ARC trust resumes trading after taking 60% NAV hit

The board of the ARC Capital fund has restored trading of the trust today after taking a 60 per cent hit to its net asset value due to a complete write down in its largest holding.

The trust, which invests in Chinese private equity, wrote down its holding in Fortress Group Limited to nothing on recommendation of its representative on the FGL board. FGL had made up 60 per cent of the portfolio.

The trust suspended trading in July when it announced that the sale of its FGL holding had not been completed by PAG, the owner of the trust’s investment manager ARC Capital Partners.

A further announcement made by the board of the trust also details that “no information or clarification has been forthcoming” from either ARC Capital Partners or Fortress Group as to why the transaction was not completed.

The board said that neither party provided information requested for up to date financial statements on Fortress Group or the investment manager’s own equity interest in Fortress as of the end of June this year.

The trust had been $135m (£82m) in size earlier in the year.

Following analysis of FLG, ARCH made the write down on the basis that:

  • There is a high degree of uncertainty regarding what, if any, return ARCH Digital will receive from FGL through any distribution of the proceeds of the FGL sale;
  • This uncertainty stems primarily from the structure of the FGL sale and the uncertainty surrounding the realisable value of tranche payments due under the FGL sale.  This uncertainty also recognises the liabilities of FGL to PAG which likely enjoy a priority to the returns to any shareholders of ARCH; and
  • This uncertainty regarding any return to ARCH Digital as a shareholder of FGL is further compounded by the manner in which the FGL sale has taken place, including the complete lack of information about what led to the PAG closing not occurring, the complete lack of information about what led to the FGL sale being executed in place of the PAG sale and the ARCH Digital sale, and the conduct of Funtalk, PAG and FGL, both during and after the documentation and closing of the FGL sale.

The trust board adds that it is unlikely it would be able to sell its holdings in FGL.

A stock exchange statement from ARCH says: “ARCH announces that as at the close of business on 30 June 2014, its unaudited net asset value (“NAV”) per share was US$0.3676, which represents a decrease of 59.9 per cent compared to the NAV per share at the close of business on 31 March 2014.

“On the basis that the NAV per share as at the close of business on 30 June 2014 has been issued, the suspension in the trading of the ARCH shares will be lifted and trading in the ARCH shares will resume at 3.15p.m. today.”

On Monday ARC Capital Holdings confirmed it is seeking damages of RMB480m (£48m) from ARC Capital Partners.

ARC Capital Partners resigned as manager of the trust and officially left the role on 7 August.