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JSM Indochina Ltd (JSM)

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Thursday 16 September, 2010

JSM Indochina Ltd

Interim Results

RNS Number : 8254S
JSM Indochina Ltd
16 September 2010
 



 

 

For Immediate Release

16 September 2010

 

JSM INDOCHINA LIMITED 

 

Unaudited interim results for the period ended 30 June 2010

 

JSM Indochina Ltd. ("JSM Indochina" or the "Company") (AIM: JSM.L) is pleased to present its interim results for the six-month period ended 30 June 2010 as detailed below.

 

Financial Highlights 

 

·     Distribution of $0.25 per share ($57.37m) made to shareholders following approval at 27 April 2010 EGM 

·     Termination of the existing investment management agreement between the Company and JSM Capital Indochina on 1 April 2010 and new consultancy agreement commenced

·     Announcement today of a second distribution to shareholders of $0.15 per share

·     NAV of $0.65 per ordinary share1 (31 December 20091: $0.99), after payment of $0.25 per share distribution in May 2010

·     Value of the Company's share of real estate projects of $84.7 million (31 December 2009: $91.4 million), including monies pledged for projects (after impairment provisions)

·     Loss before tax for H1 2010 was $20.7 million (H1 2009: loss $10.2 million)

·     Loss per share for H1 2010 was $0.09 (H1 2009: loss $0.04)

·     Cash and bank balances at 30 June 2010 stood at $67.6 million (excluding $33.0 million pledged for projects, before impairment provisions)

 

Notes:        

1. Based on a share capital of 229,477,574 shares, which excludes the treasury shares which were cancelled on 15 July 2010.

 

Operational Highlights 

 

·     The Company's investment portfolio now comprises 5 properties in Cambodia, 2 properties in Vietnam, and 2 pipeline projects in Vietnam (which have contractual commitments)

·     Construction on Colonial Mansion II continues and is now expected to complete during Q4 2010

·     Whilst legal completion on the Prince and Peninsula projects has not occurred, discussions are ongoing with the relevant parties to determine how best to resolve each of these projects

·     Working toward ensuring all projects are in an optimum form for sale

·     Appointment of CBRE to sell the Company's property portfolio

 

Scott Verges, Chairman of the Company, commented:

 

"I am very pleased that during the period shareholders approved the new investing policy and the distribution of uninvested capital. The Board, and in particular the Executive Committee, have focused on taking operational control of the Group and repositioning the Group and its assets to enable the Board to move towards implementing the new investing policy. We are very pleased today to announce an additional distribution to shareholders of $0.15 per share, for a total distribution for the year to date of $0.40 per share. We are focused on returning capital to shareholders as quickly as possible and look forward to providing further updates on our progress in due course." 

 

For further information:

JSM Indochina Ltd.
+1 415 400 2461 
Scott Verges, Chairman 
 
 
 
Panmure Gordon (UK) Limited
+44 20 7459 3600
Edward Farmer / Andrew Potts
 
 
 
Buchanan Communications
+44 20 7466 5000
Lisa Baderoon / Charles Ryland
 

 

 

About JSM Indochina

 

·    JSM Indochina Ltd. was originally established for the purpose of investing in Vietnamese and Cambodian real estate, focusing on the development and management of high specification retail and serviced apartment assets in leading urban areas within Indochina

·    Following a shareholders' resolution on 27 April 2010, the Company's investing policy was changed to that of an orderly realisation of the Company's portfolio over the medium term with a view to maximising returns for shareholders.

 

All references to $ are references to US$, the functional currency of the Company.



CHAIRMAN'S REPORT  

 

This is my second report as Chairman of the Company. 

 

The Company convened an Extraordinary General Meeting on 27 April 2010 ("April 2010 EGM") to consider the outcome of the review of the Company's investment strategy which was undertaken following the resolutions approved by the shareholders on 7 December 2009.  It was proposed to change the Company's investing policy to an orderly realisation of the Company's portfolio over the medium term with a view to maximising returns for Shareholders.  A resolution was also proposed that, if the change of investing policy was approved, the Company would pay a dividend of US$0.25 per share to shareholders. 

 

Shareholders unanimously voted in favour of the revised investing policy and the payment of the dividend of US$0.25 per share.

 

In addition, as announced on 1 April 2010, the existing investment management agreement between the Company and JSM Capital Indochina Ltd ("JSM Capital Indochina" or the "former Investment Manager") was terminated by mutual agreement. The Company and JSM Capital Indochina instead entered into a new consultancy agreement under which JSM Capital Indochina agreed to provide certain administrative, financial and management functions and other services to the Company at the request of and subject to the direction of the Board.  

 

The Company pays, monthly in advance, equal sums aggregating up to $4.0 million to JSM Capital Indochina (equivalent to $222,222 per month). The Company also reimburses JSM Capital Indochina for salaries (but not Mr Jones') and office and operational expenses which it incurs throughout the term of the consultancy agreement. Total expenses paid to JSM Capital Indochina for the six-month period ended 30 June 2010 were $2.12 million (30 June 2009: $2.61 million).

 

It has continued to be a very busy and challenging engagement for all of the Company's directors. As foreshadowed in the Company's 11 April 2010 circular, there have been significant costs payable to directors and third party advisers as a result of the review of the investment strategy and uninvested cash and in connection with implementing the new investment strategy.

 

 

Financial Overview

 

The Company's NAV at 30 June 2010 was $148.7 million resulting in a NAV of $0.65 per share (based on a share capital of 229,477,574 shares which excluded the treasury shares which were cancelled on 15 July 2010), a decrease compared to the 31 December 2009 NAV of $226.5 million or US$0.99 per share (based on a share capital of 229,477,574 shares, which excludes the shares held in treasury).

 

This decrease reflected the payment of a $0.25 per share distribution to shareholders in May 2010, further reductions in the value of the Company's properties and impairments on pledges as a result of limited transaction levels and comparable real estate sales and difficulties in entitling properties. In addition there were various pre-development expenses incurred by the Company in respect of its projects by its former Investment Manager which have now been written off, and various expenses incurred by the Company during the period following the appointment of new directors for the strategic review, review of uninvested cash, renegotiation of the arrangements with JSM Capital Indochina and the running of the executive committee.

 

The Company recorded a loss before tax of $20.7 million for the six-month period ended 30 June 2010, compared to a loss before tax  of $10.2 million for the six-month period ended 30 June 2009, with a loss per share for H1 2010 of $0.09  (H1 2009: loss $0.04). The loss before tax and changes in fair value of investment properties was $14.8 million (H1 2009: loss $4.3 million).

 

Cash Balances

 

The Company's cash and bank balances at 30 June 2010 were $67.6 million (31 December 2009: $130.3 million), excluding $33.0 million set aside as pledged monies for the $37.0 million future investment in the Prince and Peninsula projects, which are required in order to effect the acquisition of JSM's interest in Prince and Peninsula. During the period, a distribution of $0.25 per share was paid to shareholders, equating to $57.3 million. The monies continue to comprise deposits spread between a number of local and international banks.

 

As part of the ongoing analysis of the Company's cash balances and future cash requirements, certain monies have been reserved in respects of the Company's projects including its two pipeline projects Prince and Peninsula, ongoing running costs and contingencies, and to allow the Company to implement the proposed new investing policy.  

 

Distribution to Shareholders

 

The Board is pleased to announce a second distribution to shareholders of $0.15 per share. The ex-date for the dividend is 22 September 2010, the record date is 24 September 2010 and the payment date will be confirmed in a subsequent announcement. Following that distribution, a total of $0.40 per share will have been distributed to shareholders.

 

Executive Committee

 

Subsequent to the April 2010 EGM, the Board formed an Executive Committee, comprising Mr. John Duggan and Mr. Paul Kaju, which is primarily responsible for managing the Company's day-to-day operations and managing the Company's relationship with JSM Capital Indochina and its other advisers in respect to the implementation of the Company's investing policy, subject always to the direction and decisions of the Board as a whole.

 

Since the April 2010 EGM, the Executive Committee have spent 49 days in Indochina and remains in constant contact with the Company's operations when not in Indochina.

 

The Executive Committee has focused their efforts on a number of key areas:

 

·    Working with JSM Capital Indochina's new Chief Financial Officer to improve effective budgeting, cash flow management and reporting processes.

 

·    Taking over and establishing control over the Company's cash and contract authorisation processes. It has reviewed and settled outstanding claims relating to consultants and contractors and is endeavouring to settle any disputes and resolve any contingent liabilities.

