Annual Report 2019

INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS (CONTINUED) China Merchants China Direct Investments Limited Annual Report 2019 8 ACQUISITIONS AND DISPOSALS OF INVESTMENTS (CONTINUED) In addition, the Fund disposed of and exited from one investment in the year. During the period of March to April 2019, the Fund disposed of its entire holding of 7.21 million A shares of Besttone Holding Co., Ltd. (“ Besttone ”) for net proceeds of RMB125.61 million (equivalent to US$18.69 million). The pre-tax internal rate of return to the Fund from Besttone was 11.64%. LIQUIDITY, FINANCIAL RESOURCES, GEARING AND COMMITMENTS The Fund’s cash and cash equivalents increased by 32.38%, from US$48.45 million at the end of last year to US$64.14 million (representing 8.08% of the Fund’s total assets) as of 31 December 2019, due mainly to proceeds from the disposal of all of the A shares of Besttone, as well as cash distributions received from certain investments during the year. As of 31 December 2019, the Fund had no outstanding bank loans (31 December 2018: Nil). As of 31 December 2019, the Fund had commitments of US$44.56 million (31 December 2018: US$20.15 million) for investments that were approved but not yet provided for in the financial statements – specifically, for future payments related to investments in China Media Creative Industry Private Equity (Shanghai) Centre (Limited Partnership), Guangxi Xinhua Preschool Education Investment Corporation Limited, Yunnan Jinlanmei International Travel Investment Development Co., Ltd., Anhui Iflytek Venture Capital LLP, Arashi Vision and a potential new financial services project. EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES AND RELATED HEDGES Most of the Fund’s investments are located in China where the official currency is the Renminbi (“ RMB ”). The conversion rate of RMB against the US dollar recorded a decrease of 1.65% in 2019, which had a certain negative impact on the Fund since it holds a considerable amount of assets denominated in RMB. The Fund currently does not have any foreign currency hedging policy. However, the Fund continues to monitor foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise. EMPLOYEES Other than a qualified accountant whose remuneration package is determined and borne by the Investment Manager, the Fund has no employees. The Investment Manager handles the portfolio and day-to-day administration of the Fund.