Source - RNS
RNS Number : 3348J
Qannas Investments Limited
08 September 2016
 



QANNAS INVESTMENTS LIMITED

 

UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2016

 

                                                                                                         

 

Qannas (AIM:QIL), the closed-ended investment company listed on the AIM market,  is pleased to present its interim report for the period ended June 30, 2016.

 

 

 

For further information please contact:

 

Qannas Investments Limited                                                                            Tel: 01534 818 022

Vinod Rajput

 

ADCM Ltd. (Investment Manager)                                                                   Tel: +971 2 639 0099

Mustafa Kheriba

 

finnCap Ltd                                                                                                            Tel: 020 7220 0500

Stuart Andrews/James Thompson (Corporate Finance)

Simon Johnson (Corporate Broking)


CHAIRMAN'S REPORT




It is with great pleasure that I present our report for the first half of fiscal year 2016 on the performance of Qannas Investments Limited ("QIL" or the "Company") during which we continued to invest in new opportunities and have exited from two investments.

 

In February 2016, QIL invested $6.6 million in Goldilocks Fund, which primarily invests in public equities listed on the UAE stock exchanges. The investment was made in two tranches of $5.5 million and $1.1 million during February 2016. The Investment Manager's Report contains more details of this investment, which is already showing a healthy return with a net asset value as at 30 June 2016 of over $9 million.

 

In February 2016, QIL completed the redemption of preference shares in BL Development and, including accrued preference dividends, received ₤3.8 million ($5.4 million) in proceeds. QIL had invested a total of ₤3.5m ($5.3 million) in BL Development during 2015. The IRR was 2.8% and return multiple 1.02x in USD from the investment, lower than expected at the time of investment due to adverse currency movements. This exit has reduced our exposure to the UK Pound (GBP), and leaves QIL with one sterling denominated investment, that of Palace Preferred Partners L.P..

 

During the same month, QIL announced the sale of its investment in the secured Murabaha debt in Verne Preferred Limited to Reem Finance (a finance company licensed by the Central Bank of the UAE and incorporated in the Emirate of Abu Dhabi). QIL received $1.1m (AED 3.9m) in exit proceeds, generating an IRR of 12.9% and a return multiple of 1.1x from this investment.

 

Since the end of the half year, QIL has achieved a partial exit of its senior secured term loan provided to Integrated Eastern European Fund ("Original Loan"). QIL has exited approximately 71% of its exposure in the Original Loan along with accrued interest. The remainder of €2.75m has been extended for a period of two years at an interest rate of 12% per annum plus a 3% arrangement fee on the extended amount. This has had the effect of reducing our exposure to the Euro, and switching interest payments into US Dollars.

 

In the half year, QIL recorded losses of $0.9m, mainly due to the absence of significant disposals of investments and realisations from ADCM SPEF and SPE Qannas C. This is a matter of timing, but nevertheless, QIL had a net asset value of $0.99 per share as at 30 June 2016.

 

Although already noted in my report in the Annual Accounts, Jassim Alseddiqi resigned from his position as a director of the company in March 2016. I would like to warmly thank Jassim for his significant contribution.

 

As QIL continues to evolve and deliver value to shareholders by executing its investment strategy, I would like to thank shareholders, the Board of Directors, service providers, and the Investment Manager for their continued support.

 



 

ADCM Ltd. ("ADCM"), the investment manager for QIL, is pleased to present its report for the six-month period ended 30 June 2016.

 

Summary

 

During the last six months QIL's NAV decreased by $1.7 million, which was primarily due to:

·      The $0.85 million repurchase of own shares in March 2016; and

·      A decline in carrying value of ADCM Secondary Private Equity Fund and SPE Qannas C Ltd due to changes in the NAV of the underlying funds.

 

No dividend distributions were made to shareholders during this period.

 

New Investments

 

Goldilocks

During the first quarter of 2016, QIL made an equity investment of $6.6 million in the Goldilocks Fund, which primarily invests in public equities listed on the UAE stock exchanges and which seeks to generate value through actively engaging with companies in which it invests to improve performance. The investment was made in two tranches; one of $5.5 million and the second of $1.1 million during February 2016. The Goldilocks Fund is managed by Integrated Capital, which is a UAE Central Bank licensed Investment Firm registered in Abu Dhabi. Integrated Capital is part of the Integrated Financial Group in which QIL has a holding.

 

The investment has returned 42% during this period.

 

Exits

 

During Q1-2016, QIL exited from its investments in Project Broadway (BL Development Limited) and Project Taj (Verne Preferred Limited).

 

Project Name

Date of

Exit

Date of Acquisition

Holding  Period

Cost

(in millions)

Disposal Proceeds

(in millions)

Exit Multiple

Exit

IRR

Broadway

9-Feb-16

16-Apr-15

10 months

$5.3

$5.4

1.02x

2.8%

Taj

26-Feb-16

02-Jun-15

9 months

$1.1

$1.2[1]

1.11x

12.9%

 

 



 

Net Asset Value ("NAV") Summary

 

As of 30 June 2016, QIL's NAV was $68.3 million or $0.99 per share, including cash of $0.8 million.

