Domestic Investment Portfolio

The Fund’s domestic cash allocation (Domestic Cash Portfolio) comprises deposits in banks and finance companies at call accounts and term deposits, with a term less than 182 days to maturity at the time of issue. As at 31 December 2018, the Fund
had around 12.3% of the portfolio in cash.

Although showing a reduction in its composition relative to the prior year as the Fund looked to move excess cash into fixed interest to capture better yields, cash levels remained high for the following reasons: (i) ongoing funding of pre-approved property development during the year. The Fund is also investigating some larger unlisted equity investments, which if they come to fruition would also absorb a component of the cash held, (ii) an inability to obtain adequate foreign exchange to further diversify the Fund’s investment into international assets as noted elsewhere.

The Fund’s fixed interest allocation, or fixed interest portfolio, comprises bank term deposits, government securities and corporate loans, with a term equal to, or more, than 182 days to maturity, at the time of issue. As at 31 December 2018, the value
of Fixed Interest Portfolio was approximately 31.4% of the total investment portfolio, an increase from prior year due to a conscious effort to improve overall yields by moving excess cash into this asset class. The increase was offset by a reclassification of a shareholder loan to OPH Limited into equity.

This asset class is made up mostly of government securities and the Fund continues to monitor the market for opportunities to acquire government bonds at suitable yield levels. The Fund remains a regular participant in auctions of both long and short term government securities, subject to the yield on offer being suitable to the Funds requirements and view of risk. In addition to government securities, the asset class also includes investments in commercial loans for subsidiary companies construction projects and syndicated infrastructure loans.

As at 31 December 2018, the Fund’s allocation to this asset class was 26.0% of the Fund value, a slight decrease from the prior year due to revaluation losses on a number of the unlisted equities consistent with the challenging domestic market environment.

Listed Equity

As at 31 December 2018, domestic listed equity was around 10.1% of the Fund. The decrease in value compared to 2017 was primarily due to significant declines in Credit Corporation Limited (CCP) and CPL Limited (CPL) share values which more than offset increase in the share price of Bank of South Pacific (BSP). NSL was instrumental in the Board spill at CCP during 2018 and a new Board elected into office. Early indications are that CCP is back on the road to recovery under the guidance of the new Board and management. The Fund opted not to participate in a capital raise by CPL in the prior year and continues to monitor its investment in the company. Again, BSP continues to provide strong return to the Fund through good dividend and capital growth reflecting its strong financial performance during the year.

The figure below shows the holdings of the Fund in domestic listed equities.

Unlisted Equity

As at 31 December 2018, domestic unlisted equity was roughly 15.9% of the Fund.

The Fund reviewed a number of investment proposals during the year. Lead times for unlisted investments tend to be quite long and information intensive and as such many other investment proposals remained work in progress at the end of the year. The Fund continues to work closely with its investees to assist the growth of those businesses through strategies to finance opportunities through activity such as mergers and acquisitions, which in turn will be of benefit to the Fund.

During the year the Fund participated in a capital raise by one of its investee companies, Paradise Company Limited (PCL) to acquire Laga Industries Limited (Laga) from Steamships. Laga is a complementary business to PCL and significant synergistic benefits are expected going forward. The Fund also disposed of its holding in Brian Bell & Company Limited (Brian Bell) during the year.

Domestic Unlisted Equities as at 31 December 2018

The domestic properties portfolio is comprised of commercial, residential, industrial properties and unimproved land. As at 31 December 2018, this asset class was approximately 16.6% of the Fund showing an increase from last year due to practical
completion of the OPH2 high-end residential apartments and revaluation gains during the year.

The Fund has continued the implementation of the property strategy, which involves the following activities: (i) divesting noncore and underperforming assets while providing adequate maintenance to all properties, and (ii) upgrading existing key
assets.

During the year, the construction of the second stage of Nambawan Super Plaza precinct (also known as OPH2) was substantially completed, and is on time and on budget as noted above. The precinct consists of a world-class mixed-use office, residential, entertainment and retail complex with green areas for outdoor entertainment and recreation. Preliminary interest have been received from the market for the leasing of the high-end facility which will be independently managed by IHG, world renowned hotel operators. Leasing of the first building in the complex, what is now known as Deloitte Haus, progressed well during the year. The building was approximately 85% leased at the end of December 2018 and the Fund expects it to be close to fully leased during 2019. This building is providing excellent levels of income to the Fund.

The Rangeview Heights development, which was approved by the Fund in 2016, has made progress during the year. Civil works has begun and construction is progressing smoothly. The Fund completed extensive maintenance programs for a
number of properties including Revenue Haus, Morobe Haus (formerly Vele Rumana) and Aopi Centre that it had begun in the prior year. Aopi Centre upgrade has resulted in a significant improvement in its occupancy during the year whilst Revenue Haus still has some minor hangover works yet to be completed. Specifically, the Fund remains focussed on optimising profitability on core property asset holdings. The ‘divestment’ initiative, which is currently underway, is expected to further streamline
and improve the composition of this asset class. In turn, this will lead to an improved risk-return profile for the Fund, and a diminished exposure to sub-optimal holdings. There were no divestments during the year although the Fund received preliminary interests for some of its properties.

Property Portfolio as at 31 December 2018