Macau Property Regulatory News (MPO)

8 June 2018

Macau Property Opportunities Fund Limited

 ("MPO" or the "Company")

Publication of Circular and Notice of General Meeting

Further to its announcement of 8 May 2018, the Company's Board announces that it has today published a circular (the "Circular"), including a Notice of General Meeting, setting out details of the recommended Proposals for a change of Investment Policy to reflect the Company's continued divestment strategy and changes to the Company's Articles to permit compulsory redemptions of the Company's shares at the Board's discretion as a way of returning capital to shareholders. The Circular also contains a Proposal that a Continuation Resolution extending the life of the Company be put to shareholders at this General Meeting, rather than later in 2018 as originally envisaged, in order to give the Manager sufficient time to implement the new investment policy ahead of the next continuation vote (expected to be in the second half of 2019).

The Circular, which contains the notice convening the General Meeting to be held at 4.00 p.m. on Thursday, 5 July 2018 at Lefebvre Place, Lefebvre Street, St. Peter Port, Guernsey GY1 4HY, has today been posted to shareholders, together with the Form of Proxy, for voting on the resolutions relating to each of the Proposals.

Subject to the Proposals being approved at the General Meeting, it is currently expected that the first redemption of shares, with a total value of GBP 38.2 million (equivalent to 50 pence per share in issue) and representing 62% of the net profits from the Senado Square Disposal, will be implemented on or around 9 July 2018 (with payments of redemption monies expected to be made to relevant shareholders on or around 24 July 2018).

Any capitalised terms not defined in this announcement shall have the same meaning as those defined in the Circular. An extract from the Circular is set out below.

This announcement contains inside information.

-End-

About Macau Property Opportunities Fund

Macau Property Opportunities Fund Limited is a closed-end investment company registered in Guernsey and is the only quoted property fund dedicated to investing in Macau, the world's largest gaming market and the only city in China where gaming is legalised.

Listed on the London Stock Exchange's main market, it is also a constituent stock of the FTSE All-Share and FTSE SmallCap indices.

Launched in 2006, the Company targets strategic property investment and development opportunities in Macau. Its current portfolio comprises a mix of prime residential and retail property assets that are valued at US$436.2 million as at 30 September 2017.

The Company is managed by Sniper Capital Limited, an Asia-based property investment manager with an established track record in fund management and investment advisory.

For further information:

Company Registration Number 44813

Website: www.mpofund.com 

Manager

Sniper Capital Limited

Doris Boo

Tel: +65 6222 1440

Email: doris.boo@snipercapital.com 

Corporate Broker

Liberum Capital

Gillian Martin / Louis Davies

Tel: +44 20 3100 2232

Company Secretary & Administrator

Estera International Fund Managers (Guernsey) Limited

Kevin Smith

Tel: +44 14 8174 2742

Stock Code:

London Stock Exchange: MPO

LEI

213800NOAO11OWIMLR72 

EXTRACTS FROM THE CIRCULAR

The following has been extracted without amendment from, and should be read in conjunction with, the Circular to Shareholders dated 8 June 2018, which will be available shortly from the Company's website: www.mpofund.com 

The Circular has also been submitted to the National Storage Mechanism where it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM. In addition, the Circular and the proposed changes to the Company's Articles will be available to view at the registered office of the Company, Heritage Hall, Le Marchant Street, St. Peter Port, Guernsey during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of this Circular up to and including the date of the General Meeting and at the place of the General Meeting for at least 15 minutes before and during the General Meeting.

EXPECTED TIMETABLE

Each of the times and dates in the expected timetable may (where permitted by law) be extended or brought forward without further notice and in particular the dates relating to the First Expected Compulsory Redemption are provisional only. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notified to Shareholders by an announcement through a Regulatory Information Service. Al references to times in this document are to London time.

LETTER FROM THE CHAIRMAN

Recommended Proposals for Return of Capital by way of a Compulsory Redemption,Change of Investment Policy,Adoption of New Articles of Incorporation and Continuation ResolutionandNotice of Extraordinary General Meeting

Dear Shareholder1. Introduction

Further to the announcement made on 8 May 2018, I am writing to outline details of proposals for the return of capital subsequent to the sale of Senado Square (the Senado Square Disposal), as well as changes to the Investment Policy and Articles of Macau Property Opportunities Fund Limited (the Company), and relating to the continuation of the life of the Company. The intention of these proposals is to facilitate the Company's divestment strategy and to allow the return of capital to Shareholders in an efficient manner.

On 26 March 2018, the Company announced that it had completed the Senado Square Disposal, for a total consideration of HK$800 million (c. US$102 million), representing a premium of c. 14 per cent. to the property's valuation of HK$703 million (c. US$89.7 million) as at 31 January 2018 and a gain of 541 per cent. over the acquisition cost. This translated to a return on investment of 469 per cent. and an internal rate of return of 20 per cent. Having now received the full proceeds from the Senado Square Disposal, the Directors propose a return of capital to Shareholders of a total of GBP 38.2 million (equivalent to 50 pence per Share in issue), to be made by way of a Compulsory Redemption of Shares. The proposed amount to be returned to Shareholders represents 62 per cent. of the net profits of the Senado Square Disposal. The remainder of the disposal proceeds will be retained as working capital to support the Company's ongoing operations and also to be used to partially repay the Company's debts to maintain a prudent overall loan-to-value ratio. Further details of the proposed mechanism for implementing the Compulsory Redemption are set out in Part 4 of this Circular.

