Pan Fish Shanghai

"Project and partner: In September 2003 Norfund purchased a 27.5% shareholding in Pan Fish Shanghai Ltd (PFS) from the receivership of Pan Marine ASA The other shareholders of PFS are the same partners as for Pan Marine Qingdao (PMQ), the two individuals Botholf Stolt-Nielsen and Tony Chang. As part of the investment, a 27.5% shareholding of TC Trading, a company controlled by Tony Chang and mainly used for supply of seafood raw material, was acquired for US$ 27,000. The operation of PFS is import, processing and distribution of seafood to top rated hotels, restaurants and retail chain stores in Shanghai. Its biggest customers are KFC and PizzaHut F&B restaurants. In addition PFS is re-exporting frozen seafood to overseas markets in USA and Canada.

Investment Structure: The investment was an acquisition of all interests of Pan Marine ASA in PFS, including a 51% shareholding and an interest free shareholders loan (capital contribution to its subsidiary in China not registered as share capital). Drag along and tag-along rights from 2010

Norfund’s Strategy: The initial investment was made to secure Norfund’s interest in PMQ and get an alignment of interest with the two investment partners. During 2005 it was revealed that PFS was under declaring import duties for its imported raw materials to Shanghai. Although being a very serious incident, this case is now finally settled and finished. Norfund has attempted to normalize the reporting and corporate governance structure, but this has been difficult in some details of operation.

Developmental Impact: -introduction of new equipment and machinery to China for fish processing e.g. smoking own and slicing machinery for salmon and trout retail consumers -stable job conditions for 250 employees, more than half are women

Project’s strengths: -Norwegian standard on processing facilities -Riding on recognition for high quality on Norwegian seafood and food safety -Only domestic manufacturer of processed red meet fish e.g. salmon and trout for local market (market mainly importing directly) -Big potential market for seafood processing and distribution

Key risks and issues to discuss: -Business practice of Chinese companies in this sector -High reputation risk related to historic events and general director -Norfund is not wanted as partner anymore by co-shareholders -Norfund not in position to influence governance, reporting and way of conducting business"