% of the Company's net asset value immediately following the relevant transaction; and

· be managed actively, including through appropriate investor protections which will be negotiated on each transaction.

5. The Company will not use debt to finance transactions, but may take on debt at the Company level with no specific limit.

The Directors believe that the proposed changes to the Investing Policy, which provide for investment in fund structures, will increase the range of options for providing credit and structured finance lending in Asia. In addition, the Directors believe that making investments into these funds will, inter alia, provide the Company with financing opportunities to which it would not otherwise have access. The first two funds into which the Directors intend to make further investment are the BRJ Fund and the GCCF. Further details of these two funds, together with the investment opportunities which they each present to the Company, are set out below.

Proposed Investments in the BRJ Fund and GCCF

BRJ Fund

As announced on 9 April 2014 and 4 July 2014, the Company has invested US$500,000 and US$300,000 (respectively) in the BRJ Fund. In the event that the change in the Investing Policy set out above is approved by Shareholders, the Company is planning to make additional investments totalling up to US$35 million into the BRJ Fund.

The BRJ Fund, which currently totals approximately US$13 million, is set up to offer asset-backed structured loans and seeking target returns of 24%-30% per annum. It provides capital for operationally-sound Chinese SMEs in need of short-term bridging finance not easily available within the PRC, where it is widely recognised that such companies have difficulty in obtaining bank funding. Since the Company's initial investment into the BRJ Fund in April 2014, four exits from early investments have been successfully completed, yielding gross IRRs of 27.26%, 31.83%, 57.04% and 28.19% on fully-repaid loans of US$2.1 million, US$2.4 million, US$4.8 million and US$521,000 respectively. The non-weighted average IRR achieved from project exits by the BRJ Fund since the Company first invested is 36.08%, ahead of the targeted annual returns of 24%-30% per annum. The BRJ Fund's objective is to distribute an annual dividend of 8%, payable semi-annually.

The BRJ Fund was launched by Adamas Asset Management (HK) Limited ("Adamas HK") and is structured as a Cayman Islands limited company, which has issued management shares and participating shares to investors. Its directors are Mr. Don Ebanks, Ms. Jenny Tam and Mr. David Kiang. The BRJ Fund has entered into an investment management agreement with BRJ Asset Management Limited ("BRJAM") pursuant to which it is entitled to receive a management fee of 2% per annum of the net asset value of the fund and a performance fee of 20% (calculated on the uplift in net asset value in each six month period, subject to a hurdle of 8% and the High Water Mark). Adamas HK has been appointed the investment adviser to the BRJ Fund pursuant to an investment advisory agreement. BRJAM is responsible for any fees payable to Adamas HK in its role as the fund's investment adviser.

The Directors believe that making further investments in the BRJ Fund will enable the Company to access a greater pool of domestic companies needing finance in onshore China. This is because the BRJ Fund's onshore joint venture investment vehicle, Chongqing Investments Fund JV ("Chongqing"), has local government approval (via a Renminbi Qualified Foreign Limited Partner Programme ("RQFLP") licence) over a "quota" of US$50 million to be invested onshore. The RQFLP licence enables the BRJ Fund to bring offshore RMB into onshore China, through its 100% ownership of Chongqing's limited partner, Chintis International Company Limited. Once the quota has been fully utilised, the BRJ Fund may apply to the authorities to upsize.

In general terms, a RQFLP allows investors to use their offshore RMB (converted from US$ or other currencies) to invest in onshore PRC companies, dependent on the quota it has obtained (in this case US$50million). Ultimately, a RQFLP makes it easier to move RMB in and out of the PRC. It permits RMB capital raised offshore to be invested in Chinese companies, allowing licence holders to avoid having to obtain foreign currency exchange approval for the conversion from foreign currencies into RMB.

Fees: BRJ Fund

Shareholders should note that investments made by the Company into the BRJ Fund will be subject to the fees and charges to which investors in the BRJ Fund are exposed, the principal fees being the management and performance related fees which are summarised above. For the avoidance of doubt, any amount of net asset value or market capitalisation of the Company which relates to any investment made by the Company in the BRJ Fund will not be subject to the Management Fee.

