I am pleased to have the opportunity to present the unaudited half-yearly results of China Growth Opportunities Limited (the "Company") for the six-month period ended 30 September 2011.
The net asset value of the Company at 30 September 2011 was £0.7 million (30 September 2010: £5.7 million, 31 March 2011: £1.8 million), equal to 1.39p per Ordinary Share (30 September 2010: 11.41p per Ordinary Share, 31 March 2011: 3.55p per Ordinary Share). The 61% decrease in net asset value from 31 March 2011 was largely due to the £1.1 million return of capital to shareholders, as the Company only incurred a net loss for the period of £1,000 (30 September 2010: loss of £555,000, 31 March 2011: loss of £1,486,000).
The share price dropped during the period by 42% from the 31 March 2011 price of 3.65p to 2.13p per Ordinary Share at 30 September 2011. We believe that this fall was largely attributable to the £1.1 million return of capital to shareholders. Despite the decrease in the share price, the Ordinary Shares continue to trade at a premium to the net asset value.
Following the Annual General Meeting held on 23 September 2011, the Investing Policy of the Company was amended to be: "The Investing Policy of the Company is to manage the sale of the Company's investment portfolio and to maximise the return of invested capital to shareholders during the period ending on 30 September 2012."
Return of Capital
On 6 July 2011, the Company made a return of capital to shareholders of 1.50p per Ordinary Share (equivalent to £0.8 million). On 1 August 2011, the Company returned a further £328,000 to shareholders via an in specie distribution of 9,364,963 shares in China CDM Exchange Centre Limited ("CCEC"). Shareholders received 0.1873 CCEC shares for every Ordinary Share held. Based on the mid-market price per CCEC share of 3.5p as at close of business on 27 July 2011, the return of capital was equal to approximately 0.66 pence per China Growth Opportunities Limited Ordinary Share.
Fractional entitlements were not issued to the Company's shareholders and all fractional entitlements to which holders of the Company's shareholders would have become entitled were rounded down and retained by the Company. The Company retained 4,937 shares in CCEC as a result of these fractional entitlements and sold these for 3.5p each on 9 August 2011.
The total return of capital in the period was equal to approximately 2.16p per Ordinary share.
We will continue to try to dispose of the Company's remaining investment and return funds to shareholders. However, we do not expect to be able to raise significant funds, if any, from the disposal of this investment. Any further returns of capital will be at the discretion of the Board and will be subject to the rate at which the Company's investment is realised and the Company's financial position at the time.
During the period ended 30 September 2011, the Company disposed of its entire holding in China CDM Exchange Centre Limited ("CCEC"). As mentioned above, 9,364,963 shares in CCEC were transferred to shareholders by way of a distribution in specie and the remaining fractional entitlements of 4,937 shares were sold on 9 August 2011 for 3.5p per share. The total deemed proceeds from the disposal of the investment in CCEC amounted to £328,000.
The proceeds from the sale of the CCEC investment was £0.1 million higher than its 31 March 2011 "fair value" but a realised loss of £1.4 million was incurred when comparing the disposal proceeds of £0.3 million to its initial cost of £1.7 million.
China Solar, which had cost the Company £2.0 million, but has been carried at nil since 31 March 2009, has been dissolved. The Company did not receive any return from its investment in China Solar.
At 30 September 2011, the Company held one investment, which cost £4.0 million (30 September 2010: five investments which cost £12.5, 31 March 2011: three investments which cost £7.7 million). At 30 September 2011, these investments had a fair value of nil (30 September 2010: £4.7million, 31 March 2011: £0.2 million).
Although the Wan Wei convertible loan note matures in May 2012, the Directors do not believe that Wan Wei will be in a position to redeem the loan note on even a partial basis. As the result of bad debt problems, Wan Wei lacks sufficient working capital to advance the business. On the basis of the lack of interested buyers for the Company's investment in Wan Wei and the likely inability of Wan Wei to even partially redeem the convertible loan note given its financial position, the value of the Company's interest in Wan Wei is carried at nil.
Our approach to the valuation of the Company's investments reflects our view of fair value being the value at which your investments could have been exchanged between knowledgeable, willing parties in an arm's length transaction at the reporting date.
As a Board we will continue to reduce operating costs where possible and will endeavour to realise the remaining asset at the most favourable terms achievable.
28 November 2011