 

 

Investments update

 

Project Apex

During Q1 2015, QIL secured the purchase of 2 premium units (penthouses) in the development Marina 101 at Dubai Marina for AED 9.1m ($2.5m), of which AED 2.9m ($779,560) had been paid at 30 June 2016. The project is c. 91% complete and the developer expects to reach completion by the end of 2016.

 

Project ACC Hotel

During November 2014, QIL committed up to €11.0 million for an equity investment in an SPV developing a four-star hotel at The Capital Plaza in Podgorica. QIL is continuing to fund the completion works of the hotel which is due to open in October 2016.

 

Investments update - continued

 

Project Beast

During the period, QIL received a total of $432,023 in distributions from ADCM SPEF in two tranches: -

·      $230,396 of distribution from ADCM SPEF in February 2016; and

·      $201,627 from ADCM SPEF in June 2016.

 



 

NAV of ADCM SPEF (as of 30 June 2016)

 in $'000

Fund Name

Attributed NAV

SPE Qannas B Ltd.

$19,515

Abraaj Real Estate Fund L.P.

$2,728

Permal Private Equity Holdings 2000 L.P.

$287

Goldman Sachs PEP IX

$2,325

Global Opportunistic Fund I

$43

Global Opportunistic Fund II

$413

Abraaj Real Estate Fund L.P.

$546

Havenvest Private Equity Middle East L.P.

$3,872

Gulf Capital Equity Partners Fund II, L.P.

$4,478

TNI Growth Capital Fund, L.P.

$3,781

Lumina Real Estate SSF I L.P.

$542

Net Current Assets (Liabilities)

($5,333)

NAV

$33,197

 

Project HRC

The Hard Rock Café ("HRC") in Podgorica launched its operations in February 2015 and is now fully operational. This project is part of a larger Area Development Agreement with Hard Rock Limited to develop three Hard Rock Cafés in Podgorica (Montenegro), Belgrade (Serbia) and Sofia (Bulgaria) with the Investment Manager actively seeking out new sites on behalf of its investors.

 

Project Integration

In November 2014, QIL committed to acquire an equity interest in Integrated Financial Group LLC, a UAE-based holding company incorporated for acquiring and consolidating two financial services companies Integrated Securities (brokerage firm on the Abu Dhabi and Dubai stock exchange) and Integrated Capital (UAE Central Bank regulated investment company). 

 

During H1-2016, Integrated Securities ("IS") secured three new licenses allowing IS to offer brokerage services on Nasdaq Dubai, GCC and International markets, and to provide Direct Market Access services to its clients. IS has also launched a second office in Dubai, UAE. 

 

During the same period, Integrated Capital ("IC") has continued to develop its capital market platform and successfully secured the joint lead manager role for the US$ 500m bond issuance by EA Partners.

 

QIL's final interest will be 47.4% in IFG. As of 30th June 2016, ADFG held the shares of IFG in trust on behalf of QIL.

 

Investments update - continued

 

Project IEEF

During the third quarter of 2014, QIL completed a debt investment (senior secured term loan) of €7.0 million in Integrated Eastern European Fund ("IEEF") for a term of two years at 15% interest per annum being rolled up until maturity. Subsequent to H1-2016, QIL has realized a partial exit in its senior secured term loan provided to IEEF.

 

Project PPP

QIL committed to an investment of £11 million (c. $18.2 million) in Palace Preferred Partners L.P., an SPV created for the redevelopment of 1 Palace Street, London, in 2014. To date QIL has invested £4.4m ($6.9 million) with a carrying NAV of $7.1 million. The project is progressing well with c.50% units sold and with final repayment expected in 2019.

 

Project Scholar

QIL acquired 250,000 shares of Madaares in 2013, a private company which, through its subsidiary Taaleem PJSC, operates 10 schools and nurseries in the UAE with 5,875 students enrolled.

 

Market Outlook

 

The year 2016 started with oil dropping below $30 in January, capital markets declining across the globe and China continuing to show signs of relatively slow growth. By the time we reached the second quarter of 2016, the global market witnessed a gradual normalization in several economies and an upward movement in commodity prices (oil crossed the $50 level), but this optimism was ended with Brexit which wiped out $3 trillion from global markets.

 

In such a volatile market environment, we believe that QIL's portfolio is nevertheless well positioned and diversified to capitalize on the opportunities presented by the market.

 

GCC

 

Oil prices have shown unprecedented volatility in the recent times. After declining to the price level of $30 in early 2016, global oil prices have been oscillating between $40 and $50 for the last three months. GCC countries, which are largely dependent on oil revenues, are accelerating efforts to diversify the sources of revenue and cut costs, with subsidy rationalization remaining a dominant theme in the region. The IMF forecasts GDP growth of the GCC at 1.8% for 2016.

 

The UAE and Saudi Arabia, the two largest economies of the GCC region, continue to push for reforms. The UAE is accelerating the diversification of its economy into non-oil sectors, and has committed $82 billion towards building a knowledge-based economy.

 

In Saudi Arabia, the government has launched an ambitious reform agenda, which aims to transform the country's economy into a more diversified one that is focused on industrialization and global investments. The government has already cut 13% of its public spending; also, the Kingdom has launched reforms across 24 government bodies. If successful, Saudi Arabia's transformation will benefit the entire region.

 

With the strong economic fundamentals supported by continued reforms, the GCC offers investment opportunities at a time when markets are at low levels and are undervalued.