With the Company now in its divestment phase, the Directors believe that the Investment Policy should be modified to reflect the Company's current divestment strategy. The changes are designed to facilitate future disposals of the Company's remaining properties by enabling disposals to be completed with greater certainty and speed, hence reducing "deal risk". Further, the Directors believe the Proposed Investment Policy will strengthen the Company's negotiating position with potential buyers and reduce the significant costs associated with seeking specific Shareholder authority for future divestments. Further details on the proposed changes to the Investment Policy, including the text of the proposed new Investment Policy, are set out in Part 3 of this Circular.

The Board and the Manager believe that the continued economic recovery in Macau coupled with the upcoming completion of a major infrastructure project - the 40 kilometre long Hong Kong-Zhuhai-Macau Bridge - should further benefit the Company's investments and provide attractive realisation opportunities. The Board and the Manager believe that continuing the life of the Company (by proposing the first annual vote on a resolution to continue the Company (a Continuation Resolution) now rather than later in 2018 as originally envisaged) will enable the Company to maximise the value realised on the sale of its remaining investments, strengthen the Company's hand in negotiations with potential purchasers and grant it sufficient time to put into effect its new Investment Policy. In addition, proposing the Continuation Resolution now, rather than later in 2018, will remove any uncertainty surrounding the continuation of the Company in the short term, which would help the Manager to negotiate from a position of strength. It is envisaged that the next Continuation Resolution would then be held in the second half of 2019.

Accordingly, the Company is now putting forward proposals which comprise:

(a) a change to the Company's Investment Policy to reflect the fact that the Company has ceased making any further new investments and will continue to pursue a realisation and divestment strategy of the remaining property assets in the Company's portfolio;

(b) adoption of new Articles of Incorporation (New Articles) which provide for the Compulsory Redemption of the Company's Shares at the discretion of the Directors to allow cash to be returned to Shareholders following the realisation of assets. The New Articles also clarify the timing of future yearly Continuation Resolutions; and

(c) the consideration of the first Continuation Resolution which provides that the life of the Company be extended for a period of one year (or, if Shareholders also resolve to adopt the New Articles, until the next Continuation Resolution which shall be proposed to Shareholders no later than 30 November 2019),

together, the Proposals.

The proposed amendment of the Company's Investment Policy is considered a material change to the Investment Policy, which requires the consent of Shareholders by ordinary resolution in accordance with the Listing Rules.

The adoption of New Articles to permit the Compulsory Redemption of the Company's Shares requires Shareholder approval, pursuant to the Companies Law, and is proposed as a special resolution.

The Continuation Resolution will require the approval of Shareholders in accordance with Article 38 of the Company's Articles, and is proposed as an ordinary resolution.

This Circular sets out details of, and seeks your approval for, the Proposals and explains why the Board is recommending that you vote in favour of all of the Resolutions to be proposed at the General Meeting to be held at 4.00 p.m. on Thursday, 5 July 2018.

Notice of the General Meeting is set out at the end of this Circular. The Proposals are described in paragraphs 4 through 6 of Part 1 of this Circular and in Parts 3 and 4.

2. Background to and reasons for the Proposals

At the Company's annual general meeting in November 2016 (the 2016 AGM), Shareholders were asked to vote on whether the Company should be discontinued in the form it was constituted. Shareholders voted against the discontinuation in order to allow flexibility for the Manager to realise value from the Company's portfolio. Shareholders resolved at the 2016 AGM that, going forward, the Company would hold an annual vote on a Continuation Resolution to continue the Company, with the first of such Continuation Resolutions needing to be put to Shareholders no later than 30 November 2018.

Since the 2016 AGM, the Company has continued to pursue its strategy of maximising Shareholder value by seeking opportunities to realise the Company's property portfolio. On 26 March 2018, the Company announced that it had completed the Senado Square Disposal, following receipt of Shareholder approval at an extraordinary general meeting held on 19 March 2018.

The total consideration paid to the Company in connection with the Senado Square Disposal was HK$800 million (c. US$102 million), representing a premium of c. 14 per cent. to the property's valuation of HK$703 million (c. US$89.7 million) as at 31 January 2018 and a gain of 541 per cent. over the acquisition cost of HK$124.8 million (c. US$15.9 million) in October 2007. This translated to a return on investment of 469 per cent. and an internal rate of return of 20 per cent.

Having received the full proceeds from the Senado Square Disposal, and in line with the Company's ongoing divestment strategy in relation to the balance of the Company's property portfolio, the Company will seek to return cash to Shareholders in an orderly manner as soon as reasonably practicable, while maintaining a prudent overall loan-to-value ratio and retaining sufficient working capital for ongoing operations.

To facilitate such orderly realisation of the Company's portfolio and the return of cash to Shareholders, the Directors are proposing that the Company's divestment strategy be formally reflected in the Company's Investment Policy and that New Articles be adopted to permit the Compulsory Redemption of the Company's Shares. Consistent with this strategy, the Directors are of the view that the first Continuation Resolution should be put to Shareholders at the General Meeting on 5 July 2018 which is being convened to approve the Proposals, rather than in November 2018 as originally envisaged. A separate Continuation Resolution (Resolution 3) is proposed to this effect. It should be noted that in order for there to be sufficient time for the new Investment Policy to be implemented and to enable the Manager to negotiate from a position of strength, it is desirable for the Company to continue in its current form and that therefore Shareholders should vote in favour of the Continuation Resolution.