 

·    Taking over and establishing clear responsibility for project management and contract authorisation and payment processes for Colonial Mansion II, the Company's only active development project. This has involved working closely with the on-site management team to re-confirm the budget and programme for delivery and resolve ongoing day to day construction issues relating to contracts, product supply, labour and quality control. The project is now proceeding towards completion.

 

·    Continuing to work through the various legal agreements and understand local commercial practices for each of the projects in detail to resolve outstanding matters and prepare each of the Company's projects for sale in accordance with the Company's investing policy

 

 

·    Extensive work with the Company's local lawyers to review the complex master agreements and associated pledge agreements for the Prince and Peninsula projects and how they operate in the local commercial context, for the purpose of implementing the Company's new investing policy. The Company does not currently have ownership of an asset (being an interest in a project company), it has a legal right to acquire a shareholding in a project company. These two pipeline projects are the Group's largest commitments, totalling $37.0 million. Given the fall in valuations on these two properties compared to the original acquisition cost, a review of the downside position has also been undertaken. Discussions continue with our local joint venture partners and the different exit options available to the Company continue to be considered.

 

 

The Executive Committee have made significant progress towards ensuring that many significant historic operational issues have been resolved and that the outstanding matters in respect of the Company's projects are ready to be sold in accordance with the Company's new investing policy.  This has involved a significant time commitment for the members of the Executive Committee and the Company's advisers, with even apparently straightforward matters involving complex administrative processes in the Indochina region.

 

 

Implementation of the New Investing Policy

 

As part of the implementation of the new investing policy, the Executive Committee and the Chairman have had numerous meetings with local real estate owners, operators and developers, as well as the Company's joint venture partners.

      

In addition, the Executive Committee agreed to appoint a local real estate agent to assist the Company in the disposal of the Company's property portfolio. The Executive Committee interviewed a number of real estate agents in Vietnam and Cambodia to determine who they believed was best placed to act for the Company.

 

The Board is pleased to announce the appointment of CBRE in both Cambodia and Vietnam to sell the property portfolio on the Company's behalf.  Marketing materials have been prepared for a number of the properties which the Company and CBRE believe are currently ready for sale, and CBRE have commenced marketing these properties for sale and contacted a number of prospective parties.  The Board will update shareholders on progress in due course.  

 

 

Valuations

 

The Executive Committee have worked closely with the two valuers used by the Company to ensure that the valuations have been prudently prepared and take into account the existing entitlements for each of the projects (including the Prince and Peninsula pipeline projects) and the prevailing market conditions.  Valuations in emerging markets such as Vietnam and Cambodia remain a challenge, particularly given the limited transparency in the market, along with the limited number of comparable transactions, and the generally decreased transaction volumes as a result of the economic downturn.

 

Excluding the pipeline projects Prince and Peninsula, based on the external valuations, the portfolio has shown growth when compared to the original cost of acquisition.  

 

 

 

 

As a result of the ongoing challenging real estate markets in Vietnam and Cambodia, the Board feels it to be prudent to make further write downs and impairments on the pledged cash and property portfolio and to write-off other project costs incurred by JSM Capital Indochina on behalf of the Company on initial development work.  Given limited transaction volumes and comparable sales data, the prices at which these assets could be realised may be different to the individual or cumulative book values.

 

 

Contingent Liabilities

 

As set out in Note 16 to the condensed consolidated interim financial statements, certain Group companies had entered into twelve separate service contracts with Archetype entities for architectural design services, construction management services, engineering design services and value engineering services with a total value of $5.7 million. Disputes arose in respect of several of these service contracts and they were all terminated on 17 February 2009. 

 

Archetype has initiated formal arbitration proceedings in respect of one of these contracts against JSM EC.  The amount claimed by Archetype under the arbitration proceedings is $1 million.  Local counsel has been engaged to defend this claim, and also to assert a counterclaim well in excess of the amount claimed by Archetype. In addition to this, two further arbitral proceedings have been initiated against Archetype for recovery of overpayments that were made under two of the contracts mentioned above. These overpayments amount to approximately $350,000 in total. The Board is considering commencement of further actions under the remaining contracts. The Board, having taken local legal advice, remains of the opinion that these disputes do not and will not have a material impact on the Group's financial position.

 

In addition, the Company has recently been served with the statement of claim in respect of one of the Californian suits that relate to Mr Jones' Californian business.  The Company has been named as a defendant in the suit along with various companies associated with Mr Jones' Californian business.  The plaintiffs have not quantified their damages precisely at this stage but claim they have suffered damages in excess of $1.75 million. The Board has engaged Californian counsel to assess and advise the Board in respect of this matter and is confident that the matter can be shown to be without merit. 

 

Craig Jones' loan

 

Consistent with the announcements made on 1 April 2010, the amounts due and payable to Mr Jones in respect of the dividend of $0.25 per share which was approved by shareholders at the April 2010 EGM, were applied in full and final satisfaction of loan (the current balance of which, including rolled up interest and the indemnity in respect of the applicable US withholding tax, amounted to approximately $5.4 million).  For administrative convenience, the Company retained a certain additional amount which is to be remitted to the US tax authorities in satisfaction of Mr Jones' obligation to remit that withholding tax. Following the period end, these monies were submitted to the US tax authorities.


PROPERTY REPORT

 

Economic & Real Estate Overview

 

1. VIETNAM

 

ECONOMY OVERVIEW

 

Increased domestic consumption, industrial production and a heightened confidence that Vietnam is finally over the worst of the global recession helped the country to record an annual GDP growth rate of 6.2% in the first half of the 2010 year. Vietnam is on track to reach a targeted economic growth rate of 6.5% in 2010 and 7.0%-7.5% in 2011.

 

Although total FDI into Vietnam decreased by 19.1% in the first half of the year, new FDI was strong, increasing by 43% against the first half of 2009. Implemented FDI also rose by 5.9%, helping to cover the country's trade deficit, increase supply of the US Dollar and stabilise the forex market.

 

CPI peaked at 9.5% in March before settling at 8.8% in the first half of 2010 due to exchange rate stability and slow growth in food and foodstuffs. Inflationary concerns remain due to lowered interest rates and wage increases.

 

Vietnam welcomed 2.52 million international arrivals, a 32.6% y-o-y increase, in the first half of 2010 due to an increase in arrivals from China, up 92.5%, Cambodia (88.9%), South Korea (28.3%), Thailand (28.1%) and Australia (25.7%). However, the Icelandic volcanic eruption and low foreign tourism season in the second quarter resulted in a 13.3% q-o-q decrease against the first three months of the year.

REAL ESTATE MARKET - HO CHI MINH CITY

RESIDENTIAL

 

Enquiries for residential units increased by 25% q-o-q as confidence within the population that Vietnam has shaken off the ill-effects of the global recession increased.

 

A total of 17 projects launched to the market with in terms of the number of units, the mid-end and affordable sectors accounting for 95% of all new launches. Given the high demand for condominiums in these two sectors, the residential market appears to be maturing and more competitive than before. Thus, developers are looking for alternative options and becoming more geographically diverse, with the 17 new launches being spread across 12 different districts.

 

Secondary market prices remained stable in the second quarter achieving minor increases of between 0.4%-0.9%.

 

Law makers submitted recommendations to amend housing laws/regulations in order to protect end-buyers and foster the continual development of the residential property market. The Ministry of Construction also instructed developers to ensure that a full maintenance service programme is put in place for high-rise condominium buildings.

 

 

 

 

2. cambodia

Economic Background

 

Cambodia's overall recent economic performance has been characterised by balanced contributions from agriculture, manufacturing, construction, tourism and services. Despite the global downturn, the Cambodian economy has been in good shape underpinned by a continued increase in investment in agriculture, a broad base development of non-agriculture sectors, political stability, active private sector participation, reform efforts, increased official development aids and sustained foreign direct investment. The GDP growth in 2009 remained in the positive, 0.1%, while the growth in 2010 is expected to be around 5.0%, 6.0% for 2011 and 6.5% for 2010.

 

 

PROPERTY LEGAL SYSTEM

 

The new Law on Foreign Ownership has now been ratified and completed (June 2010) which allows foreigners to purchase condominiums above the ground floor on a freehold title. A developer is able to sell 70% of a building to foreigners, 30% must be reserved for Cambodians. The law does not stipulate whether 70% refers to the number of units or the floor area. There is also no distinction between residential or office condominiums so under the law foreigners will be able to purchase freehold office space.

 

The Cambodian government is introducing a new law that enforces real estate developers with respect to certain projects to deposit 2% of their entire projects worth to the National Bank of Cambodia. This is aimed to reduce fraudulent behaviour and protect the investors' interest. Due to the economic downturn and falling investment in Cambodia, there is now some doubt whether this law will be ratified or enforced.