 

Global: Central London and Eastern Europe

 

The UK's decision to exit from the European Union resulted in the pound declining by more than 9% against dollar, and in concerns about "Brexit's" impact on the UK economy, causing the Bank of England to cut the UK's base rate to 0.25%. The volatility in the UK market, combined with increasing uncertainties about property transaction costs (increase in stamp duty in 2014 and 3% surcharge on buying a home for buy-to-let or for a second home), have led to a flight to quality for prime properties (addresses in Central London) which bodes well for QIL's investments. We still believe that the Central London prime real estate market continues to offer secure investment opportunities for QIL.

 

On the global front, the US economy is showing positive signs of growth. The low level of unemployment (4.9% as of June 2016) reflects signs of this economic growth, which we believe will benefit to the global economy.

 

We continue to believe in the growth potential of our target economies.

 

The Directors present their interim report and the audited financial statements of the Company for the six month period ended 30 June 2016.

 

Incorporation

The Company was incorporated and domiciled in Jersey, Channel Islands as a public limited company (registration number 109878) on 17 January 2012. On 31 March 2014 the Company migrated to the Cayman Islands (registration number CT 286543) and ceased to be a Jersey registered company.

 

Principal activities

The Company's principal activity is that of generating value for shareholders by creating a portfolio of opportunistic investments in real estate, debt, and equities (both public and private) in the MENA region, Europe and North America. Investments are made where there is a liquidity requirement or portfolio repositioning on the part of a vendor, such that assets become available at a discount to their intrinsic value. The Company aims to acquire such assets and subsequently dispose of them at a premium to their acquisition cost.

 

Responsibilities of the Directors

The Directors are responsible for preparing the interim report and financial statements in accordance with International Financial Reporting Standards as endorsed for use in the European Union ("IFRS"). In preparing these financial statements, the Directors are required to:

·      select suitable accounting policies and apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      specify which generally accepted accounting principles have been followed, subject to any material departures disclosed and explained in the financial statements; and

·      prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.

 

The Directors are responsible for keeping accounting records which are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Alternative Investment Market listing rules. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors confirm that they have complied with the above requirements.

 

By order of the Board

 

 

Director

Date:


QANNAS INVESTMENTS LIMITED

8.

STATEMENT OF COMPREHENSIVE INCOME - UNAUDITED




FOR THE PERIOD ENDED 30 JUNE 2016


 


Notes



01.01.16

to

 30.06.16



01.01.15

to

 30.06.15





$



$









Income








Investment income

4



266,662 



263,247 





266,662 



263,247 

Expenditure








Realised loss on disposal of unquoted investment




167,080 



Secretarial and administration fees




58,771 



45,578 

Directors' remuneration

3



42,213 



46,306 

Insurance expense




4,585 



4,916 

Investment manager fees




633,227 



669,225 

Performance fees

17



(96,600)



(155,430)

Management and performance fee rebate

17



364,368 



(109,406)

Legal and professional fees




139,840 



118,810 

Audit fees




29,217 



47,956 

Sundry expenses




15,822 



28,472 

Bank charges




576 



1,599 





1,359,099 



698,026 









Loss before net investment income




(1,092,437)



(434,779)









Net (losses) / gains on unquoted investments

4



(32,620)



113,722 









Finance costs








Loan interest payable




(582,246)



(367,811)

Foreign exchange gains / (losses) on loans receivable

5



133,612 



(825,576)

Gain / (loss) on foreign exchange




4,179 



(47,126)









Finance income








Interest income - cash and cash equivalents




902 



2,087 

Interest income - loans receivable

5



694,243 



609,542 

Loss for the period before taxation




(874,367)



(949,941)









Taxation provision for the period




-



-









Total comprehensive (loss) for the period




(874,367)



(949,941)









Earnings per share








Basic on loss for the period

14



(0.01)



(0.01)

 

There are no items of other comprehensive income.

 

 

The notes on pages 12 to 28 form part of these unaudited interim financial statements


QANNAS INVESTMENTS LIMITED

9.

STATEMENT OF FINANCIAL POSITION - UNAUDITED




AS AT 30 JUNE 2016


 






30.06.16


30.06.15


31.12.15


Notes




$


$


$











Assets










Non-current assets










Unquoted investments at fair value










through profit and loss

4




81,501,293


56,969,055


75,231,608

Loans receivable

5




-


9,727,462


-

Property investments

6




779,560


779,560


779,560

Trade and other receivables

7




6,459,921


7,209,742


7,027,920

Total non-current assets





88,740,774


74,685,819


83,039,088











Current assets










Loans receivable

5




9,786,832


-


10,743,138

Unquoted investments at fair value through profit and loss





-


-


5,168,179

Trade and other receivables

7




1,605,999


1,213,848


1,178,927

Receivable from investment manager

8




397,575


18,000,000


397,575

Cash and cash equivalents

9




802,623


7,495,665


7,264,513

Total current assets





12,593,029


26,709,513


24,752,332











Total assets





101,333,803


101,395,332


107,791,420











Equity and liabilities










Equity










Management shares

12




2


2


2

Participating shares

12




67,799,019


76,638,586


68,644,367

Retained earnings

13




542,086


1,773,642


1,416,453






68,341,107


78,412,230


70,060,822











Liabilities










Current liabilities










Trade and other payables

10




1,125,182


1,054,398


5,869,740

Loans payable

11




29,903,701


5,000,000


29,811,219






31,028,883


6,054,398


35,680,959

Non-current liabilities










Trade and other payables

10




1,963,813


2,151,518


2,049,639

Loans payable

11




-


14,777,186


-






1,963,813


16,928,704


2,049,639











Total liabilities and equity





101,333,803


101,395,332


107,791,720











Representing net asset value per










Participating share





$0.99


$1.00


$1.00











 