It should also be noted that should the Continuation Resolution not be passed the Board will be required to formulate and revert to Shareholders with proposals to reorganise, unitise, reconstruct, or wind up the Company, which may impact the practicality of implementing the Proposals, including the Compulsory Redemption of Shares, set out in this Circular.

Should the Proposals be approved by Shareholders, the Directors and the Manager will be able to continue to execute a managed realisation of the Company's assets, in a prudent manner consistent with the principles of good investment management and as required by the Listing Rules. As and when proceeds from the realisation of the Company's assets are received, the Directors will have the discretion to make Compulsory Redemptions of Shares in volumes and on dates to be determined by the Directors. The number of Shares to be redeemed shall have an aggregate Adjusted NAV equivalent to the amount proposed to be returned to Shareholders and will be redeemed from all Shareholders pro rata to their Shareholdings on the Redemption Date.

It is intended that the first redemption (the First Expected Compulsory Redemption), which is in respect of the Senado Square Disposal, comprises an amount equal to 62 per cent. of the net profits of this disposal (equivalent to 50 pence per Share in issue) and which is expected to be implemented on or around Monday, 9 July 2018 (with payments of redemption monies expected to be made to relevant Shareholders on or around 24 July 2018). Further details of the First Expected Compulsory Redemption will be announced to the market by way of an announcement released on a Regulatory Information Service after the General Meeting.

3. Market trends

Macau's Gross Domestic Product (GDP) in the first quarter of 2018 grew by 9.2 per cent. year-on-year in real terms, higher than the 8.0 per cent. rise in the previous quarter. Whilst the International Monetary Fund expects Macau's GDP to grow by 7 per cent. in 2018 and 6.1 per cent. in 2019, the Economist Intelligence Unit expects Macau's GDP to grow 5.8 per cent. this year and 3.9 per cent. in 2019. The robust gaming industry should drive employment and salary growth this year and next, resulting in an improved household spending, which is expected to grow at a pace of 5.2 per cent. on average for 2018 and 2019. Fundamentals remained strong in the first quarter. The unemployment rate was at a low of 1.9 per cent. and median monthly salary increased 3 per cent. quarter-on-quarter to MOP 16,000.

According to the Gaming Inspection and Coordination Bureau, by April 2018, Macau had achieved 21 consecutive months of year-on-year gross gaming revenue (GGR) growth. In April, GGR increased

by 27.6 per cent. year-on-year to MOP 25.7 billion. For the first four months of 2018, GGR reached MOP 102.2 billion (c. US$ 12.6 billion), an increase of 22.2 per cent. year-on-year. Due to the better than expected April GGR growth, Deutsche Bank believes that investor sentiment will be strong during the second half of 2018, and has raised its annual GGR forecast to +14.9 per cent. from +12.4 per cent.

Macau welcomed 11.5 million visitors during the first four months of 2018, up 8.4 per cent. year-on-year. For April 2018, the number of inbound visitors rose 8.0 per cent. year-on-year to 3.0 million, with Mainland China and Hong Kong visitors forming the bulk of the arrivals. The average occupancy rate of hotels and guesthouses remained high at 88.9 per cent. in April 2018, up 2.8 percentage points year-on-year. Five-and four-star hotels both registered occupancy rates at 91.9 per cent. during the same period, up 6.1 percentage points and 2.1 percentages points year-on-year, respectively. Visitor expenditure increased by 22.0 per cent. year-on-year to MOP 16.4 billion in the first quarter of 2018.

For the residential property market, demand, in particular for the primary sales market, remained strong throughout the first quarter of 2018. The number of offplan sales increased sevenfold from the previous year to 526, and the average sales price increased 4.8 per cent. year-on-year to MOP 11,990 (c. US$1,495) per sq ft. According to property agency Centaline, Macau residential prices are expected to increase by another 15 per cent. in 2018, on the back of the positive outlook for the Macau economy, the soon-to-be opened Hong Kong-Zhuhai-Macau Bridge, and the continued increase in total deposits accumulated by residents.

The Directors believe that Macau's property market should continue to remain attractive in the medium to long term, thanks to the city's positive economic growth, sound fundamentals and the upcoming completion of the Hong Kong-Zhuhai-Macau Bridge. The Directors believe that the Macau government's move to tighten its housing policy is a pragmatic one, intended to promote a healthy and sustainable residential market. The Greater Bay Area initiative which demonstrates strong support from China's central and local governments to further improve the economic development and connectivity within the region is likely to boost demand for homes and housing prices.

Whilst the Directors consider the prospects for Macau's property market remain positive, the Directors continue to maintain a cautious stance as any further intervention by the Macau government could disrupt the current outlook. Other potential headwinds that could threaten the city's economic growth include new rounds of interest rate hikes by the US Federal Reserve, which local banks are likely to follow in lockstep, and the potential US-China trade war where investment sentiment could be affected.

As at the end of March 2018 (the latest valuation date of the Company), the portfolio valuation was US$340.2 million, the Adjusted NAV per Share was US$3.46 and the loan-to-value ratio was 36.6 per cent.

