ARC Capital Holdings Ltd

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JIADELI HOLDBACK Due Date of Payment: October 2011 Initial Investment Cost: US$17.7 million Investment Instrument: Holdback Payment Shareholding: n/a Date of Exit: n/a Exit Type: n/a Current Value: US$17.6 million (1) 1. As at 30 June 2012. Difference in value versus cost due to RMB fluctuation. Transaction Description • As part of the sale of Jiadeli Supermarkets to HNA Group on 11 October 2010 for a total consideration of RMB1.1 billion (equivalent to US$164.8 million), it was agreed that a holdback of RMB100 million was to be paid to ARCH 12 months after closing, subject to completion of a post closing audit. • In March 2011, the audit was completed by RSM China, a domestic accounting firm appointed by HNA Group, which indicated a net loss of RMB34m compared to a net profit of RMB34m as audited by Deloitte & Touche (Jiadeli’s auditors). As a result, HNA Group has not released the holdback. • In August 2011, ARCH and HNA Group engaged Ernst & Young as the mediator to review the alleged discrepancies. BRIDGE LOAN TO “DCSI” Date of Investment: December 2011 Initial Investment Cost: US$15.9 million Investment Instrument: Debt Shareholding: n/a Date of Exit: n/a Exit Type: n/a Current Value: US$15.9 million (1) 1. As at 30 June 2012 Transaction Update Transaction Description Quarterly Newsletter Q2 2012 • In late June 2012, E&Y reported that its work was inconclusive due to certain discrepancies found in the figures presented by HNA Group. • On 25 July 2012, ARCH met with HNA’s management to discuss the settlement. Negotiations are ongoing however HNA and ARCH may agree to a compromise to facilitate an early settlement. • The Manager will keep shareholders updated on any developments. Valuation • The holdback is valued at cost. ARCH’s Valuation Committee will review the situation and make appropriate adjustments as necessary, pending progress of ongoing discussions with HNA’s management. • As part of the sale of Orient Home Retail to a domestic Chinese strategic investor (“DCSI”), ARCH provided DCSI with a oneyear, RMB100m bridge loan. • The loan was to be used by DCSI to meet Orient Home Retail’s urgent short term working capital needs during the transition of ownership. • DCSI will repay this loan once it has successfully renewed Orient Home Retail’s bank loans and has injected additional capital into the company. • The interest rate for the loan is 8% per annum • No material changes have occurred. Valuation • The loan is valued at cost. www.arch-fund.com ©2012 ARCH Page 6 of 10
HUIYIN Date of Investment: November 2007 Initial Investment Cost: US$42.3 million Investment Instrument: Common Equity Shareholding: 19% (1) Date of Exit: n/a (2) Exit Type: n/a Current Value: US$10.6 million (3) 1. On a fully diluted basis 2. HKSE IPO on 25 March 2010 with no realisation 3. As at 30 June 2012 Brief Description • Huiyin is a leading retail chain operator and distributor of home appliances and consumer electronic products in the 3 rd and 4 th tier cities of China. As at 31 December 2011, Huiyin had 61 self-managed stores and 157 franchise stores in Jiangsu and Anhui provinces. Financial Performance • 2011 – YoY Sales: +59% – YoY EBITDA: -51% – YoY Net Profit: -83% Business Update • On 15 June 2012, the company issued a profit warning announcement stating that it expected a significant YoY decline in its net profit for the first half of 2012. This decline in profitability is primarily due to the government macro policy and the increasing cost pressure in the home appliance industry in China. The announcement also stated that profitability may further be adversely affected by potential provisions to be made by the company, in respect of the amounts due from suppliers, which could result in lower rebate offerings. � Share Price (as of 2 August 2012): HK$0.36 � 79.0% decrease in IPO price Business Update (cont’d) Quarterly Newsletter Q2 2012 • The company’s margins continued to suffer due to diminishing rebates from suppliers and expiry of central government support policies for electrical appliance purchases. • Since the release of its profit warning, Huiyin’s share price has declined by over 16%. • On 30 June 2012, ARCH resigned its directorship on Huiyin’s Board. • On 20 July 2012, the company announced that it would issue medium-term notes totaling RMB390m. The company explained that the proceeds from the issue of the notes would be used to expand the sales network and repay part of the company’s bank debt. • ARCH will continue to monitor the company’s share price and will realise its holdings in an orderly fashion when the opportunity arises. Valuation • Marked-to-market on a monthly basis with no discount applied since expiration of lock-up. www.arch-fund.com ©2012 ARCH Page 7 of 10
Page 1 and 2: ARC Capital Holdings Fund Details B
Page 3 and 4: FUNTALK Date of Investment: Novembe
Page 5: XIAJIN DAIRY Date of Investment: Ap
Page 9 and 10: UCCAL Date of Investment: December

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