The interim financial statements were approved and authorised for issue by the Board of Directors of Qannas Investments Limited on the             day of                                                                 2016 and signed on their behalf by:                        

    

Director                                                                                                    Director

 

The notes on pages 12 to 28 form part of these unaudited interim financial statements


QANNAS INVESTMENTS LIMITED

10.

STATEMENT OF CHANGES IN EQUITY - UNAUDITED




FOR THE PERIOD ENDED 30 JUNE 2016


 



Management


Participating


Retained


Total



share capital


share capital


earnings





$


$


$


$










At 1 January 2015


2


76,638,586 


2,723,583 


79,362,171 










Total comprehensive loss


-



(949,941)


(949,941)









At 30 June 2015

2


76,638,586 


1,773,642 


78,412,230 









At 1 July 2015

2


76,638,586 


1,773,642 


78,412,230 









Re-purchase of participating shares

-


(7,994,219)



(7,994,219)









Total comprehensive loss

-



(357,189)


(357,189)









At 31 December 2015

2


68,644,367 


1,416,453 


70,060,822 









At 1 January 2016

2


68,644,367 


1,416,453 


70,060,822 









Re-purchase of participating shares

-


(845,348)



(845,348)









Total comprehensive loss


-



(874,367)


(874,367)










At 30 June 2016


2


67,799,019 


542,086 


68,341,107 

 

 

The notes on pages 12 to 28 form part of these unaudited interim financial statements


QANNAS INVESTMENTS LIMITED

11.

STATEMENT OF CASH FLOWS - UNAUDITED




FOR THE PERIOD ENDED 30 JUNE 2016


 

 


 



01.01.16

to

30.06.16



01.01.15

to

30.06.15





$



$









Operating activities








Loss for the period before taxation




(874,367)



(949,941)

Net gains and losses on changes in fair value of unquoted investments




32,620 



(113,722)

Realised loss on disposal of unquoted investments




167,080 



-

Non-cash investment income






(75,998)

Interest income




(695,145)



(611,629)

Interest payable




582,246 



367,811 

(Gain) / loss on foreign exchange




(4,179)



47,126 

Foreign exchange (gain) / loss on loans receivable




(133,612)



825,576 

Decrease in trade receivables




939,209 



454,828 

Increase in trade payables




421,289 



118,169 









Net cash flow from operating activities




435,141 



62,220 









Investing activities








Interest received




902 



2,087 

Purchase of unquoted investments




(11,744,000)



(3,921,262)

Disposal of unquoted investments




5,000,100 



-

Repayment / (issue) of loans receivable




1,056,101 



(1,027,247)

Purchase of property investments






(779,560)

Capital distributions received from unquoted investments




126,718 



280,874 









Net cash flow from investing activities




(5,560,179)



(5,445,108)









Financing activities








Loan interest paid




(464,187)



(208,745)

Purchase of own participating shares




(845,348)



Bank loan costs paid




(20,000)




Drawdown of bank loan






9,800,000 









Net cash flow from financing activities




(1,329,535)



9,591,255 









Net (decrease) / increase in cash and cash equivalents




(6,454,573)



4,208,367 









Effect of foreign exchange movements




(7,317)



14,199 









Cash and cash equivalents at 1 January




7,264,513 



3,273,099 









Cash and cash equivalents at 30 June




802,623 



7,495,665 









 

 

 

 

 

 

The notes on pages 12 to 28 form part of these unaudited interim financial statements


QANNAS INVESTMENTS LIMITED

12.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS




FOR THE PERIOD ENDED 30 JUNE 2016


 

1.         GENERAL INFORMATION

 

The Company was a limited liability closed-end investment Company incorporated in Jersey on 17 January 2012 with an unlimited life. The Company joined London's Alternative Investment Market ("AIM") on 6 March 2012. On 31 March 2014, the Company migrated to the Cayman Islands as an exempt company and ceased to be a company incorporated under Jersey Company Law on that date. The registered office of the Company is that of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, George Town, Grand Cayman KY1-1111, Cayman Islands.

 

The Company's principle activity is that of investing, centred around a theme-based investment approach, which has evolved over the years, starting with a focus on distressed / opportunistic investments in the UAE in 2012 and 2013 and broadening to the acquisition of secondary portfolios of regional PE funds and European real estate investments in 2014. The Company's investment objective is to generate value for shareholders by creating a portfolio of opportunistic investments in real estate, debt, and equities (both public and private) in the MENA region, Europe and North America. Investments will be made where there is liquidity requirement or portfolio repositioning on the part of a vendor, such that assets become available at a discount to their intrinsic value. The Company will aim to acquire such assets and then to dispose of them at a premium to their acquisition cost.