4. Change of Investment Policy

The Company's Existing Investment Policy does not correspond to its current divestment strategy, which is to undertake a staged return of capital as and when it realises its remaining assets. A staged return of capital and the realisation of all the Company's remaining assets are not currently specifically contemplated within the scope of the Company's existing Investment Policy, and therefore any future disposals which exceed the relevant thresholds under the Listing Rules may require specific Shareholder approval (as was required in relation to the Senado Square Disposal).

The Directors believe that the Proposed Investment Policy, to which the FCA has given its consent, should facilitate future disposals of the Company's remaining property portfolio by enabling disposals to be completed with greater certainty and speed, hence reducing "deal risk". Further, the Directors believe the Proposed Investment Policy will strengthen the Company's negotiating position with potential buyers and reduce the significant costs associated with seeking specific Shareholder authority for future divestments. Therefore, an ordinary resolution approving a formal change of the Investment Policy to bring it in line with the approved divestment strategy will be proposed at the General Meeting.

It is intended that the Company's listing and the capacity to trade in its Shares will be maintained for as long as practicable during the realisation process and subject to any regulatory considerations. Accordingly, once a significant proportion of the Company's assets have been realised, the Board will then consider, in the light of the then prevailing market conditions and Shareholders' views, making new proposals as to the continuation of the Company (which could include a formal voluntary liquidation of the Company) and which will require additional Shareholder approval at that time. Further details on the change of the Investment Policy, including the text of the Proposed Investment Policy, are set out in Part 3 of this Circular. A summary of certain possible risks associated with the change of the Investment Policy is set out in Part 2 of this Circular. The Proposed Investment Policy will only become effective once approved by Shareholders at the General Meeting. The proposed ordinary resolution to change the Investment Policy (Resolution 1) is set out in the Notice of General Meeting at the end of this document.

5. Staged return of capital and Compulsory Redemption of Shares

The Company proposes to undertake a staged return of capital to Shareholders. The Directors propose to effect the return of capital by way of a redemption of Shares compulsorily (a Compulsory Redemption). Currently the Company's Shares are non-redeemable. Accordingly, it will first be necessary to change the Company's existing Articles to permit the Directors, at their sole discretion, to effect a Compulsory Redemption of Shares on an ongoing basis, and pro rata to a Shareholder's shareholding in the Company, in order to return capital to Shareholders.

The First Expected Compulsory Redemption, relating to the Senado Square Disposal, is expected to be implemented on or around Monday, 9 July 2018. Under this redemption, the Directors are proposing a return of capital to Shareholders of a total amount of GBP 38.2 million (equivalent to 50 pence per Share in issue). This amount represents 62 per cent. of the net profits of the Senado Square Disposal. The remainder of the disposal proceeds will be retained as working capital to support the Company's ongoing operations and also to be used to partially repay the Company's debts to maintain a prudent overall loan-to-value ratio. Payments of redemption monies to relevant Shareholders are expected to be made on or around 24 July 2018.

Further details regarding the return of capital and the proposed changes to the Articles are set out in Part 4 of this Circular. A summary of certain possible risks associated with the return of capital is set out in Part 2 of this Circular. The proposed special resolution to approve the adoption of the New Articles to permit Compulsory Redemptions of the Shares (Resolution 2) is set out in the Notice of General Meeting at the end of this document.

Details of the tax consequences of the Proposals are set out in Part 5 of this Circular.

6. Continuation Resolution

As noted in paragraph 2 above, a Continuation Resolution is currently required by the Company's Articles to be put to Shareholders no later than 30 November 2018.

If Shareholders are supportive of the Proposals contained in this Circular to change the Company's Investment Policy and to undertake a staged return of capital in line with the Company's divestment strategy, then the Directors believe that it would be logical to extend the Company's life at the same time to enable the divestment strategy to be carried out in an efficient manner.

Accordingly, the Directors propose that the first Continuation Resolution should be put to Shareholders at the General Meeting to be held on Thursday, 5 July 2018, instead of in November 2018 as originally envisaged. In line with the existing policy of proposing a Continuation Resolution annually, it is intended that a subsequent Continuation Resolution will be put to Shareholders in the second half of 2019.

The Directors consider it opportune for Shareholders to consider and pass a Continuation Resolution earlier in 2018 than originally envisaged in order to allow flexibility for the Manager to continue to realise value from the Company's portfolio in accordance with the Proposed Investment Policy (if Resolution 1 is also passed). Proposing the Continuation Resolution now, rather than later in 2018, will remove any uncertainty surrounding the continuation of the Company in the short term, which will help the Manager to negotiate from a position of strength. Following the success of the Senado Square Disposal, the Directors consider the passing of a Continuation Resolution extending the life of the Company to be in the best interests of Shareholders as a whole and will enable the Directors and the Manager to focus on the Company's realisation strategy.

If the Company's life is not extended by the passing of the Continuation Resolution, the Directors will be required to formulate and revert to Shareholders with proposals to reorganise, unitise, reconstruct, or wind up the Company. Given the illiquid nature of the Company's property portfolio, this could negatively impact the Manager's ability to realise assets at attractive values in accordance with the Proposed Investment Policy and divert management time.

If the Continuation Resolution is not passed, Shareholders should note that the Company would be required to provide the Manager with 12 months' notice of termination in order to terminate the Management Agreement.