 

At the reporting date, the Cambodian Government is also considering introducing a Property Tax equivalent to 0.1% on all properties valued over approximately $25,000. 

 

REAL ESTATE MARKET

 

The Cambodian real estate market has strong potential for growth, still relatively underdeveloped in comparison to neighbouring countries, which it looks to emulate.

The hotel market is founded on tourism to Angkor Wat in Siem Reap with tourists also attracted to the capital Phnom Penh. Phnom Penh currently only has the branded Raffles and Intercontinental hotels with Sofitel opening a new hotel in November 2010. There is demand for better quality hotels.

There are no internationally branded serviced apartments in Cambodia, despite high demand from NGO/Embassy staff and expatriates. Rents and occupancy dipped in 2009 but have recovered in 2010. Current occupancy rates are in excess of 85% with the best apartments achieving 95-100%.

There is a significant and growing expatriate community as well as wealthy Khmers who currently travel to Bangkok or Singapore for shopping, because there is no supply of international shopping malls in Cambodia. Recently Adidas, Axara, Sketchers and Mango have arrived in Phnom Penh due to high demand for international products.

 

 



REAL ESTATE PORTFOLIO 

 

The Company's real estate portfolio of 9 projects are largely residential and are in the main districts of Ho Chi Minh City, Vietnam (2 properties; 2 pipeline projects), Phnom Penh, Cambodia (4 properties) and Siem Reap, Cambodia (1 property). 

 

 

Property Purchases 

 

During the first half of 2010, the only discussion regarding property purchases were in relation to the Company's contractual rights and obligations for three properties in Ho Chi Minh City, Vietnam, namely Prince, Peninsula and Princess (see further below). In relation to other projects identified as pipeline in the 2009 annual report, namely Xi Riverview Palace and VTI, the MOU's have expired and the Board has decided not to proceed with these pipeline projects.

 

 

Vietnam Real Estate Portfolio

 

Properties

 

A.  Hieu Duc Joint Stock Company ("Hieu Duc")

 

Hieu Duc is a Vietnamese joint stock company that specialises in real estate development in Vietnam. Hieu Duc is currently developing and/or operating two major apartment building projects namely Saigon View and Icon D3. The Company holds a 49% stake in Hieu Duc. The Board are in discussion with the Hieu Duc joint venture partner regarding its shareholding in Hieu Duc and will update shareholders in due course.

 

1.   Saigon View, Ho Chi Minh City, Vietnam (in operation)

 

Saigon View, located in Binh Thanh District, comprises 93 serviced apartments ranging from 46 sqm to 68 sqm of one bedroom units and from 84 sqm to 102 sqm of two bedroom units, with 25 car parking spaces in a two level basement. It is one of the tallest buildings in the immediate area and offers uninterrupted views of the entire city. Saigon View is only minutes away from New Thu Thiem Urban District 2 and the city centre and close to Tan Son Nhat International Airport. The property and its tenants are managed by an in-house team employed by Hieu Duc.   

 

According to the information provided to the Company by Hieu Duc, the annual rental for H1 2010 for Saigon View was $1.3 million (H1 2009: $1.9 million), with an occupancy for H1 2010 of 62.6% (H1 2009: 82.3%), and net operating income for H1 2010 was $0.8 million (H1 2009:$1.3 million).

 

2.   ICON D3, Ho Chi Minh City (under construction)

 

ICON D3 is located in District 3, bordering District 1 of Ho Chi Minh City. The property has a site area of 2,100 sqm, which is now expected to be developed as a 15 storey serviced apartment building. The apartment unit mix will predominantly be single bedroom given the high market demand for this unit in the central business district of Ho Chi Minh City.

 

Icon D3 is currently licensed for 30% office space (comprising 7 storeys) and 70% residential apartments (comprising 8 storeys). In accordance with the original specification, Hieu Duc expects the licence to be amended for 100% residential in due course. Initial construction has occurred on the foundation and basement works.

 

Construction on the property ceased in May 2009 and has not recommenced. Hieu Duc viewed it was necessary to suspend construction works to allow time  for the construction licence to be amended to 100% apartments for rent and/or sale exclusively and deemed it financially the most prudent course of action as the office and apartment for rent market was extremely weak at that time.

 

 

Pipeline

 

1.   Prince, Ho Chi Minh City

 

Project overview

 

The Prince property is situated in Thao Dien, District 2 of Ho Chi Minh City, an increasingly affluent residential district of Ho Chi Minh City. On a fully permitted basis, the property would have a site area of 5,824 sqm, and was planned to be developed into 194 ultra luxury residential apartments for sale or lease across two apartment towers of 27 and 24 stories, of 2, 3 and 4 bedroom apartments and duplex penthouses above a multi level above ground car park and leisure facilities.

 

The total planned gross floor area was approximately 31,640 sqm, with leisure facilities such as a pool, gym, garden, children's playground and small restaurant at podium level.

 

All work on the design and construction plans to support the permit application process ceased in January 2010.

 

As previously planned, the total construction period was estimated by JSM Capital Indochina to be approximately 2.5 years and the total project cost was estimated to be $55 million, excluding land. As previously advised, no construction has commenced on this site and no construction financing has been obtained.  The total costs incurred on this pipeline project since inception was $0.7 million which have been written off.

 

Current status

 

The right to acquire this property was originally announced on 14 September 2009 for $14 million. The right to acquire the Prince property was secured by New Vision Land Joint Stock Company ("New Vision") from Mr Nguyen An ("Mr An"). As part of the arrangements under which the right to acquire Prince was obtained, the Company pledged $12 million with Navibank.  This pledge enabled New Vision to fund the original purchase of the Prince land. The Company pledge is $ denominated and the New Vision loan is Vietnamese Dong denominated and both are held with Navibank. New Vision entered into the loan agreement with Navibank for the Vietnamese Dong equivalent of $15 million ($14 million principal and $1 million for future interest payments) in November 2009 for a period of 12 months from the date of the first drawdown date of February 2010. As part of the security arrangements, JSM Indochina Properties Pte Ltd acts as guarantor, with a maximum exposure of 142.4 billion Vietnamese Dong (approximately $7.5 million at 30 June 2010) under the pledge arrangements.  Prior to the termination of the investment management agreement, JSM Capital Indochina agreed on behalf of JSM Indochina Properties Pte Ltd, a subsidiary of the Company, that $220,000 should be advanced to New Vision as a loan, and In February 2010, JSM Indochina Properties Pte Ltd entered into a loan agreement with New Vision under which JSM Indochina Properties Pte Ltd provided an amount of $220,000 to New Vision in connection with the implementation of the revised legal agreement for the Prince project.

 

New Vision was originally established as the investment vehicle for JSM Indochina Properties Pte Ltd and its local partner to develop the Prince, Peninsula and Princess residential projects.  Following discussions with Mr An, the Board has determined that New Vision will only be used for the Prince project (see details on Peninsula and Princess below for further information).

 

Mr An has previously completed the nearby River Garden project in Thao Dien with another developer, and had previously secured the entitlement rights to River Garden - a completed 21 storey 210 unit residential development adjacent to Prince, that is currently selling its residential units. (www.rivergarden.com.vn)

 

The Company is required to undertake certain obligations in order to acquire its interest in New Vision and to enable the pledge monies to be returned to the Company. The obligations include funding the repayment of all of the Navibank loan and acquiring the shares in New Vision from Mr An when contractually permitted to do so. Mr An is also required to undertake certain actions, but not all of these have yet occurred. These include procuring New Vision be granted additional land lots in connection with the project and securing the necessary entitlements for the project. Before the Company can contractually acquire its interest in New Vision, there are certain conditions precedent on Mr An, including the requirement to deliver certain project permits, before a foreign investor (including JSM Indochina Properties Pte Ltd) can obtain an interest in the project company. As at the date of this announcement, these have not yet been procured and New Vision owns certain of the land use rights, but not all the rights and permits, for the Prince project. Securing these will involve significant additional costs to the Company.

 

Conditional on receipt of the permits and the granting of the additional land lots, the key legal steps include, but are not limited to, the following:

 

·     A subsidiary of the Company is required to invest approximately $15 million into New Vision ($12 million investment, $2 million loan and the balance being for rolled up interest on the Navibank loan) , which will be used to repay the approximately $15 million Navibank loan (inclusive of rolled up interest); and

·     Conditional on the repayment of the $15 million Navibank loan, the Company's $12 million pledge with Navibank will be released and returned to the Company

 

Given the ongoing challenging real estate markets in Vietnam, particularly in the high end residential sector, and general difficulties in entitling properties (and costs associated with doing so), the Board feels it to be prudent to make an impairment against certain of the future approximately $15 million investment into New Vision and also to write off certain upfront project costs.

