Unlocking Value

On 27 September 2024, China Merchants China Direct Investments (CMCDI, 133 HK) responded, for the first time ever, to the issues of unacceptably large discount and high fees, after we wrote 89 blog posts on this subject.

Unfortunately, CMCDI’s response is disappointingly vague.

On the large discount to net asset value, CMCDI said:

Firstly, a share buy-back general offer may be conducted in 2025, contingent on the availability of proceeds from divestments and compliance with all applicable laws, rules and regulations.

Secondly, beyond 2025, the Company may consider return of realisation profits to its shareholders through either special dividends or on-market share buy-backs.

This is clearly insufficient. CMCDI is completely silent on the size and the pricing of the share buyback, and plans of asset divestments (which is the source of funding for buybacks).

To reiterate our proposal, we would like CMCDI to:

• Buyback offer: CMCDI shall make an offer to buy back 20% of CMCDI’s outstanding shares at 10% discount to net asset value
• Discount management program: CMCDI shall implement a multi-stage “discount management program”, to gradually narrow the discount to 30% and eventually 20%. There are many precedences of other closed-end funds implementing similar programs.

CMCDI also said:

The Board …has identified the following actions with an objective to narrow the trading price discount of the Company’s shares relative to its net asset value (“NAV”) per share without reducing the scale of the Company and its subsidiaries.

We don’t understand: how can CMCDI buy back shares or pay dividends without “reducing scale”?

If CMCDI buys back shares or pays dividends, the cash balance and therefore the total assets will shrink by definition. Also, CMCDI did say that it plans to divest assets to raise the cash for buybacks or dividends anyways.

On the fee rates, CMCDI said:

The aim is to re-align fee rates to competitive market rates when a revised [investment management agreement] proposal is put forward to shareholders, as the existing IMA will expire on 31 December 2024.

This is not very helpful, either.

To recap, we proposed that the investment manager shall reduce fees by 45%.

• Currently, Victor Chu owns 45% shares in CMCDI’s manager. We propose that the manager shall be replaced by one fully owned by China Merchants Group
• The existing team (minus Victor Chu and Elizabeth Kan) shall migrate to the new manager

If you are new to CMCDI, read our primer.

Chat with us on WeChat or WhatsApp:

💬 WeChat ID: ASM_Argyle

💬 WhatsApp ID: +852 6317 6371

🖥️ UnlockValueChinaMerchants.com

📧 ChinaMerchants@asmhk.com

---

2024年9月27日，招商局中国基金（133 HK，“中国基金”）首次回应了我们在过去89篇博客文章中提到的关于股价不可接受的大幅折价和高管理费的问题。

很可惜的是，中国基金模糊的回应令人失望。

关于大幅折价问题，中国基金表示：

首先，本公司或於 2025 年進行股份回購公開要約，惟取決於將投資變現可獲得的款項以及須遵守所有適用的法律、規則及法規。

其次，於 2025 年後，本公司可能會考慮通過特別股息或場內股份回購的方式向其股東返還變現溢利。

这显然是不够的。股东们应当得到更多关于回购股份的规模和价格以及资产处置计划（这是回购资金的来源）的详细信息。

我们再次重申我们的提案，我们希望：

• 回购要约: 中国基金应该提出回购要约方案，以较净资产折让10%的价格回购中国基金已发行股份的20%。

• 折价管理计划：中国基金应该实施多阶段的“折价管理计划”，逐步缩小折价至30%，最终缩小至20%。

中国基金同时表示：

董事會 ………確定了下列行動，旨在於在不縮小本公司及其附屬公司規模的情況下，收窄本公司股份交易價格較其每股資產淨值的折讓。(即回购要约及支付特别股息）

我们不明白这如何可以实现。中国基金如何在不“缩小规模”的情况下回购股份或支付股息？

如果中国基金回购股份或支付股息，现金余额和总资产必然会减少。此外，中国基金表示计划通过投资变现以筹集回购或支付股息的现金。

在费率问题上，中国基金表示：

其目的乃為向股東提交經修訂投資管理協議之議案時，將費率重新調整至具競爭性的市場費率，而現有投資管理協議將於 2024 年 12 月 31 日到期。

这也不是很有帮助。

我们曾提议投资经理应将管理费用减少45%。

• 目前， 诸立力先生拥有投资经理45%的股份。我们建议将管理人员替换为招商局集团全资拥有的公司。

• 现有团队（除诸立力先生和简家宜女士外）应该迁移到新的管理公司。

如果您刚开始了解中国基金，请阅读我们的指南。

欢迎随时与我们联系：

💬 微信: ASM_Argyle

💬 WhatsApp: +852 6317 6371

🖥️ UnlockValueChinaMerchants.com