Continuing the life of the Company, rather than winding up the Company (and thus accelerating the disposal process of the remaining assets in the portfolio), should better enable the Company to maximise the value realised on the sale of its remaining investments, strengthen the Company's hand in negotiations with potential purchasers and also give it enough time to put into effect its new Investment Policy.

The Directors further propose to amend Article 38 of the Company's Articles to clarify that, if a Continuation Resolution is passed by Shareholders, such Continuation Resolution (including the first Continuation Resolution proposed as Resolution 3 in the Notice of General Meeting) remains effective up to the date that the next Continuation Resolution is proposed to Shareholders (which shall not be earlier than the first anniversary of the preceding Continuation Resolution but not later than 30 November in any given year). Such clarifying amendments will be included in the New Articles proposed for adoption in Resolution 2, the principal changes to which are more fully described in Part 4 of this Circular. If the Continuation Resolution is passed by Shareholders, the Directors intend to propose the second Continuation Resolution to Shareholders in the second half of 2019 in accordance with the New Articles.

The proposed ordinary resolution (Resolution 3) to extend the life of the Company is set out in the Notice of General Meeting at the end of this document.

7. Risk factors

The Directors have given consideration to the potential risks and uncertainties relating to the Proposals.

For a discussion of certain risk factors which Shareholders should take into account when considering whether to vote in favour of the Resolutions, please refer to Part 2 of this Circular.

8. General Meeting

At the end of this Circular, you will find a Notice of General Meeting of the Company, convening a general meeting which is to be held at Lefebvre Place, Lefebvre Street, St. Peter Port, Guernsey GY1 4HY at 4.00 p.m. on Thursday, 5 July 2018.

A summary of the action you should take is set out in the paragraph below and in the Form of Proxy that accompanies this Circular.

The Resolutions seek the approval of Shareholders for:

(a) Resolution 1: the change of the Investment Policy (the full text of which is set out in paragraph 2 of Part 3 of this Circular);

(b) Resolution 2: the adoption of the New Articles to permit the Directors to undertake Compulsory Redemptions of the Shares at their sole discretion (as described in Part 4 of this Circular). The New Articles also clarify the timing of future Continuation Resolutions (as described in paragraph 6 of this Part 1); and

(c) Resolution 3: the extension of life of the Company for a period of one year (or such other period as permitted by the Articles as amended with the approval of Shareholders from time to time) (i.e. the Continuation Resolution).

The full text of the Resolutions to be proposed at the General Meeting is set out in the Notice of General Meeting at the end of this Circular.

Resolutions 1 and 3 will be proposed as ordinary resolutions and the passing of both such Resolutions requires a simple majority of the votes cast in person or by proxy. Resolution 2 will be proposed as a special resolution and the passing of such Resolution requires a 75 per cent. majority of the votes cast in person or by proxy.

9. Action to be taken by Shareholders

If you are a Shareholder, you will find enclosed with this document a Form of Proxy for use at the General Meeting.

Whether or not you intend to be present at the General Meeting, please complete the Form of Proxy for the General Meeting in accordance with the instructions printed thereon and to return it to the Registrar at the address indicated on the front page of this document, as soon as possible, but in any event so as to arrive not later than forty-eight hours (excluding non-working days) before the time appointed for holding the General Meeting.

The completion and return of a Form of Proxy will not preclude you from attending the General Meeting and voting in person if you wish to do so.

10. Further information

Your attention is drawn to the further information set out in Parts 2 to 6 of this Circular, including Part 6 containing additional information. You should read the whole of this Circular and, in particular, the risk factors set out in Part 2, before deciding on the course of action you will take in respect of the Resolutions and the Proposals.

11. Recommendation

The Board considers the Proposals to be in the best interests of the Company and Shareholders as a whole.

Accordingly, the Board recommends Shareholders vote in favour of the Continuation Resolution as well as both of the Resolutions to adopt the Proposed Investment Policy and the New Articles, as they intend to do in respect of their own beneficial holdings which, as at 6 June 2018, being the latest practicable date prior to the publication of this Circular, amount in aggregate to 13,485,164 Shares, representing approximately 17.64 per cent. of the Company's existing issued share capital.

Yours faithfully

Chris RussellChairman

RISK FACTORS

Prior to voting on the Resolutions, Shareholders should carefully consider the risk factors described in this Part 2. The risk factors below represent certain risks known to the Directors as at the date of this Circular which the Directors consider to be material and to relate to the Proposals, or that represent new or changed risks to the Company as a consequence of these matters. Shareholders should note that the risk factors set out below do not purport to comprise a complete list or explanation of al relevant risks which may affect the Company alone or in connection with the Proposals, and are not set out in any order of priority. If any or a combination of the events described below actually occurs, the business, results of operations, financial condition or prospects of the Company could be materially and adversely affected. In such case, the market price of the Shares could decline and Shareholders may lose all or part of their investment.

1. Risks associated with the change of Investment Policy

If the Continuation Resolution is passed, but the change in Investment Policy is not approved, the Company will continue to operate in accordance with the Existing Investment Policy. This could impede the Company's ability to realise its remaining assets in accordance with its divestment strategy. Under the Existing Investment Policy, any future disposals which exceed the relevant thresholds under the Listing Rules may require specific Shareholder approval (as was required in relation to the Senado Square Disposal), which is administratively burdensome, results in delays in effecting disposals and limits the Company's ability to negotiate from a position of strength.

