Annual Report 2020

China Merchants China Direct Investments Limited Annual Report 2020 20 INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS (CONTINUED) REVIEW OF INVESTMENTS (CONTINUED) Rong Bao Zhai Culture Co., Ltd. (“Rong Bao Zhai Culture”) was established in Beijing in December 2015. Its main businesses include the sale of art supplies, handicrafts, calligraphy artwork, framed calligraphy artwork, and carving artwork, as well as the sponsorship of art exhibits and cultural/artistic exchange activities. In addition, Rong Bao Zhai Culture will be an important business development platform for its controlling shareholder, Rong Bao Zhai, in the future. The Fund agreed to advance cash of RMB300 million in total to Rong Bao Zhai Culture for a period of 5 years, with the right to convert the loan into an equity interest in Rong Bao Zhai Culture during the term of the loan, subject to the fulfillment of certain precedent conditions. In December 2016 and April 2017, the Fund disbursed RMB200 million (equivalent to US$28.86 million) and RMB100 million (equivalent to US$14.50 million), respectively, amounting to RMB300 million (equivalent to US$43.36 million) in aggregate. As of the end of 2020, the carrying value of the Fund’s debt in Rong Bao Zhai Culture was US$22.08 million, representing a decrease of 48.51% from the value at the end of last year of US$42.88 million. The Fund’s unrealised gain attributable to its investment in Rong Bao Zhai Culture for 2020 was US$3.61 million, up 67.91% year-over-year. In the fourth quarter of 2020, the Fund reached a decision to recall its loan to Rong Bao Zhai Culture. The loan made by the Fund has been three years, while Rong Bao Zhai Culture has yet to recover from its loss position, due primarily to a difficult economic environment that has continued to hamper the development of the culture and arts market. Moreover, the listing process and internal transformation of the company have not been proceeding as expected. As of 31 December 2020, the Fund had received a portion of the total loan balance of RMB180 million. In addition, both parties have agreed that the remaining principal and interest will be repaid by mid-2021. Qinghai Provincial Qinghai Lake Tourism Group Co., Ltd. (“Qinghai Lake Tourism”) was established in Xining, Qinghai in 2008. It is a tourism operator with a focus on Qinghai Lake, a national 5A-class scenic spot, and is principally engaged in product development, business operations and provision of services related to tourism in Qinghai Lake and the surrounding regions. The Fund agreed to advance cash of RMB200 million in total to Qinghai Lake Tourism for a period of 3 years, with the right to convert the loan into an equity interest in Qinghai Lake Tourism during the term of the loan, subject to the fulfillment of certain precedent conditions. In August and September 2017, the Fund disbursed RMB50 million (equivalent to US$7.50 million) and RMB150 million (equivalent to US$22.93 million), respectively, amounting to RMB200 million (equivalent to US$30.43 million) in aggregate. Pursuant to a supplemental agreement dated 9 May 2019, Qinghai Lake Tourism undertook to repay a loan of RMB190 million in aggregate to the Fund by 30 June 2019, while the Fund retains the right to recover the outstanding loan of RMB10 million from Qinghai Lake Tourism, as well as to convert an amount up to RMB200 million into equity shares of Qinghai Lake Tourism during the joint-stock restructuring of Qinghai Lake Tourism. As of 31 December 2020, the Fund had received aggregate loan repayments of RMB200 million from Qinghai Lake Tourism, representing a full recovery of the loan made by the Fund. Currently, the Fund is also pursuing recovery of the accrued interest and will consider whether to exercise its conversion rights during the joint-stock restructuring of Qinghai Lake Tourism. As of the end of 2020, the carrying value of the Fund’s debt in Qinghai Lake Tourism was US$5.48 million, representing a decrease of 9.27% from the value at the end of last year of US$6.04 million. In 2020, due to the outbreak of the novel coronavirus, the number of tourists visiting the scenic spots has decreased significantly. Presently, Qinghai Lake Tourism is taking active measures to reduce expenses and will put more effort into publicising the locations that are fully open in order to attract more tourists.