 

The information presented within these unaudited interim financial statements (the 'financial statements') is in compliance with International Accounting standard ('IAS') 34 'Interim Financial Reporting'. This requires the use of certain accounting estimates and requires that management exercise judgement in the process of applying the Company's accounting policies. The areas involving a high degree of judgement or complexity, or areas where the assumptions and estimates are significant to the interim financial statements are disclosed below in note 2.

 

2.         SIGNIFICANT ACCOUNTING POLICIES

 

Basis of preparation

The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments and investments which are included at fair value, and in accordance with applicable International Financial Reporting Standards as endorsed for use in the European Union ("IFRS") and, where applicable, the Association of Investment Companies Statement of Recommended Practice ("AIC SORP"). The principal accounting policies are set out below.

 

Basis of measurement

The Company classifies its investments in the following categories: investments at fair value through profit or loss, loans and receivables and available-for-sale financial assets. The classification depends on the nature and purpose of each investment. The Directors determine the classification of its investments at initial recognition.

 

Investments at fair value through profit and loss

The Company classifies its investments in equity and limited partnership interests as financial assets at fair value through profit or loss.

 

Investments are recognised and de-recognised on the trade date - the date on which the Company commits to purchase or sell an investment. Investments are initially recognised at cost. Transaction costs are expensed as incurred in the statement of comprehensive income. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

 

Subsequent to initial recognition, investments are measured at their fair value. Gains and losses arising from changes in the fair value are presented in the statement of comprehensive income within net gains and losses on investments in the period in which they arise.

 

Dividend income is recognised in the statement of comprehensive income within investment income when the Company's right to receive payments is established.

 


QANNAS INVESTMENTS LIMITED

13.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

2.         SIGNIFICANT ACCOUNTING POLICIES - continued

 

Investments at fair value through profit and loss - continued

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets and liabilities traded in active markets (such as publicly traded securities) are based on quoted market prices at the close of trading on the reporting date. The Company utilises the last traded market price for both financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Directors will determine the point within the bid-ask spread that is most representative of fair value.

 

The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.

 

Loans receivable

Loans receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as loans and receivables.

 

Loans receivable are recognised on the date on which the Company commits to provide a loan. The loans are initially recognised at cost. Transaction costs associated with the loans are expensed as incurred within the statement of comprehensive income. Loans receivable are derecognised when the rights to receive interest income have expired and the loan has been repaid.

 

Subsequent to initial recognition, loans receivable are measured at amortised cost using the effective interest rate method, less provision for impairment.

 

Interest income is recognised in the statement of comprehensive income within interest income - loans receivable when the Company's right to receive payments is established.

 

Property investments

The Company classifies property investments as a financial asset at fair value through profit or loss.

 

Acquisitions of property under construction are made in stages with deposits paid to secure the Company's investment. Such payments are recognised at cost and subsequently measured at fair value on completion of the development.

 

These investments are recognised and de-recognised on the trade date - the date on which the Company commits to a purchase or sale. These investments are initially recognised at fair value. Transaction costs are expensed as incurred in the statement of comprehensive income. These investments are derecognised when the rights to receive cash flows has expired or the Company has transferred substantially all risks and rewards of ownership.

 

Subsequent to initial recognition, these investments are measured at fair value. Gains and losses arising from changes in the fair value are presented in the statement of comprehensive income within net gains on investments in the period in which they arise.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

Functional and presentational currency

The performance of the Company is measured and reported to the investors in US dollars. The Board of Directors considers the US dollar as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in US dollars, which is the Company's functional and presentation currency.


QANNAS INVESTMENTS LIMITED

14.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

2.         SIGNIFICANT ACCOUNTING POLICIES - continued

 

Use of estimates and judgements

The preparation of the financial statements in conformity with IFRS and applicable Statute law requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates with the most significant effects on the carrying amounts of the assets and liabilities in the financial statements are outlined below:

 

(i)      Valuation of unquoted investments - The fair value of these is determined via valuation techniques.

 

(ii)     Valuation of quoted investments - These are valued at the last traded price on the reporting date and in accordance with IFRS, no discount is applied for the liquidity of the stock or any dealing restrictions.

 

(iii)    Valuation of loans receivable - Loans receivable are held at amortised cost. The Directors undertake regular impairment reviews of loans receivable to ensure that they remain recoverable.

 

(iv)   Valuation of property investments - This is valued by reference to comparison to similar sales transactions. Prices of comparable transactions in similar locations are adjusted for differences in key attributes such as size.

 

Foreign currencies

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the statement of financial position date.

 

Foreign exchange gains and losses arising from translation are included in the statement of comprehensive income. Foreign exchange gains and losses relating to cash and cash equivalents are presented in the statement of comprehensive income within 'gain / loss on foreign exchange'. Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the statement of comprehensive income within 'net gains on investments'.

 

Financial assets and liabilities

The Company classifies its financial assets and liabilities as follows:

 

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term investments in an active market with original maturities of less than three months.

 

Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.

 

Trade receivables include the contractual amounts for the settlement of trades and other obligations due to the Company.

 

Receivable from investment manager

Receivable from investment manager comprises deposits held by the Investment Manager in order to allow them to facilitate on-going transactions arising from structures at different stages of formation.

 

Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost; their carrying values are a reasonable approximation of fair value.