 

On completion of the various required legal and contractual steps, a subsidiary of the Company will own 80% of New Vision and Mr An will own the remaining 20%. A subsidiary of the Company will fund Mr An's 20% equity interest in New Vision by way of a loan to New Vision, which will be repaid ahead of profit distributions to the shareholders. The structure of the profit distribution to shareholders was as foreseen in the revised Prince legal agreement/arrangements.     

 

The Executive Committee continue to have discussions with Mr An to resolve the outstanding matters and to determine the best way forward, which could include seeking a resolution with Mr An and Navibank where the Company would not proceed with acquiring a controlling interest in New Vision.

 

2.   Peninsula, Ho Chi Minh City 

  

Project overview

 

The Peninsula project is also situated in Thao Dien, District 2 of Ho Chi Minh City, near to the Prince project. The Peninsula land has a site area of 7,435 sqm, which was planned to be developed into 197 ultra luxury residential apartments for sale or lease across two apartment towers of 3 and 4 bedroom apartments and duplex penthouses above a multi level car park and leisure facilities. The Peninsula land comprises 18 land lots. Although the current permits for Peninsula allow for low rise residential villas to be developed with such permits granted on the basis of the aggregated area of only 16 of the 18 land lots, it is believed that based on the aggregated area of 18 land lots, the permits and construction licences for the planned development of high rise apartments may be achievable, which have yet to be applied for.

 

As currently planned, the total construction costs are estimated to be approximately $47 million, excluding land. At this stage, no construction has commenced on this site and no construction financing has been obtained.  The total costs incurred on this pipeline project since inception was $1.1 million which have been written off.

 

Current status

 

The right to acquire the Peninsula land was secured by JSM Indochina Properties Pte Ltd in July 2008 by way of a $20.5 million pledge against a $20.5 million United Overseas Bank loan secured against land lots and land use rights that comprise the Peninsula project that are currently owned by an unrelated third party, Quang Minh Space Joint Stock Company ("QSpace") and Promise Land, the capital of which is currently wholly owned by QSpace.

 

As part of the pledge arrangements, JSM Indochina Properties Pte Ltd entered into a security agreement with United Overseas Bank to guarantee QSpace's repayment obligations under the United Overseas Bank loan, the terms of which were recently extended, to 15 October 2010 for $18.5 million of the loan, and to 10 November 2010 for $2 million of the loan which was recently increased to $2.5 million, and the total loan from United Overseas Bank has increased to $21 million. The pledge is $ denominated and recently increased to $21 million, and the loan is $ denominated, and they are both held with United Overseas Bank.  The Company is continuing to pay the interest on the loan. The total net interest paid since July 2008 is $0.7 million.

 

The contractual agreement between JSM Indochina Properties Pte Ltd and QSpace include an obligation on QSpace to assign the Peninsula land use rights to an entity nominated by JSM Indochina Properties Pte Ltd. JSM Indochina Properties Pte Ltd had previously intended to transfer the Peninsula land use rights into New Vision, however following discussions with Mr An, the partner in the New Vision/Prince project, the Company decided to exercise its right to not transfer the Peninsula project into the New Vision/Prince project.

 

In March 2010 JSM Indochina Properties Pte Ltd initiated the procedural steps with QSpace to transfer the Peninsula land use rights into a new nominee over which the Company could exercise closer control.  These steps are proceeding, although the decision to transfer the property into a new nominee (rather than New Vision) has impacted the timing of this transfer.  In relation to the Peninsula project, all necessary land use rights certificates have been obtained. 

 

The new nominee will continue to hold the land subject to similar arrangements in respect of the loan and pledge of the Company's cash.  It is not proposed at this stage that the Company would acquire any interest in the shares of the nominee or for the loans to be repaid; these matters would be addressed in a disposal structure.  There are various costs associated with the transfer of the Peninsula land to the new nominee, but these are not significant especially in the context of the reduced execution risks of the new holding company structure.

 

 

3. Princess, Ho Chi Minh City 

 

The proposed acquisition of this property from Mr An was also announced on 14 September 2009. The cost for JSM Indochina Properties Pte Ltd to acquire Princess was to be $12 million. The property is also situated in Thao Dien, District 2 of Ho Chi Minh City, close to the Prince and Peninsula properties. The property has a site area of 6,897 sqm, which was planned to be developed into 224 luxury residential apartments across two apartment towers, of 2, 3 and 4 bedroom apartments and duplex penthouses above a multi level above ground car park and leisure facilities.

 

The proposed acquisition of this property was secured by JSM Indochina Properties Pte Ltd by way of an agreement that gave JSM Indochina Properties Pte Ltd certain rights, including the right not to proceed with the acquisition. 

 

Following discussions with Mr An, the partner in the New Vision project, the Company has decided not to exercise its right to proceed with the acquisition of the Princess project. At the time of the decision, the project required permits and construction licences which had not been applied for. There were no costs to terminate this agreement. The total costs incurred on this proposed project since inception was $0.06 million which have been written off.

 

 

4.   Xi Riverview Palace, Ho Chi Minh City 

 

As set out in the Company's 2009 final results, the Company announced on 28 October 2009 that a subsidiary of the Company had signed an MOU to acquire two partially completed residential apartment towers of 176 units in Thao Dien, District 2, Ho Chi Minh City for US$65 million. The MOU has now expired. In accordance with the revised investing policy, the Board has decided not to proceed with this project. The total costs incurred on this proposed project since inception was $0.03 million, which have been written off.

 

 

5.   VTI, Ho Chi Minh City 

 

As set out in the Company's 2009 final results, a subsidiary of the Company had signed an MOU and was negotiating a joint venture agreement with a local partner for the proposed development of 1.5 hectares of land in a major boulevard of Ho Chi Minh City. The MOU had subsequently expired and a joint venture agreement has not been entered into. In accordance with the revised investing policy, the Board has decided not to proceed with this project. The total costs incurred on this proposed project since inception was $0.9 million, which have been written off.

 

 

 

 

Cambodia Real Estate Portfolio

 

Properties

 

A.  JSM Holdings (Cambodia) Co. Ltd ("JSM Holdings")

 

JSM Holdings, effectively wholly owned by the Company, is a private limited company duly incorporated in Cambodia on 15 August 2008 to serve as the investment/project company for the development of the lands known as Embassy Centre, Ounalom and Siem Reap. In January 2009, JSM Holdings submitted three applications for Qualified Investment Projects status to the Council for the Development of Cambodia ("CDC") for the land plots known as Embassy Centre, Ounalom and Siem Reap so that it may obtain investment incentives pursuant to the laws of the Kingdom of Cambodia. JSM Holdings received the necessary CDC approvals for each respective land plot and investment incentives were granted as described below. The CDC approvals for the individual properties are held by JSM Holdings and not in the specific subsidiaries that own the individual sites. This means that in the event of a sale of the subsidiary that holds the relevant land plot, this would be the sale of shares in the related individual land holding company and the assignment of lease rights in case of Siem Reap (see below); in the event of a sale of the project (being the land and the relevant license), this would involve (i) the sale of shares in the land holding company and lease rights aforesaid and (ii) the sale of shares of JSM Holdings.    

 

1.   Embassy Center, Phnom Penh

 

The land known as the Embassy Center, owned by JSM Embassy Center Co., Ltd, is also effectively wholly owned by JSM Indochina Properties Pte Ltd, as a mixed use property development that would have 30,515 sqm retail space, a 27 storey hotel suite as well as approximately 700 car-parking spaces. JSM Holdings obtained approval on the investment licence from the CDC in November 2009. The Embassy Center is well located near the Central Market, the US Embassy and Wat Phnom. 

 

Previously, the Embassy Center has been described as a mixed use property development of retail and serviced apartments. Following a recent detailed review of the CDC licence application paperwork, it has become apparent that there was a misunderstanding during the course of the authority inter-ministerial consultation prior to the issuance of the final investment certificate, and serviced apartments were later designated in these prior-approval inter-ministerial exchange letters and thereafter in the final investment certificate as hotel suites, and not serviced apartments as originally applied for.   

 

JSM Holdings has previously applied for but not yet received a construction licence only for the shopping centre and the car-park. No construction activity has commenced on this site and no construction financing has been obtained. The total costs incurred on this project since inception was $2.3 million, which have been written off.

 

2.   JSM Ounalom, Phnom Penh

 

The land known as JSM Ounalom, owned by JSM Ounalom Co., Ltd, is also effectively wholly owned by JSM Indochina Properties Pte Ltd, and is well located in the heart of the tourist area of Phnom Penh, right on the Tonle Sap Riverfront. It is ideally situated near the Central Market, the US Embassy, Wat Phnom, the Governor's House, and the developing financial districts of the City. The project was planned as a 9 storey hotel with ground floor commercial.   