There can be no guarantee that the change to the Company's Investment Policy will provide the returns, or realise the value, described in this Circular. The liquidity profile of the Company's property portfolio is such that Shareholders may have to wait a considerable period of time before receiving any returns of capital or other distribution.

Following adoption of the Proposed Investment Policy, the Company will be unable to make new investments in property and will be able only to invest realised cash in liquid cash-equivalent securities, pending its return to Shareholders, in accordance with the Proposed Investment Policy. The value of such cash-equivalent securities, including the Company's cash balances, may fluctuate and the amount of value available to be returned to Shareholders may decrease as a result.

As the Company's portfolio is divested, the value of the portfolio will be reduced and further concentrated in fewer holdings, and the mix of asset exposure and the spread of risk will be affected accordingly. This may adversely affect the performance of the Company's portfolio.

The Company might experience increased volatility in its net asset value and/or its Share price as a result of the changes to the portfolio structure following approval of the Proposals and further realisations.

The maintenance of the Company as an ongoing listed vehicle will entail administrative, legal and listing costs, which will decrease the amount ultimately distributed to Shareholders. Although the Board intends to maintain the Company's listing for as long as the Directors believe it to be practicable during the divestment period, the Directors shall immediately notify the FCA and may seek suspension of the listing of the Shares pursuant to the requirements of the Listing Rules (which may include Shareholder approval prior to any suspension or de-listing) if the Company can no longer satisfy the continuing obligations for listing set out therein including, but not limited to, the requirements in respect of Shares held in "public hands" (as such phrase is defined in the Listing Rules) and in relation to spreading investment risk, and consequently the listing of the Shares may be suspended and / or cancelled. Once suspended and / or cancelled, the Shares would no longer be capable of being traded on the London Stock Exchange, which would materially reduce market liquidity in the Shares.

The Company reports in US Dollars. The US Dollar amount of the proceeds received by the Company from any disposal of assets may depend upon exchange rates between the relevant currencies of consideration received and the US Dollar at the relevant time. Any return of capital will be paid to Shareholders in Sterling.

2. Risks associated with the proposed New Articles permitting the Compulsory Redemption of Shares

If the New Articles are not adopted so as to permit the Compulsory Redemption of Shares, the Company will have to utilise other methods to make distributions to Shareholders, which may be less efficient than the Compulsory Redemption of Shares.

The Company's cash balances will be reduced by any Compulsory Redemption or other distribution to Shareholders, thereby increasing the impact of fixed costs incurred by the Company on the remaining assets. The funds returned to Shareholders pursuant to a Compulsory Redemption or other distribution will no longer be available for application in the ordinary course of the Company's business or to meet contingencies.

Shareholders are advised that future returns of cash may not necessarily be made as soon as cash becomes available. Shareholders should also note that, due to the illiquid nature of the Company's investments, there can be no certainty of the length of time it may take to complete a realisation of all the Company's assets.

In determining the size of any Compulsory Redemption or other distribution to Shareholders, the Directors will take into account the Company's ongoing running costs. However, should these costs be greater than expected or should cash receipts for the realisations of investments be less than expected, this will reduce the amount available for Shareholders in future Compulsory Redemptions or distributions.

The market price of the Shares is subject to change during the course of, and subsequent to, any Compulsory Redemption. It therefore cannot be certain whether the value returned to Shareholders pursuant to any Compulsory Redemption will be greater or less than the price at which Shares could be sold in the market at any given time.

Any Compulsory Redemption will reduce the number of Shares in issue. The impact on the liquidity and the market price of the Shares as a result of the implementation of the Compulsory Redemption, if any, cannot be predicted and Shareholders may find it more difficult to sell their Shares, or may be forced to sell them at a lower price as supply and demand for Shares may change. More generally, as with all investment company shares, the market price of the Shares may not reflect the underlying net asset value of the Company and the discount (or premium) to net asset value at which the Shares trade may fluctuate from day to day, depending on factors such as supply and demand, market conditions and general sentiment.

Levels of, and legislation and practice concerning, taxation may change. Shareholders should have regard to the information in relation to taxation set out in Part 5 of this Circular.

3. Risks associated with the Continuation Resolution

If the Continuation Resolution is not passed by Shareholders, the Articles require the Directors to formulate proposals to put to Shareholders to reorganise, unitise, reconstruct, or wind up the Company. Given the illiquid nature of the Company's property portfolio, this could negatively impact the Manager's ability to realise assets at attractive values and divert management time.

If Shareholders vote against the Continuation Resolution, but in favour of the change of Investment Policy and the New Articles containing the Compulsory Redemption mechanism, the Board will be required to formulate the other proposals referred to above which may mean that the Compulsory Redemption of Shares may no longer be practicable and there may not be sufficient opportunity for the Board and the Manager to implement the new Investment Policy.

CHANGE OF INVESTMENT POLICY

In connection with the Company's divestment strategy and the proposed orderly return of capital, the Directors consider it to be in the best interests of the Company and its Shareholders that the Company's Investment Policy be changed to facilitate the realisation of the Company's remaining assets. The Company is therefore seeking Shareholder approval at the General Meeting for the adoption of the Proposed Investment Policy (set out in full in paragraph 2 below) in substitution for the Existing Investment Policy (set out in full in paragraph 1 below).