 

Trade and other payables represent contract amounts and obligations due by the Company.


QANNAS INVESTMENTS LIMITED

15.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

2.         SIGNIFICANT ACCOUNTING POLICIES - continued

 

Financial assets and liabilities - continued

 

Loans payable

Loans payable are measured initially at cost. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method. They are classified as loans and receivables. These financial liabilities are recognised when the Company enters into a loan agreement and are derecognised when the loan agreement is terminated.

 

The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument, in order that the present value of the future cash flows, including fees or transaction costs, is equal to the carrying amount of the financial instrument.

 

Finance costs associated with loans payable have been spread on an effective interest rate constant basis over the life of the loan.

 

Shares in issue

Management Shares are not redeemable, do not participate in the net income or dividends of the Company and are recorded at $1.00 per share.

 

Participating shares in issue are not redeemable at the shareholder's option.

 

Participating shares which are acquired are recognised at cost and deducted from equity. No gain or loss is recognised in the statement of comprehensive income on the purchase, sale, issue or cancellation of the Company's own equity instruments. Any difference between the carrying amount and the consideration is recognised in retained earnings.

 

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable in the normal course of business. The Company recognises revenue when the amount of revenue can be reliably measured and when it is probable that the future economic benefits will flow into the Company.

 

Taxation

The Company is domiciled in the Cayman Islands and is treated as resident for tax purposes and is subject to the zero per cent standard income tax rate.

 

Expenditure and transaction costs

All items of expenditure including the performance and management fees are recognised on an accruals basis.

 

Distributions payable

The payment of dividends will depend on the availability of distributable reserves, cash resources and the working capital requirements of the Company. Dividends paid are included in the Company financial statements in the period in which the related dividends are declared.

 

Non consolidation

The Company fulfils the definition of an investment entity under IFRS 10 ("Consolidated Financial Statements") and, as a result, does not consolidate investments in subsidiaries but instead measures its investment at fair value through profit and loss. IFRS 10 defines an investment entity as one that obtains funds from investors for the purpose of providing investors with investment management services, commits to its investors that its purpose is to invest funds solely for returns from capital appreciation, investment income or both and measures and evaluates the performance of substantially all its investments on a fair value basis.

 

Going concern

The Company's existing loan facility with First Gulf Bank is due for repayment on 25 November 2016 (note 11). The Directors have approached First Gulf Bank which has indicated its willingness to extend this loan facility for a foreseeable future. Alternatively, should the existing facility not be extended with First Gulf Bank, the Directors are confident that a new loan facility can be obtained for at least a year before the existing loan facility expires.


QANNAS INVESTMENTS LIMITED

16.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

2.         SIGNIFICANT ACCOUNTING POLICIES - continued

 

Going concern - continued

The Directors, having considered the above and after making due enquiries, continue to adopt the going concern basis in preparing the financial statements which assumes that the Company will continue in operation for the foreseeable future.

 

Segmental reporting

The Company is operated as one segment by the Board of Directors (which is considered to be the Chief Operating Decision Maker).

 

Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The Board of Directors is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.

 

The Directors make the strategic resource allocations on behalf of the Company. The Company has determined the operating segments based on the reports reviewed by the Board of Directors, which are used to make strategic decisions.

 

The Board of Directors is responsible for the Company's entire portfolio and considers the business to have a single operating segment. The Board of Directors asset allocation decisions are based on a single, integrated investment strategy and the Company's performance is evaluated on an overall basis.

 

The Company trades in a diversified portfolio of securities with the objective of generating value for shareholders.

 

The internal reporting provided to the Board of Directors for the Company's assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS.

 

There were no changes in the reportable segments during the period.

 

 

3.         DIRECTORS' REMUNERATION AND INTERESTS

 

The remuneration of the individual Directors who served in the period to 30 June 2016 was:

 



30.06.16


30.06.15



$


$






Jassim Mohamed Alseddiqi


-


-

Richard John Stobart Prosser


12,520


13,057

Christopher Ward


16,396


17,777

Richard Green


13,297


15,472

Mustafa Kheriba


-


-



42,213


46,306

 

Directors' interests in the shares of the Company, including family interest, at 30 June 2016 were:

 


Share

Nominal


% Held






Jassim Mohamed Alseddiqi

Participating shares

2,018,778

*

2.9%

Christopher Ward

Participating shares

100,000


0.4%

Richard Green

Participating shares

100,000


0.1%

Mustafa Kheriba

Participating shares

531,278


0.8%

* - In addition to the above, Jassim Mohamed Alseddiqi also has an indirect interest in 5,601,579 shares


QANNAS INVESTMENTS LIMITED

17.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

4.         UNQUOTED INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS

 



30.06.16


30.06.15


31.12.15



$


$


$








Fair value at 1 January


80,399,787 


53,213,946


53,213,946 

Additions


6,539,918 


3,922,261


29,094,551 

Disposals


(5,001,099)


-


Realised movements


(167,080)


-


Capital distributions


(237,613)


(280,874)


(1,339,457)

Unrealised movements on the revaluation of investments


(32,620)


113,722 


(569,253)

Fair value at 30 June / 31 December


81,501,293



80,399,787 

 

 

Unquoted investments comprise:



30.06.16


30.06.15


31.12.15



Fair

Value


Fair

value


Fair

value



$


$


$

Madaares PJSC


68,063


68,063


68,063

SPE Qannas C Ltd.