 

JSM Holdings obtained approval on the investment licence from the CDC for JSM Ounalom in September 2009. A construction licence has not yet been applied for. The total costs incurred on this project since inception was $0.8 million, which have been written off.

 

No further work on design or hotel management agreements has occurred during 2010. No construction activity has commenced on this site and no construction financing has been obtained.

 

3.   JSM Siem Reap, Siem Reap

 

The land known as JSM Siem Reap, initially owned by way of lease rights by JSM Indochina Properties Pte Ltd who has assigned the lease rights to JSM Holding, is located in Siem Reap, Cambodia, which is renowned worldwide due to its world heritage site, Angkor Wat. Siem Reap is a major tourist destination in Asia and, with its increasing number of tourists, a growing hotel market has developed. In addition, the retail market in this part of Cambodia is still very underdeveloped. However, 2009 and 2010 tourist numbers are down significantly from prior years.

 

JSM Siem Reap, another effectively wholly owned investment project of JSM Indochina Properties Pte Ltd, has been earmarked for a mixed use development. JSM Holdings has 84 years remaining on a ground lease with the Cambodian government. The project's land size measures approximately 31,041 sqm and is located directly next to Raffles Grand Hotel d´Angkor. The project was planned to include an international shopping centre, hotel and other tourist related infrastructure such as a spa, restaurants and conference centre. It was intended that the shopping centre would have 16,200 sqm of leasable area, and the hotel 313 hotel rooms. 

 

The project is still in the pre-development stage. JSM Holdings received CDC investment licence approval for JSM Siem Reap in March 2009, but no construction permit has been applied for. No construction activity has commenced on this site and no construction financing has been obtained. The total costs incurred on this project since inception was $1.5 million, which have been written off.

 

 

B.  MM Colonial Mansion Co. Ltd

 

1.   Colonial Mansion I ("CM I"), Phnom Penh, (in operation)

 

Colonial Mansion I, located in Phnom Penh, comprises 44 serviced apartments, plus 166.5 sqm of retail space which is currently vacant to assist in the construction of Colonial Mansion II.  CM I is a five storey building situated near Central Market, the US Embassy, Wat Phnom, the Governor's House, Le Royal Hotel, and the developing financial district. The property is effectively wholly owned by the Company.

 

The Company appointed CBRE to manage CM I in late 2007. CBRE is responsible for all aspects of the property management and leasing and have 34 dedicated staff on site that manages all aspects of CM I.  The leasing and marketing strategy has focused on the overseas embassies, foreign companies, large Cambodian companies and various NGO's that are located in Phnom Penh.

 

Occupancy levels were adversely affected in 2009, and have continued to be adversely affected during H1 2010. Total rent for H1 2010 for CM I was $243,820 (2009: $290,057), with an occupancy rate of 84% (2009: 70%).  The total net operating income for H1 2010 was $112,486 (H1 2009: $196,478), and was affected by lower rates.

 

The Company believes that the H1 2010 occupancy levels and rates have continued to be principally affected by two main events:

·    the ongoing construction of a major development directly across the road from CM I. This development is Vattanac Tower, an approximately 38-story, grade-A office development that will be Vattanac Bank's headquarters with four basement levels for the bank's vaults and car parking. Vattanac Bank is a Cambodian bank. The construction of the basement has resulted in significant noise and dust. It is understood that this development is due for completion in 2011 

·    the ongoing development of Colonial Mansion II next door to CM I which has also resulted in some unavoidable interruptions and noise, although this has been minimised to the extent possible.

 

There are no longer any discussions with the tenants of CM I to seek to transfer leases across to CM II when it opens during early Q4 2010. CBRE will commence a marketing campaign in relation to the opening of CMII.

 

The Company has previously announced plans to close CM I and undertake a refurbishment, which was estimated to take 6-9 months and at a cost of approximately $2.5 million. At this stage, it is the Board's current intention not to commence the refurbishment of CM I.

 

As a result of the ongoing construction work on CM II and Vattanac Tower, it is expected that rental levels for the remainder of 2010 will also be adversely affected.

 

2.   Colonial Mansion II ("CM II"), Phnom Penh

 

CM II, the sister property of CM I, is located in Phnom Penh and comprises a 9 storey 63 serviced apartment building with 12 one-bedroom, 27 two-bedroom and 24 three-bedroom units.

 

Construction activity is slightly behind the previously announced schedule, and completion of construction is now targeted for early Q4 2010. Project management of the development has suffered from a lack of clarity on the division of responsibilities and decision making. The Executive Committee have now resolved this and clear lines of responsibility and communication have been established.  The remaining construction costs on CM II for H2 2010 are estimated to be no more than $3.6 million.

 

Facilities and services in CM II will include car parking, gym, swimming pool, 24/7 security and daily housekeeping. CBRE will also manage CM II.    

 

 

JSM Capital Indochina Team

 

As announced on 1 April 2010, the existing investment management agreement between the Company and JSM Capital Indochina Ltd was terminated by mutual agreement. The Company and JSM Capital Indochina instead entered into a new consultancy agreement under which JSM Capital Indochina agrees to provide certain administrative, financial and management functions and other services to the Company at the request of and subject to the direction of the Board.  The consultancy agreement has a term of up to 18 months. In March 2010, Arnold Pangilinan joined as chief financial officer of JSM Capital Indochina. 

 

As of 16 September 2010, JSM Capital Indochina employs 8 people.

 

 

Outlook

 

The Board was pleased to receive unanimous approval of its proposed resolutions from shareholders at the April 2010 EGM and to return $0.25 per share.  The Board and its advisers have continued to work diligently in implementing the new investing policy and ensuring a smooth transition of the functions of the JSM Capital Indochina team.

 

We are mindful of the Company's cash balances and shareholders' desires for further returns of capital, and we are pleased to announce today a further distribution of $0.15 per share. The Board are focused on returning capital to shareholders as soon as possible and look forward to providing further updates on progress in due course.

 

In closing, I would like to take this opportunity of thanking my fellow Board members for their ongoing work since my appointment to the Board, in what has been a challenging period. I would like to particularly thank the Executive Committee for their tireless work and the support provided by the team at JSM Capital Indochina.  Finally, I would also like to thank our shareholders for their patience while the Board conducted the work necessary to implement the new investing policy, return capital to shareholders and maximise returns for shareholders.

 

Scott C. Verges

Chairman

JSM Indochina Ltd.

16 September 2010

 



INDEPENDENT Auditors' REPORT ON REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

 

To the Shareholders

JSM Indochina Ltd. and its subsidiaries

 

Introduction

 

We have reviewed the accompanying condensed consolidated statement of financial position of JSM Indochina Ltd. and its subsidiaries ("the Group") as at 30 June 2010 and the condensed consolidated statements of comprehensive income, changes in equity and cash flows for the six-month period then ended as set out on pages 18 to 36. Management is responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with IAS 34, Interim Financial Reporting. Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review.

                                                                                     

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information as at 30 June 2010 is not prepared, in all material respects, in accordance with IAS 34, Interim Financial Reporting.

 

Without qualifying our conclusion, we draw attention to Note 1 to the financial statements. The Company's shareholders resolved at an Extraordinary General Meeting on 27 April 2010 to change the Company's investing policy to an orderly realisation of its investment portfolio over the medium term with a view to maximising returns to the Company's shareholders.

 

 

The condensed consolidated statements of comprehensive income, changes in equity and cash flows for the six-month period ended 30 June 2009 were not reviewed or audited by us, and accordingly, we do not express an opinion or any form of assurance on them.