1. Existing Investment Policy

The Company's investment objective is to provide shareholders with an attractive total return, which is intended to primarily comprise capital growth but with the potential for distributions over the medium to long term.

Asset allocation

The Company aims to achieve its investment objective by investing in property segments in Macau. The Company's portfolio may comprise a mixture of asset classes which include residential, retail, leisure, industrial and office properties.

The Company targets developments which are often overlooked by large developers and which, in the opinion of the Manager and the Investment Adviser, offer opportunities to achieve an attractive total return through their location, sector or 'value-added' potential.

The Company looks to add value through redevelopment, development, refurbishment, change of use and repositioning. In particular, it seeks to acquire undervalued sites in attractive locations where it believes there is a sustainable end-user demand. The Company seeks to maximise the total return on its portfolio, either through selling the properties after development or redevelopment or by generating rental income.

Diversification

The Company, as an active investor, wil consider concentration risk from both a sector as wel as an asset perspective. However, if assets are realised and not replaced, concentration risk will inevitably increase. The Company may wholly own its investments (directly or indirectly) or it may invest through a joint venture arrangement if the terms of the arrangement are deemed suitable. There is no limit on the number of projects in which the Company may invest and there is no minimum or maximum limit on the length of time that any investment may be held.

No single investment in a development wil represent more than 40 per cent. of the Gross Asset Value of the Company at the time of investment.

Gearing

The Company and its subsidiaries (together referred to as the "Group") have the ability to borrow, both at Company level and Special Purpose Vehicles ("SPVs") level, if SPVs are used in relation to particular investments. The Group, either directly or through its SPVs, may not borrow amounts in relation to any single investment that exceed 75 per cent. of that investment's market value. When the Company is fuly invested, the maximum amount of net borrowings that the Group may have as a whole (i.e. all principal amounts borrowed by the Group less the Group's cash balances) will not exceed 60 per cent. of the aggregate value of all the Group's investments at the time that any new borrowings are made.

2. Proposed new Investment PolicyInvestment objective

The Company wil be managed with the objective of realising the value of all remaining assets in the portfolio, individually, in aggregate or in any other combination of disposals or transaction structures, in a prudent

manner consistent with the principles of good investment management with a view to making an orderly return of capital to Shareholders over time.

Investment policy

The Company's investment objective will be effected with a view to realising all of its investments in such a manner that seeks to achieve a balance between maximising the value from the Company's investments and making timely returns of capital to Shareholders.

The Company may sel or otherwise realise its investments (including individually, or in aggregate or other combinations) to such persons as it chooses, but in all cases with the objective of achieving the best exit values reasonably available within reasonable time scales.

The Company will cease to make any new investments and shall not undertake additional borrowing other than to refinance existing borrowing or for working capital purposes.

Any cash received by the Company as part of the realisation process wil be held by the Company as cash on deposit and/or as cash equivalents prior to its distribution to Shareholders, which shal be at such intervals as the Board may determine is appropriate.

3. Effectiveness of the change of Investment Policy

The FCA has, in accordance with the Listing Rule 15.4.8, given its consent to the proposed change to the Company's Investment Policy. The proposed change of Investment Policy will, however, become effective only once approved by Shareholders at the General Meeting.

4. Risks associated with the adoption of the revised Investment Policy

Please refer to Part 2 of this Circular for a summary of certain possible risks associated with the proposed change of Investment Policy.

COMPULSORY REDEMPTION OF SHARES ANDRELATED AMENDMENTS TO THE ARTICLES

1. Proposed staged return of capital to Shareholders by Compulsory Redemption of Shares

Pursuant to the Proposals, the Company proposes to undertake a staged return of capital to Shareholders. It is proposed to effect the return of capital by way of a Compulsory Redemption of Shares. Currently the Shares are non-redeemable and, accordingly, it will first be necessary to change the Articles to authorise the Directors to compulsorily redeem some or all of the Shares at the discretion of the Board.

Following such change, the Company will have the power to make Compulsory Redemptions of Shares in volumes and on dates to be determined at the Directors' sole discretion, with the amount distributed in respect of the Shares on each occasion to be determined by the Directors at the relevant time having regard to the amount of cash available for distribution and retaining sufficient working capital for ongoing operations. Shares will be redeemed from all Shareholders pro rata to their existing holdings of the Shares on a Redemption Date. The Directors will be authorised to make such Compulsory Redemptions in accordance with the process to be included in the New Articles (the mechanics of which are described in paragraphs 2 and 3 below).

2. Changes to make the Shares redeemable

In order to make the Shares redeemable, it is proposed to amend the existing Articles in order to permit the redemption of some or all of the Company's Shares at the discretion of the Directors and to set out the procedure by which the Directors may undertake any Compulsory Redemption of such Shares.

Accordingly, the Company is proposing a special resolution (Resolution 2), which will, if passed, adopt the New Articles including the Compulsory Redemption mechanism described in paragraphs 2 and 3 of this Part 4.

The full text of Resolution 2 is set out in the Notice of General Meeting at the end of this document. A draft of the proposed New Articles (showing the full terms of the changes proposed to be made) may be inspected at the registered office of the Company, Heritage Hall, Le Marchant Street, St. Peter Port, Guernsey during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of this Circular up to and including the date of the General Meeting and at the place of the General Meeting for at least 15 minutes before and during the General Meeting.