8,130,431


8,235,022


8,193,775

ADCM Secondary Private Equity Fund L.P. ('ADCM SPEF L.P.')


33,196,572


38,191,725


35,791,687

EE F&B Holding Limited


4,089,162


665,649


4,089,162

Palace Preferred Partners L.P.


7,147,730


7,448,830


7,480,803

BL Development Limited


-


2,358,767


5,167,180

Verne Preferred Limited


-


999


999

Integrated Financial Group


19,608,118


-


19,608,118

Goldilocks Fund


9,261,217


-


-



81,501,293


56,969,055


80,399,787

 

The fair values of the unquoted investments are based on the latest available net asset value reports and/or financial information available of the underlying companies.

 

Unquoted investments at 30 June 2016 comprise:



Class of


No. of


Holding


Book



shares


shares held


%


cost









$

Madaares PJSC


Ordinary


250,000


0.03%


68,063

SPE Qannas C Ltd.


Preference


8,039,559


74.3%


7,930,886

ADCM Secondary Private Equity Fund L.P.


-


-


96.5%


33,289,540

EE F&B Holding Limited


Ordinary


1,000


100%


4,089,162

Palace Preferred Partners L.P.


-


-


22%


6,956,400

Integrated Financial Group


Ordinary


73,908


47.4%


18,667,177

Goldilocks Fund


Units


17,341,475


41.8%


6,539,918









77,541,146

 

During the half year ended 30 June 2016, the Company made the following investment: -

 

·      An initial investment of $5,450,000 followed by an additional acquisition of $1,089,918 into Goldilocks Fund, the latter utilised the proceeds from the repayment of the loan receivable from Verne Preferred Limited as described in note 5.

 

 

 

 


QANNAS INVESTMENTS LIMITED

18.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

4.         UNQUOTED INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS - continued

 

During the half year ended 30 June 2016, the Company divested the following investments: -

 

·      100% of the holding in BL Development limited realising proceeds of $5,000,100 (GBP3, 500,000). The disposal resulted in a reduction of $167,080 over fair value as at 31 December 2015; and

 

·      100% of the holding in Verne Preferred Limited realising proceeds of $999 and no gain or loss on disposal.

 

During the half year ended 30 June 2016, the Company received the following income from its unquoted investments: -

·      $194,410 (2015: $187,249) from ADCM Secondary Private Equity Fund L.P.; and

·      $72,252 (2015: $75,998) from BL Development Limited.

 

At 30 June 2016 the Company had entered into the following commitments: -

 


Total


Commitment


Commitment


Outstanding at




30.06.16

Palace Preferred Partners L.P.

£11,000,000


£6,600,000

 

The loan due to First Gulf Bank PJSC (as detailed in note 11) is secured by way of a charge over the Company's investments in ADCM Secondary Private Equity Fund L.P., SPE Qannas C Ltd. and Palace Preferred Partners L.P.

 

 

5.         LOANS RECEIVABLE

 



30.06.16


30.06.15


31.12.15



$


$


$








Brought forward at 1 January


10,743,138 


9,463,120 


9,463,120 

Additions / (disposals)


(1,089,918)


1,089,918


1,089,918 

Capitalised loan interest



-


1,147,249 

Unrealised gains / (losses) on foreign exchange


133,612 


(825,576)


(957,149)

Fair value at 30 June / 31 December


9,786,832 


9,727,462 


10,743,138 

 

At 30 June 2016, loans receivable comprise: -



Interest


Maturity


Carrying


Carrying



rate


Date


value


value







CCY


$

Injaz Eastern European Property Development Company Limited


15.00%


August 2016


EUR3,529,500


3,909,494

Injaz Eastern European Property Development Company Limited


15.00%


August 2016


EUR2,809,000


3,111,423

Lucice Montenegro d.o.o.

 


15.00%


August 2016


EUR59,000


65,352

Arqutino EAD

 


15.00%


August 2016


EUR603,000


667,920

Capitalised interest on loans above


-


-


EUR1,050,075


1,163,128

Integrated EE Holdings d.o.o.


4.00%


November 2016


EUR785,000


869,515









9,786,832

 

 


QANNAS INVESTMENTS LIMITED

19.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

5.         LOANS RECEIVABLE - continued

 

Each of the loans is denominated in EUR with movements arising on revaluation included within the Statement of Comprehensive Income as unrealised foreign exchange losses on loans receivable.

 

Loan interest in respect of the loans totalling $694,243 (period ended 30 June 2015 $609,542) is included in the Statement of Comprehensive Income in respect of the period ended 30 June 2016.

 

The loans to Injaz Eastern European Property Development Company Limited, Lucice Montenegro d.o.o. and Arqutino EAD are secured by way of share pledges and mortgage agreements in the underlying companies.

 

During the period the loan facility granted to Verne Preferred Limited was repaid.

 

 

6.         PROPERTY INVESTMENTS

 

This represents the deposit paid by the Company to acquire 2 premium units (the 'units') in the development Marina 101 at Dubai Marina. The total cost of the units will be AED 9.1m ($2.5m), of which AED 2.9m ($779,560) had been paid at 30 June 2016.