 

 

 

 

_________________________

KPMG Limited

Ho Chi Minh City

Vietnam

 

Date: 16 September 2010

JSM Indochina Ltd. And its subsidiaries

Condensed consolidated statement of financial position at 30 June 2010

 

 


Note

30/6/2010

31/12/2009



USD

USD





Assets




Investment properties

5

51,286,792

45,419,794

Properties, plants and equipments

6

             33,315

5,415,146

Investment in associates

9

-

12,618,828





Total non-current assets


51,320,107

63,453,768





Trade and other receivables

7

            1,522,858

10,463,107

Time deposits

8

10,290,000

10,290,000

Cash pledged with banks

8

20,919,961

27,951,971

Cash and cash equivalents

8

      57,323,476

120,045,123

Assets classified as held for sale

9

12,525,621

-





Total current assets


102,581,916

168,750,201

Total assets


153,902,023

232,203,969





Equity




Ordinary share capital

10

 247

247

Share premium

10

 176,278,339

 233,647,733

Treasury shares


 (5,566,046)

 (5,566,046)

Foreign currency translation reserve


 (1,165,861)

 (1,400,897)

Retained earnings


(20,803,199)

 (99,556)





Total equity attributable to equity holders


148,743,480

226,581,481

Non-controlling interest


4,070

4,070

Total equity


148,747,550

   226,585,551





Liabilities




Deferred tax liabilities

11

          2,612,236

         2,584,236





Total non-current liabilities


2,612,236

2,584,236





Trade and other payables

12

2,542,237

3,034,182





Total current liabilities


2,542,237

3,034,182

Total liabilities


5,154,473

5,618,418

Total equity and liabilities


153,902,023

   232,203,969

Net asset value per share, based on shares outstanding (excluding treasury shares)


0.6482

0.9874


JSM Indochina Ltd. and its subsidiaries

Condensed consolidated statement of comprehensive income for the period from 1 January 2010 to 30 June 2010

 


Note

1/1/2010 to 30/6/2010

1/1/2009 to 30/6/2009



USD

USD




Unreviewed





Income




Rental income


263,485

325,847

Other income


-

3,749







263,485

329,596

Expenses




Management and consultancy fees


(2,125,064)

(2,609,673)

Professional fees


(4,432,846)

(692,717)

Directors' fees

13

(1,010,121)

(100,000)

Staff cost


(33,669)

(35,693)

Bank charges


(45,860)

(60,426)

Depreciation

6

(6,866)

(9,963)

Impairment loss of cash pledged with banks

8

(7,100,000)

(2,000,000)

Write-off of property, plant and equipment


(114,965)

-

Other operating expenses


(361,786)

(263,463)







(15,231,177)

(5,771,935)





Result from operating activities


(14,967,692)

(5,442,339)





Interest and dividend income


376,423

 1,231,682





Change in fair value of investment properties

5

(5,756,131)

(5,910,000)





Share of loss in an associate


(328,243)

(90,776)





Loss before tax


(20,675,643)

(10,211,433)





Income tax (expense)/benefit

14

(28,000)

1,001,463





Net loss for the period


(20,703,643)

(9,209,970)

Other comprehensive income/(loss)




Foreign currency translation differences


235,036

(8,340)

Total comprehensive loss for the period - attributable to equity holders


(20,468,607)

(9,218,310)

Loss per share

15

(0.09)

(0.04)


 

JSM Indochina Ltd. and its subsidiaries

Condensed consolidated statement of changes in equity for the period from 1 January 2010 to 30 June 2010

 


Equity attributable to equity holders of the Company




Ordinary share capital

Share premium

Treasury shares

Foreign currency translation reserve

Retained earnings

 

Total

Non-controlling interest

Total equity


USD

USD

USD

USD

USD

USD

USD

USD





 

 

 

 

 

Balance at 1 January 2009

247

233,647,733

-

(527,073)

30,882,114

264,003,021

 4,070

264,007,091

Total comprehensive income for the period




 

 

 

 

 

Net loss for the period

 -

 -

-

-

(9,209,970)

 (9,209,970)

-

(9,209,970)

Other comprehensive  income




 

 

 

 

 

Foreign currency translation difference

 -

 -

-

(8,340)

-

(8,340)

-

(8,340)

Total comprehensive income for the period

-

-

-

 (8,340)

(9,209,970)

 (9,218,310)

-

(9,218,310)

Transactions with shareholders, recorded directly in equity




 

 

 

 

 

Share repurchases

-  

 -

(5,566,046)

-

-

 (5,566,046)

-

 (5,566,046)





 

 

 

 

 

Balance at 30 June 2009 (unreviewed)

 247

233,647,733

(5,566,046)  

    (535,413)

  21,672,144

249,218,665

4,070

249,222,735

Total comprehensive income for the period




 

 

 

 

 

Net loss for the period

 -

 -

 -

-

(21,771,700)

(21,771,700)

-

(21,771,700)

Other comprehensive  income




 

 

 

 

 

Foreign currency translation difference

 -

 -

-

(865,484)

-

(865,484)

-

(865,484)










Balance at 31 December 2009

247

233,647,733

(5,566,046)  

 (1,400,897)

(99,556)

226,581,481

4,070

226,585,551





































Balance at 1 January 2010

 247

233,647,733

(5,566,046)  

 (1,400,897)

(99,556)

226,581,481

 4,070

226,585,551

Total comprehensive income for the period









Net loss for the period

-

-

-

-

(20,703,643)

(20,703,643)

         -  

(20,703,643)

Other comprehensive  income









Foreign currency  translation difference

-

-

-

235,036

-

      235,036

-

     235,036

Total comprehensive income for the period

-

-

-

235,036

(20,703,643)

(20,468,607)

-

(20,468,607)

Transactions with shareholders, recorded directly in equity









Distribution of un-invested capital

-

(57,369,394)

-

-

-

(57,369,394)

-

(57,369,394)










Balance at 30 Jun 2010

247

176,278,339

(5,566,046)

(20,803,199)

4,070


JSM Indochina Ltd. and its subsidiaries

Condensed consolidated statement of cash flows for the period from 1 January 2010 to 30 June 2010

 


Note

Period from 1/1/2010 to 30/6/2010

Period from 1/1/2009 to 30/6/2009



USD

USD




Unreviewed





CASH FLOWS FROM OPERATING ACTIVITIES



Loss before tax

(20,675,643)

(10,211,433)

Adjustments for:




Depreciation

7

6,866

9,963

Amortisation

5,966

-

Written-off of property, plant and equipment

114,965

-

Change in fair value of investment properties

6

5,756,131

5,910,000

Impairment loss of cash pledged with banks

7,100,000

2,000,000

Share of loss from an associate

328,243

90,776

Net interest income

(318,828)

(1,013,687)

Dividend income

 (57,595)

(217,994)

(7,739,895)

(3,432,375)

Changes in working capital

Change in trade and other receivables

(342,590)

(1,086,338)

Change in trade creditors and other payables

(491,944)

(1,844,394) 

Net cash used in operating activities

(8,574,429)

(6,363,107)

CASH FLOWS FROM INVESTING ACTIVITIES

Cash pledged with banks to secure credit facilities granted to entities in the Group's acquisition pipeline

             (67,990)

(309,686)

Payment for acquisition of properties, plants and equipments

                -

(3,874)

Payment for acquisition of prepayments

(14,721)

-

Payments for development of investment properties

(1,643,520)

    (1,199,396)

Loan repayment from an affiliate

-

       2,000,000

Loan repayment from a shareholder

13

3,500,000

-

Interest received from a shareholder

1,518,611

-

Loan disbursement to an entity in the Group's acquisition pipeline

7

(220,000)

-

Dividend received

57,595

217,994

Other interest received

92,201

1,238,978




Net cash generated from investing activities

3,222,176

1,944,016

 


JSM Indochina Ltd. and its subsidiaries

Condensed consolidated statement of cash flows for the period from 1 January 2010 to 30 June 2010 (continued)


Note

Period from 1/1/2010 to 30/6/2010

Period from 1/1/2009 to 30/6/2009

USD

USD

Unreviewed

CASH FLOWS FROM FINANCING ACTIVITIES

Treasury shares acquired

            -

(5,566,046)

Distribution of un-invested capital

(57,369,394)

-

Net cash used in financing activities

      (57,369,394)

  (5,566,046)

Net cash flows during the period

      (62,721,647)

    (9,985,137)

Cash and cash equivalents at the beginning of the period

   120,045,123 

    158,807,820 

Cash and cash equivalents at the end of the period

57,323,476 

    148,822,683 

 


These notes form an integral part of and should be read in conjunction with the accompanying condensed consolidated interim financial statements.

 

1.    Company's information

JSM Indochina Ltd. ("the Company"), which was incorporated on 20 April 2007, is a closed-end Cayman Islands registered, exempted company originally established to engage (through subsidiaries and joint ventures) in property investment and development opportunities, focusing on the development and management of high specification retail and serviced apartment assets in leading urban areas within Indochina.

 

Following the result of the Company's extraordinary general meeting dated 27 April 2010, the Company's investing policy is for an orderly realisation of the Company's portfolio over the medium term with a view to maximising returns to shareholders.

 

The Company holds the following investments:

Company

Date of incorporation

Country of incorporation

 

Equity
%





Hieu Duc Joint Stock Company

15 June 2006

Vietnam

49%

 

Composition of the Group is as follows:

Company

Date of incorporation

Country of incorporation

 

Equity
%





JSM Indochina Ltd.

