FFWD.L Regulatory News (FFWD)

14 Nov 2007 07:01

London Asia Capital PLC14 November 2007 14 November 2007 LONDON ASIA CAPITAL PLC ("London Asia" or "the Company") Business Update London Asia Capital PLC, the AIM listed (code LDC) Asian focused investmentgroup, is pleased to give an update on recent developments across the group. London Asia Chinese Private Equity Fund ("the Fund") The Fund, advised by London Asia, recommenced trading on AIM (code LCP) on 1November, following the release of its audited accounts to 31 March 2007, whichshowed profits of £18.4 million and net assets up 33% in its first year ofoperation, after accrual of a performance related fee ("the Performance Fee") toLondon Asia of £3.3 million. The calculation of the Performance Fee is based onthe increase in the Fund's net assets and various other criteria, is payableonly on realisation of individual assets by the Fund, and could be reduced inthe event that there was any subsequent fall in the net asset value per share ofthe Fund. The Company therefore does not anticipate accounting for thePerformance Fee until it receives the actual cash payment or other confirmationfrom the Fund of the exact amount receivable, without any clawback orconditions, which means there is unlikely to be any significant amountsaccounted for in this financial year. The fund management team working on theFund is entitled to 50% of the Performance Fee due to the Company. In addition to the Performance Fee, London Asia receives a management fee of 2%of the net assets of the Fund, which based on the increase in net assets for theFund to 31 March 2007, will generate an additional £0.3 million p.a of incomefor the Company starting 1 April 2007. Share Buy-backs The recent successful offer to shareholders has generated cash and realisedprofits for the Company, putting it in a position to be able to buy-back its ownshares. The Company has authority to buy back up to 10% of its ordinary sharecapital, and intends to implement a programme to acquire its own shares,addressing the gap between reported net asset value per share and current shareprice. LAC Zhongying ("Zhongying") The Company has reached agreement with the other shareholders in Zhongying tosell its minority stake to the other Zhongying shareholders for cash at theoriginal cost of approximately £12.4 million. Zhongying has fully invested allits capital in a number of transactions, primarily in the energy, environmentand financial services sectors, but, as a result of various changes in theregulations in China, has encountered significant problems achieving itsoriginal business plan of acquiring and exploiting a series of financialservices licences. Restrictions imposed by the Chinese Government on foreignersentering the financial services sector have also prevented the Company frompartnering with, or bringing in as shareholders, non Chinese financial servicesgroups, which has limited our ability to find buyers and realise the full valueof the investment. Whilst the Board considers Zhongying a good long terminvestment, our minority stake gives us little control over the ability torealise value from the investment in the short term. The Board believes that thecapital freed up by the sale of the stake can be better deployed in thefinancial services businesses acquired earlier this year and in China FinancialServices, where London Asia holds a 48% stake. Yellow River Securities ("YRS") YRS, the Company's 40% owned securities trading business, has been active in thebooming Hong Kong stock market. It has invested over US$1 million over the lastfew months, which has generated an unrealised profit of over US$1 million, giventhe strong performance of the Hong Kong stock market recently. YRS's strategy isto take short term positions in listed stocks, and it is actively trading itspositions to realise the paper profit. Further investment in portfolio companies The Board has been reviewing the Company's existing investment portfolio toidentify ways of accelerating value, make better use of the Company's growingcash resources, and take advantage of the scarcity of deal flow and highvaluations in the region as a result of restrictions on the investment by nonChinese into Chinese assets, and the recognition by both local and overseasinvestors of the potential for Chinese equities as China continues its strongeconomic growth and development. The Board has identified two businesses within the existing portfolio that itbelieves are suitable for immediate follow-on financing and flotation in thenear future, and is working with the companies to determine whether thebusinesses are suitable for listing on NYSE Euronext's Alternext stock market,where we were recently approved as a sponsor for listings. The Board believes several of the other portfolio businesses would benefit fromadditional injections of capital to bring them to a size where they could betaken to capital markets, sold on in a trade sale or refinanced. The Board isdetermining whether London Asia should invest additional funds in thesebusinesses, or third party funding be sought, based on the projected timing ofcash inflows from realisation of existing assets, and the needs of the portfoliobusinesses. Jack Wigglesworth, London Asia Chairman, commented: "The success of the Funddemonstrates the upside potential of our investment portfolio. Part of thereason for the relatively greater success of the Fund portfolio relative to ourown, has been that the investments made by the Fund have been in largerbusinesses than those which the Company has historically invested in. Whilst ourown investments are demonstrating good organic growth, in order to get to a sizewhere they can be exited at the sort of valuations being achieved by Chineseassets in the current market, they will need to make acquisitions to boost thesize of their revenue and profits. The Board is therefore looking at which ofour portfolio businesses would benefit most from a further injection of ourcapital to get them closer to the point where we can achieve an exit. "Our strategy is to apply the increasing levels of cash being generated by ouroperations to reduce the gap between the Company's assets and share price, andaccelerate the realisation of our investment portfolio through furtherinvestment. New investments will be made in businesses where we can exercise alevel of control and have an economically significant stake, both within ourtraditional Greater China region, and in the other areas of Asia where LAL isexpanding. "The decision earlier this year to create a number of operating businesses partowned by London Asia and part owned by the management of the new businesses isdemonstrating results, as we are able to expand much more rapidly into newareas, such as securities trading through YRS, than was previously possible wheneverything had to be financed and all management came from London Asia." For further information please visit www.londonasiacapital.com or contact: Cecilia Wong John West/Andrew Dunn Jonathan WrightLondon Asia Capital plc Tavistock Communications Seymour PierceTel: +852 2251 8373 Tel: 020 7920 3150 Tel: 020 7107 8050 This information is provided by RNS The company news service from the London Stock Exchange