GCCF

As announced on 21 August 2013, the Company has invested US$1 million into the GCCF. The GCCF has current committed capital of US$100 million, of which approximately US$14 million is drawn down and invested, with US$1.1 million having been distributed back to investors. The GCCF is currently undertaking a further round of fundraising which is targeting an increase in the committed capital to approximately US$280 million. Conditional on the approval by Shareholders of the change in the Investing Policy set out above, the Company is planning to make an additional investment of up to US$9 million into the fundraising round.

GCCF was launched on 13 August 2013 and its strategy is to provide high-yielding credit finance to operationally strong companies predominantly in Greater China (seeking a target net IRR of 15% - 18%) across a range of sectors including agriculture, natural resources, clean energy, consumer opportunities and healthcare, among others. Besides providing credit finance, it may also invest in convertible instruments and structured or preferred equity to minimise the investment risks. The GCCF targets companies usually with an enterprise value of under US$400 million and EBITDA of less than US$40 million. The GCCF also aims for rapid returns by targeting deals with limited investment holding periods of between 6 to 24 months.

The GCCF was launched by Adamas HK and is structured as a Cayman Islands exempted limited partnership. The GCCF's general partner is Adamas Management Limited (the "GCCF General Partner"). Pursuant to a limited partnership agreement (as the same may be amended and restated from time to time) the GCCF General Partner will have full control over the business and affairs of the GCCF, including responsibility for making all investment and divestment decisions. The GCCF's special limited partner is Adamas Financials Limited and is entitled to receive a carried interest (as set out below) paid by the GCCF. AGAIM, the Company's investment manager, is the manager of the GCCF ("Manager"). Adamas HK has been appointed as the investment adviser to the GCCF pursuant to an investment advisory agreement and will provide certain investment advisory services to the Manager.

Limited partners investing in the GCCF are charged a management fee of 2% per annum of such limited partner's commitment to the fund and the special limited partner is entitled to receive a carried interest of 20% of the distributions made by the GCCF after limited partners have, inter alia, received a preferred return of 8%, calculated on a cumulative, non-compounded, annual basis.

Fees: GCCF

The Company has agreed with the GCCF General Partner that any investments made by it into the GCCF will not be subject to the management and performance fees charged to other limited partners investing in that fund (as set out above). This means that any investment by the Company in the GCCF will only be subject to the 1% Management Fee.

Further Fund Investments

It is important to note that the change to the Investing Policy proposed above will enable the Company to invest in other funds, in addition to the BRJ Fund and the GCCF, which fit the criteria set out in the revised Investing Policy. The Company intends to provide a similar overview as set out above for the BRJ Fund and the GCCF by means of a regulatory announcement in respect of any further funds into which it intends to make an investment.

Related Party Transactions

BRJ Fund

The BRJ Fund's investment adviser, Adamas HK, is ultimately beneficially owned by Mr. Barry Lau and Mr. Paul Heffner. In addition, BRJAM is 51% owned by an entity in which Mr. Lau and Mr. Heffner are the ultimate beneficial owners. Mr. Lau and Mr. Heffner are also the ultimate beneficial owners of AGAIM, the Company's investment manager. Accordingly, the proposed investment into the BRJ Fund constitutes a related party transaction for the purposes of AIM Rule 13. The Directors consider, having consulted with WHI (the Company's nominated adviser), that the proposed investment into the BRJ Fund referred to above is fair and reasonable insofar as the Shareholders are concerned. 

GCCF

The GCCF General Partner, Manager and investment adviser are all entities which areultimately beneficially owned by Mr. Lau and Mr. Heffner. Mr. Lau and Mr. Heffner are also the ultimate beneficial owners of AGAIM, the Company's investment manager. Accordingly, the proposed investment into the GCCF constitutes a related party transaction for the purposes of AIM Rule 13. The Directors consider, having consulted with WHI (the Company's nominated adviser), that the proposed investment into the GCCF referred to above is fair and reasonable insofar as the Shareholders are concerned.

General Meeting

The Circular incorporates notice of the General Meeting to be held at 1810, 18/F, Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong at 10.00 a.m. BST/ 5.00 p.m. HKT on 8 April 2015.

Investing Policy extension

Since the Company will have not substantially implemented its Investing Policy within 18 months of the admission of its shares to AIM (admission being 21 February 2014), then it shall seek the consent of the Shareholders for the Investing Policy to be extended at the next annual general meeting of the Company.

Enquiries:

DEFINITIONS

Current assets, draw down and invested amounts referred to in this announcement are unaudited.