20 Apr 2007

Cayman Islands

N/A

JSM Indochina Properties Ltd

24 Apr 2007

Cayman Islands

100%

JSM Indochina Properties Pte. Ltd.

21 May 2007

Singapore

100%

JSM Saigon Pearl Pte. Ltd

30 Jan 2008

Singapore

100%

JSM Holding (Cambodia) Co., Ltd

15 Aug 2008

Cambodia

100%

JSM Ounalom Co., Ltd.

8 Sep 2005

Cambodia

49%

JSM Embassy Center Co., Ltd.

13 Sep 2006

Cambodia

49%

MM Colonial Mansion Co., Ltd.

20 Apr 2006

Cambodia

49%

JSM Colonial Mansion I, Ltd.

2 May 2006

Cambodia

49%

JSM Colonial Mansion II, Ltd.

2 May 2006

Cambodia

49%

 

 

Even though the Group holds 49% interests in JSM Ounalom Co., Ltd, JSM Embassy Center Co., Ltd, MM Colonial Mansion Co., Ltd, JSM Colonial Mansion I, Ltd., and JSM Colonial Mansion II, Ltd. the Board of Directors believes that the Group has control over these companies because all operating and financial decisions relating to these companies are governed by the Group, as provided by the respective Articles of Incorporation and the Shareholder Protection Documents (SPDs), which provide the Group with power to vote, as well as power over the purchase, holding, transfer and sale of the assets without the cooperation of the other shareholders.

 

2.    Statement of compliance

The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 "Interim Financial Reporting". They do not include all of the information required for full annual financial statements, and should be read in conjunction with the annual consolidated financial statements of the Group as at and for the year ended 31 December 2009.

 

The consolidated financial statements of the Group as at and for the year ended 31 December 2009 are available upon request from the Company's registered office at c/o M&C Corporate Services Limited, PO Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands or at www.jsmindochina.com.

 

The condensed consolidated interim financial statements were authorised for issue by the Board of Directors on 16 September 2010.

 

3.    Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2009.

 

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.

 

Use of estimates and judgements

The preparation of condensed consolidated interim financial statements in conformity with IAS 34 "Interim Financial Reporting" require the Board of Directors to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.  Actual results may differ from these estimates.

                                         

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2009.  

 

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are further described as below.



Determination of fair values of investment property

 

External, independent valuation companies, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group's investment property portfolio and land use or lease rights every half year. The fair values are based on market values, being the estimated amount for which a property/land use or lease rights could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

 

The valuations are prepared by considering the following factors, when applicable:

·    Direct comparison with sales of other similar properties in the area;

·    The residual value of a property having regard to the costs and risks associated with development and potential for profit; and

·    The expected future discounted cash flows of a property using a yield that reflects the risks inherent in the cash flows.

 

Valuations are reviewed by the Company's Valuation Committee and approved by the Board of Directors.

 

4.     Financial risk management

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 December 2009.

 

5.     Investment properties

Movements in investment properties during the period/year were as follows:

 


30/6/2010

31/12/2009


USD

USD

At fair value



1 January 2010/1 January 2009

45,419,794

61,120,000

Addition of projects under development

6,363,129  

-

Change in fair value

(5,756,131)

 (16,125,545)

Transferred from projects under development

-

5,955,339

Transferred from/(to) properties, plants and equipments

5,260,000

(5,530,000)




30 June 2010/31 December 2009

51,286,792

45,419,794

 

Investment properties comprise serviced apartments that are leased to third parties and land use or lease rights. All of the Group's investment properties are held under freehold interests except for Siem Reap which has a leasehold term of 84 years.

 

The fair value of the Group's investment properties at 30 June 2010 has been arrived at by the Directors on the basis of the lower of the valuations carried out at that date by Cushman & Wakefield (Vietnam), Ltd. ("C&W") and Jones Lang LaSalle Vietnam Ltd ("JLL") who are independent valuers that are not related to the Group.  C&W and JLL are licensed valuers, with appropriate qualifications and recent experience in the valuation of properties in the relevant locations.  The valuations were arrived at in conformity with International Valuation Standards.

 

6.     Properties, plants and equipments


 

 

Construction in progress

 

 

 

Land

Office equipment, furniture and fittings

 

 

 

Total


USD

USD

USD

USD

Cost





Balance, 1 January 2010

114,965

5,530,000

74,837

5,719,802

Written off

(114,965)

-

-

(114,965)

Transferred to investment properties

-

(5,530,000)

-

(5,530,000)






Balance, 30 June 2010

-

-

74,837

74,837






Accumulated depreciation and impairment losses





Balance, 1 January 2010

-

270,000

34,656

304,656

Charge for the period

-

-

6,866

6,866

Transferred to investment properties

-

(270,000)

-

(270,000)






Balance, 30 June 2010

-

-

41,522

6,866






Net book value





Balance, 30 June 2010

-

-

33,315

33,315

Balance, 1 January 2010

114,965

5,260,000

40,181

5,415,146






 

Change in classification

 

During the period, the Group conducted a strategic review of its existing investment portfolio, which resulted in the adoption of a new investing policy for an orderly realisation of the Group's portfolio, including for Ounalom, situated at the junction of Sisowah Quay and Sotheros Streets, Chey Chumneah, Daun Penh, Phnom Penh, Kingdom of Cambodia. The previous development strategy for this project was to build a 9 storey hotel.  As a result, this project has been reclassified as investment property and measured at fair value.

 

7.     Trade and other receivables


30/6/2010

31/12/2009


USD

USD




Loan and interest receivable from a Director of the Manager

-

4,820,278

Prepayments

9,895

4,720,749

Loan receivable from an entity in the Group's acquisition pipeline

                 220,000

-

Accounts receivable from minority shareholders

3,570

3,570

Trade receivables

21,552

26,654

Advances

307,200

10,691

Receivables from Craig Jones' entities

296,027

296,027

Sundry receivables

497,987

446,805

Interest receivable from banks

168,083

139,789








1,524,314

10,464,563

Provision for doubtful debts

(1,456)

(1,456)





1,522,858

10,463,107

 



 

8.     Cash and bank balances


30/6/2010

31/12/2009


USD

USD




Cash on hand

 2,314

 1,894

Cash in banks

 38,006,509

 58,876,208

Cash equivalents

19,314,653

 61,167,021




Cash and cash equivalents

57,323,476

 120,045,123

Time deposits

10,290,000

10,290,000





67,613,476

130,335,123




Cash pledged with banks

33,019,961

32,951,971

Impairment loss of cash pledged with banks

(12,100,000)

(5,000,000)




Cash pledged with banks

20,919,961

27,951,971

Cash and bank balances

88,533,437

158,287,094

 

Cash equivalents comprise short term call deposits, which earned interest at rates ranging from 0.2% to 0.3% per annum, reprised from monthly to quarterly and short-term highly liquid investments in a money market fund, earning an average yield of 0.2% per annum.

 

Time deposits with a bank had original maturity of 18 months which will mature on 20 September 2010 and earned interest at 1.19% per annum during the year.

 

Cash pledged with banks includes term deposits which have been pledged with United Overseas Bank Singapore ("UOB Singapore") and Nam Viet Bank ("Navibank") to secure credit facilities granted to entities in two of the Group's projects, namely Prince and Peninsula (details below).  Cash pledged with banks earned interest at rates ranging from 0.02% to 0.36% per annum.

 

Peninsula and Prince

 

JSM Indochina Properties Pte Ltd, pledged an amount of USD 21,002,516 with UOB Singapore as security for two credit facilities granted by UOB Vietnam to QSpace in respect of the Peninsula project. As at the reporting date, JSM Indochina Properties Pte Ltd has entered into a cooperation agreement with QSpace to establish a joint venture to acquire land and develop the property in District 2, Ho Chi Minh City, Vietnam known as Peninsula. The entity to be nominated by JSM Indochina Properties Pte Ltd, for the joint venture has not been established but QSpace has drawn down the credit facilities and acquired the Peninsula land. 

 

JSM Indochina Properties Pte Ltd, also pledged an amount of USD 12,017,445 with Navibank as security for a credit facility granted by Navibank to New Vision Land Joint Stock Company ("New Vision") in respect of the Prince project. New Vision has drawn down the credit facilities and acquired the Prince land. JSM Indochina Properties Pte Ltd has entered into various contractual documents including a pledge agreement with Mr An over his shares in New Vision and over his shares in Hai An Corporation, as a security notably for the performance of his contractual obligations and in return of the Group's pledge.  As of the reporting date, the acquisition of JSM Indochina Properties Pte Ltd's interest in the Prince project has not yet been completed.

