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Investment Guidelines

Investment Guidelines

The Company will adhere to the following investment guidelines:

Geographic focus

The Company will only invest in unlisted companies which have their business operations based principally in mainland China.

Sector focus

The Company is not restricted by sector, but it is expected that the focus will be on unlisted companies operating in a variety of consumer sectors associated with the growing disposable income in China, such as consumer related technology (including 'clean technology'), media and advertising, entertainment, distribution and retailing of consumer goods and services, including health goods and services.

Target companies

The Company will target (i) early stage companies that require working capital to fund development and the growth of the business, and (ii) expansion stage companies with proven management and significant growth potential.  The Company will typically seek to invest in small and medium sized companies that are revenue generating, ideally profitable or anticipated to generate profits in the near term and which the Directors believe have strong management teams and market leading potential.  The Company will seek to make investments in such companies at attractive valuations.  In a limited number of cases, the Company may invest in earlier stage businesses where a particularly strong investment case is presented. However, the Company expects that the majority of its investments will be made in companies that are revenue generating.

Types of investment

It is anticipated that the Company will primarily invest in equity-based securities, quasi-equity or debt instruments in investee companies.  Further, the Company may provide interim debt financing or bridge financing to potential investee companies for a term of not more than one year in order to facilitate equity investments.

Control of investments

In relation to any proposed investment, the Company will seek, inter alia, board representation, although this may not be achievable in every case, and to secure adequate investor protections, including, inter alia, information rights.  The Company will seek to structure investments so as to minimise risk as much as possible, for example, by staged funding of investee companies depending on performance as against profit targets, with downside protections in place.  In addition, the Company will usually require the existing management to retain a shareholding in the investee company, and to enter into lock-in agreements in respect of those shares.  Once an investment has been made, the Company will seek to maintain active dialogue with management of investee companies in order to maximise the potential value enhancement of its investments.  However, the Company will not control, or seek to control, or be actively involved in the daily management of the companies in which it invests.

Investment size

The Company will typically seek to secure initial minority stakes in between 10 and 45 per cent. of the equity (on a fully diluted basis) of an investee company.  The Company does not intend to invest more than 20 per cent. of its Net Asset Value in any single investee company.