Once the New Articles have been adopted, it is proposed that the Board will resolve to undertake Compulsory Redemptions of the Shares in stages in line with the Company's divestment strategy. The Directors may only authorise a Compulsory Redemption of Shares if they are satisfied on reasonable grounds that, immediately after such Compulsory Redemption is made, the Company would satisfy the statutory "solvency test".

For the purpose of the Companies Law, the Company would satisfy the "solvency test" if:

(a) the Company is able to pay its debts as they became due; and

(b) the value of the Company's assets is greater than the value of its liabilities.

3. Mechanics of Compulsory Redemptions

Under the New Articles, the Directors will be authorised to make Compulsory Redemptions of Shares in volumes and on dates to be determined at the Directors' sole discretion. The Directors will determine the aggregate amount to be distributed to Shareholders pursuant to any Compulsory Redemption, having regard to the amount of cash available for distribution whilst maintaining a prudent overall loan-to-value ratio and retaining sufficient working capital for ongoing operations. Shares will be redeemed from all Shareholders pro rata to their existing holdings of the Shares on the relevant Redemption Date.

As and when the Directors exercise their discretion to redeem compulsorily a given percentage of the Shares of any class in issue, the Company will make a Redemption Announcement in advance of the relevant Redemption Date. The Redemption Announcement is expected to include the following details: 

(a) the aggregate amount to be distributed to Shareholders; 

(b) the Relevant Percentage of Shares to be redeemed (pro rata as between the holders of Shares as at the Redemption Record Date); 

(c) a timetable for the Compulsory Redemption and distribution of redemption proceeds, including the Redemption Date and Redemption Record Date; 

(d) the Redemption Price per Share, which is expected to be calculated by reference to the Adjusted NAV per Share (as at a NAV Date selected by the Directors) of the Shares that will be redeemed on a given Redemption Date, less the costs associated with the relevant redemption and as adjusted as the Directors consider appropriate; 

(e) the New ISIN in respect of Shares which will continue to be listed following the relevant Redemption Date; and 

(f) any additional information that the Board deems necessary in connection with the Compulsory Redemption. 

Compulsory Redemptions of Shares will become effective on each Redemption Date, being a date chosen at the Directors' absolute discretion, as determined by the Directors to be in the best interests of Shareholders as a whole. In determining the timing of any Redemption Date, the Directors will take into account, among other things, the amount of cash available for payment of redemption proceeds and the costs associated with such Compulsory Redemption. 

Accordingly, the proceeds of any disposals of the Company's assets in line with the Proposed Investment Policy will not necessarily be distributed at or soon after the date of any such disposal but may be retained and aggregated with the proceeds of other disposals pending return to Shareholders. The Shares redeemed will be the Relevant Percentage of the Shares registered in the names of Shareholders on the Redemption Record Date. Shareholders will receive the Redemption Price per Share in respect of each of their Shares redeemed compulsorily. 

In the case of Shares held in uncertificated form (that is, in CREST), Compulsory Redemptions will take effect automatically on each Redemption Date and redeemed Shares will be cancelled. All Shares in issue will be disabled in CREST after 6.00 p.m. (UK time) on the Redemption Date and the Old ISIN will expire. The New ISIN in respect of the remaining Shares in issue and which have not been redeemed will be enabled and available for transactions from and including the first Business Day following the relevant Redemption Date (or such other date notified to Shareholders). The New ISIN will be notified to Shareholders in the relevant Redemption Announcement. Up to and including the Redemption Date, Shares will be traded under the Old ISIN and, as such, a purchaser of such Shares would have a market claim for a proportion of the redemption proceeds. CREST will automatically transform any open transactions as at the Redemption Date (which may be the record date for the purposes of the redemption) into the New ISIN. 

In the case of Shares held in certificated form (that is, not in CREST), Compulsory Redemptions will take effect automatically on each Redemption Date. As the Shares will be compulsorily redeemed, certificated Shareholders do not need to return their Share certificates to the Company in order to claim their redemption monies. Shareholders' existing Share certificates will be cancelled and new Share certificates will be issued to each such Shareholder for the balance of their shareholding in the Company after each Redemption Date. Cheques will automatically be issued to certificated Shareholders upon the cancellation of any of their Shares. All Shares that are redeemed will be cancelled with effect from the relevant Redemption Date. Accordingly, once redeemed, Shares will be incapable of transfer. 

Payments of redemption monies are expected to be effected either through CREST (in the case of Shares held in uncertificated form) or by cheque (in the case of Shares held in certificated form) within 14 Business Days of the relevant Redemption Date, or as soon as practicable thereafter. Shareholders will be paid their redemption proceeds in Sterling. 

4. Alternative methods to return cash to Shareholders 

The Directors shall continue to have the right to return cash otherwise than through Compulsory Redemptions, such as by way of tender offers to Shareholders to purchase their Shares. In such circumstances, a tender offer will be made to Shareholders in accordance with market practice and in compliance with the Listing Rules and the Companies Law. Further, the Directors may determine, in their absolute discretion where they consider it to be in the best interests of Shareholders, to return cash from disposals of the Company's assets in accordance with the Proposed Investment Policy to Shareholders by way of dividend or any other distribution permitted by the Listing Rules and the Companies Law.