 

As at 30 June 2010, having regard to the fair value of the underlying assets, the valuation reports of JLL and C&W and the Group's maximum exposure under the pledges, a provision of an aggregate of USD12.1 million for the cash pledged with Navibank and UOB Singapore has been made.

9.     Assets classified as held for sale

Assets classified as held for sale represented the investment in an associate, Hieu Duc Joint Stock Company.  Following a shareholders' resolution on 27 April 2010, the Company's investing policy was changed to that of an orderly realisation of the Company's portfolio over the medium term with a view to maximising returns for shareholders.  The Board of Directors are in discussion with the Hieu Duc joint venture partner regarding its shareholding in Hieu Duc.

10.   Ordinary share capital and share premium

The authorised and issued share capital of the Company was as follows:

 



30/6/2010


31/12/2009


No. of shares

USD

No. of shares

USD






Authorised share capital with par value of USD0.000001 each

50,000,000,000

50,000

50,000,000,000

50,000











Issued and fully paid capital

247,313,574

247

247,313,574

247






 

In 2007, the Company issued 247,313,574 new shares for USD247,313,574.  The excess of proceeds from share capital issuance over its par value of USD247 and share issuance cost of USD13,665,594 is presented as share premium in equity.

 

 



30/6/2010


31/12/2009


No. of shares

USD

No. of shares

USD






Share in issue

247,313,574

247

247,313,574

247

Treasury share

(17,836,000)

(18)

(17,836,000)

(18)






Closing balance

229,477,574

229

229,477,574

229

 

 

 



 

Movements in share premium during the period/year were as follows:

 


30/6/2010

31/12/2009


USD

USD




1 January 2010/1 January 2009

233,647,733

233,647,733

Distribution of un-invested capital

(57,369,394)

-




30 June 2010/31 December 2009

176,278,339

233,647,733

 

The distribution of un-invested capital represented the payment of a USD0.25 per share distribution to shareholders in May 2010, following a shareholders' resolution on 27 April 2010.

 

11.   Deferred tax liabilities

Deferred tax liabilities are mainly related to the fair value adjustments of investment properties.

 

12.   Trade and other payables


30/6/2010

31/12/2009


USD

USD




Accounts payable

1,303,352

1,609,200

Accrued expenses

475,596

553,329

Corporate income tax payable

28,363

120,508

Other taxes and obligations

6,734

1,696

Payables to related parties

164,991

214,571

Payable to the Board of Directors

164,991

120,904

LBL International

-

93,667




Other payables

563,201

534,878





2,542,237

3,034,182

13.   Related party transactions

As announced on 1 April 2010, the Company and JSM Capital Indochina Ltd. ("the Manager") have agreed to terminate the investment management agreement ("IMA) dated 22 June 2007 and entered into a new consultancy agreement (the "New Consultancy Agreement") under which JSM Capital Indochina Ltd. agrees to provide certain administrative, financial and management functions and others services to the Company at the request of and subject to the direction of the Board.

 

The New Consultancy Agreement has a term of up to 18 months from 1 April 2010. The Company shall pay, monthly in advance, equal sums aggregating up to USD4 million to JSM Capital Indochina Ltd over the potential 18 month term of the consultancy agreement. In the event of a merger or disposal of all of the Company's assets prior to the expiry of the 18 month term, the unpaid balances of any such amounts are immediately due and payable to JSM Capital Indochina Ltd. In addition, the Company may (in its absolute discretion) pay up to a USD1 million performance bonus at the end of the New Consultancy Agreement. The Company will also reimburse JSM Capital Indochina Ltd. for salaries (but not Mr. Craig D Jones') and office and operational expenses which the Manager incurs in providing the consultancy services to the Company.

 

In addition to the above, the following significant transactions occurred with related parties during the period:

Related party transactions

Period from 1/1/2010 to 30/6/2010

Period from 1/1/2009 to 30/6/2009


USD

USD




Loan repayment from an associate

-

2,000,000

Loan repayment from Craig Jones

3,500,000

-

Interest income from loan to Craig Jones

198,333

299,153

Receipt of monies for withholding tax payment on behalf of Craig Jones

455,583

-

Payments made by JSM Construction, Inc. on behalf of the Group

-

             52,947

Payments made by JSM Capital, LLC on behalf of the Group

                -

               -

Reimbursements from the Group to JSM Construction, Inc.

          -

95,627

Payment made by the Group on behalf of JSM Capital Indochina Ltd.

-

56,693

Management fee paid to JSM Capital Indochina Ltd.

1,127,702

2,576,367

Consultancy fee paid to JSM Capital Indochina Ltd.

666,666

-

Reimbursements for operating expenses to JSM Capital Indochina Ltd.

330,695

-




 

Directors' remuneration

 

The total Directors' fees are disclosed in the condensed consolidated statement of comprehensive income. Directors' fees represent fees incurred by the Directors in relation to the legal review, strategic review, per diem for trips to Vietnam and Cambodia and additional meetings.

14.   Taxation

(i)       Recognised in the condensed consolidated statement of comprehensive income


Period from 1/1/2010 to 30/6/2010

Period from 1/1/2009 to 30/6/2009


USD

USD




Current tax expenses



Current period

-

80,537




Deferred tax (income)/expenses



Origination and reversal of temporary differences

28,000

(1,082,000)





28,000

(1,001,463)

 

 (ii)     Reconciliation of effective tax rate


Period from 1/1/2010 to 30/6/2010

Period from 1/1/2009 to 30/6/2009


USD

USD




Loss before tax

(20,675,643)

 (10,211,433)

Tax at the Company's income tax rate

-

-

Effect of tax rates in foreign jurisdictions

 28,000

 (1,001,463)





28,000

(1,001,463)

 

15.   Loss per share

 

(a)            Basic

 

Basic earnings per share is calculated by dividing the profit attributable to shareholders of the Group by the weighted average number of ordinary shares on issue during the period.

 


1/1/2010 to

1/1/2009 to


30/6/2010

30/6/2009


USD

USD

Loss attributable to equity holders of the Company

(20,703,643)

(9,209,970)

Weighted average number of ordinary shares on issue

229,477,574

231,408,734 




Basic loss per share (USD per share)

  (0.09)

(0.04)

 

 

(b)            Diluted

 

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Group does not have potential dilutive ordinary shares. Therefore, diluted earnings per share are equal to basic earnings per share.

 

 

16.   Contingent liabilities

JSM Colonial Mansion II Ltd. ("JSM CMII"), JSM Embassy Center Co. Ltd. ("JSM EC"), and JSM Indochina Properties Pte. Ltd. had entered into twelve separate service contracts with Archetype entities for architectural design services, construction management services, engineering design services and value engineering services with a total value of USD5.7 million.  Disputes arose in respect of various of these services contracts and they were all terminated on 17 February 2009. 

 

Archetype has initiated formal arbitration proceedings in respect of one of these contracts against JSM EC.  The amount claimed by Archetype under the arbitration proceedings is USD1 million.  Local counsel has been engaged to defend this claim, and also to assert a counterclaim well in excess of the amount claimed by Archetype. In addition to this, two further arbitral proceedings have been initiated against Archetype for recovery of overpayments that were made under two of the contracts mentioned above. These overpayments amount to approximately USD350,000 in total. The Board is considering commencement of further actions under the remaining contracts. The Board, having taken local legal advice, remains of the opinion that these disputes do not and will not have a material impact on the Group's financial position.

 

In addition, the Company has recently been served with the statement of claim in respect of one of the Californian suits that relate to Mr Jones' Californian business.  The Company has been named as a defendant in the suit along with various companies associated with Mr Jones' Californian business.  The plaintiffs have not quantified their damages precisely at this stage but claim they have suffered damages in excess of USD1.75 million.  The Board has engaged Californian counsel to assess and advise the Board in respect of this matter and is confident that the matter can be shown to be without merit. 

 

17.   Commitments

(i)       Capital commitments

The Group had the following outstanding capital commitments approved but not provided for in the condensed consolidated statement of financial position:

 


30/6/2010

USD

31/12/2009

USD




Approved and contracted

1,492,719

21,264,682

As at 30 June 2010, the approved and contracted capital commitments relate to the construction of Colonial Mansion II.

 

 

 

 (ii)     Lease commitments

The Group had the following outstanding lease commitments:

 


30/6/2010

31/12/2009


USD

USD




Within one year

24,000

24,000

Within two to five years

96,000

96,000

More than five years

6,192,000

6,216,000





6,312,000

6,336,000

 

18.   Subsequent events

On 15 July 2010, the Company announced that it had cancelled the 17,836,000 ordinary shares in the Company which had previously been held by its subsidiary, JSM Indochina Properties Ltd.

 

The Board today announced a second distribution to shareholders of $0.15 per share.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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