Annual Report 2020

China Merchants China Direct Investments Limited Annual Report 2020 14 INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS (CONTINUED) REVIEW OF INVESTMENTS (CONTINUED) China Credit Trust Co., Ltd. (“CCT”) was established in 1995, with its headquarters in Beijing. The principal activities of CCT are trust management, fund management, investments and loan financing. It is the first trust company with a full range of licenses for international business in the Chinese trust industry. As of 31 December 2020, the Fund held a 6.94% equity interest in CCT, with a total investment cost of US$50.49 million. In June 2020, CCT declared a cash dividend for 2019, and the Fund is entitled to receive a total of US$1.47 million (pre-tax) from CCT. As of the end of 2020, the carrying value of the Fund’s interest in CCT was US$215.90 million, representing an increase of 22.91% over US$175.66 million at the end of last year. The Fund’s unrealised gain attributable to its investment in CCT for 2020 was US$26.56 million, down 9.07% year-over-year. For 2020, CCT recorded an unaudited net profit of RMB1,016 million, up 4.19% year-over-year. During the year, the company recorded a decrease in income from commissions and handling fees, as well as interest income, compared to last year. In addition, the loss due to asset impairment for the year rose, but investment income and the gain on change in fair value saw increases as well, compared to last year. In response to stronger regulation from regulatory bodies and a requirement to downsize the channel business, the total amount of CCT’s trust assets declined as compared to last year, while income from commissions and handling fees decreased only marginally, due to a significant increase in the amount of CCT’s actively managed trust assets. As a result of these changes, CCT saw a sizeable increase in actively managed trusts as a percentage of its total trust assets, as CCT continues to optimise its business mix. Currently, among its traditional businesses, the real estate trust business is the primary source of income and profit for CCT, while the inter-financial institution business and securitised asset business also contribute to a certain extent. CCT has been striving to optimise its revenue structure. Over the past few years, CCT has successfully increased its income from the trust business as a percentage of total income, and from the actively managed trust business in particular. In order to ensure the on-going development of the company, CCT has steadily pushed ahead with innovative transformations and has continued to develop new lines of business such as trust services for standardised products, small and micro finance, securitised assets and international business, all with encouraging results. CCT is gradually developing its trust partnership in terms of insurance funds with the PICC Group, its single largest shareholder. It is learnt that the CBIRC has continued to strengthen its regulation of real estate financing, and has further required that real estate trusts managed by trust companies may not grow beyond their size as of 31 December 2019. In addition, regulatory authorities continue to strengthen the financing restrictions that have been placed on real estate industry. For instance, “Limits for Three Financial Ratios” policy was launched in late August 2020, so as to set forth an explicit requirement for three financial ratios to be reported by real estate enterprises and, furthermore, to tie them to the growth rate of their interest-bearing debts. In addition, in late December 2020, a policy was enacted to restrict the centralisation of real estate loans by financial institutions in banking industry. These measures will continue to have a negative impact on the development of CCT’s real estate trust business and have increased the urgency to pursue the development of new lines of business. On 27 November 2020, a proposal for conversion of its capital reserves into registered capital was approved at the shareholders meeting of CCT, under which the registered capital will be increased from RMB2,457 million to RMB4,850 million. The proposal is still subject to approval by regulatory authorities. Once the proposal is put into effect, the Fund’s shareholding in CCT will remain unchanged.