 

 

The units each have three bedrooms and are located on the 88th floor, one with a seaside view and one with a view over the Sheikh Zayed Road. The units are 3,653 square feet in size and come with underground parking spaces.

 

 

7.         TRADE AND OTHER RECEIVABLES



30.06.16


30.06.15


31.12.15



$


$


$

Non-current







Performance fee rebate receivable (see note 17)


6,459,921


7,209,742


7,027,920








Current







Sundry debtors


34


34


34

Prepayments


16,177


20,528


10,511

Distributions from ADCM SPEF L.P.


201,627


-


-

Management fee rebate receivable (see note 17)


203,631


107,606


318,552

Investment income receivable


-


75,998


352,687

Loan interest receivable (see note 5)


1,184,530


1,009,682


497,143



1,605,999



1,178,927

 

The performance fee rebate receivable will become due at the time of completion of the liquidation of the underlying funds of ADCM Secondary Private Equity Fund L.P. and SPE Qannas C Ltd.

 

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

 

 


QANNAS INVESTMENTS LIMITED

20.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

8.         RECEIVABLE FROM INVESTMENT MANAGER

 

Receivable from investment manager represents amounts advanced to ADCM Ltd during the year ended 31 December 2014 for deployment into various investments which are in the course of being finalised.

 

As at 30 June 2016, $397,575 remained uninvested.

 

 

9.         CASH AND CASH EQUIVALENTS



30.06.16


30.06.15


31.12.15



$


$


$








First Gulf Bank


661,512


7,006,437


7,001,437

Barclays Private Clients International


-


235


-

HSBC


-


228


-

Royal Bank of Scotland International


141,111


488,765


263,076



802,623



7,264,513

 

The bank accounts held with HSBC and Barclays Private Clients International were closed during the year ended 31 December 2015.

 

 

10.       TRADE AND OTHER PAYABLES

 

 



30.06.16


30.06.15


31.12.15



$


$


$

Non-current







Performance fees


1,963,813


2,151,518


2,049,639








 

Current







Secretarial, administration and accountancy fees


30,378


42,675


73,414

Director fees


14,579


25,161


30,080

Sundry expenses


134


27,426


3,552

Participating shares


1


1


1

Investment manager fees


947,049


748,385


313,822

Share capital payable


-


999


-

Audit fees


27,885


57,101


31,092

Performance fees


-


-


10,774

Unquoted investments payable


-




5,205,081

Loan interest payable


96,681


56,787


91,104

Loan interest received in advance


-


52,226


52,169

Legal and professional fees


8,475


43,637


58,651



1,125,182


1,054,398


5,869,740

 

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

 

 


QANNAS INVESTMENTS LIMITED

21.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

11.       LOANS PAYABLE



30.06.16


30.06.15


31.12.15



$


$


$








Loan Capital







Brought forward


30,000,000 


10,000,000 


10,000,000 

Drawn in period



10,000,000 


20,000,000 








Capitalised Costs







Brought forward


(188,781)


(152,767)


(152,767)

Costs incurred in period


(20,000)


(200,000)


(200,000)

Amortised in period


112,482 


129,953 


163,986 



29,903,701 


19,777,186 


29,811,219 

 

The Company has a loan facility with First Gulf Bank for up to $30,000,000. The loan facility bears interest at the rate of LIBOR + 2.5% per annum and is repayable in full on 25 November 2016.

 

The loan is secured by way of a pledge with First Gulf Bank PJSC in respect of the receivable accounts held by the Company and by way of a charge over the Company's investment in ADCM SPEF L.P., SPE Qannas C Ltd. and Palace Preferred Partners L.P.

 

 

12.       SHARE CAPITAL



30.06.16


30.06.15


31.12.15

Management shares














Authorised:







2 ordinary non-participating shares of no par value


2


2


2










$


$


$

Issued and fully paid:







2 shares of $1 each


2


2


2















Participating shares














Authorised:







Unlimited participating shares of no par value


-


-


-










$


$


$

Issued and fully paid:







68,828,605 participating shares of no par value







at various issue prices


76,638,587 


76,638,587 


76,638,587








Treasury shares:







10,502,749 participating shares of no par value







redeemed at various prices


(8,839,568)


(1)


(7,994,220)








In addition to the above, the Company has two further share classes - redeemable 'B' and redeemable 'C'. Both of these share classes have an unlimited number of participating shares of no par value authorised for issue. At 30 June 2016, 31 December 2015 and 30 June 2015 no redeemable 'B' shares and redeemable 'C' shares were in issue.

 


QANNAS INVESTMENTS LIMITED

22.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

12.       SHARE CAPITAL

 

The Management Shares carry no right to receive any dividends, whether by way of finance costs, return of capital or otherwise, other than the return (on a winding up) of the issue price paid on such shares, are non-redeemable and are recorded at $1.00 per share.

 

Participating Shares carry the right to receive a dividend out of the income of the Company in such amounts and at such times that the Directors shall determine, and to receive a dividend on a return of capital of the assets of the Company on a winding up, in proportion to the number of shares held. Participating shares in issue are redeemable at the option of the Company.

 

During the period ended 30 June 2016, the Company redeemed 889,840 $1 participating shares at a price of $0.95 per share. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company.

 

During the year ended 31 December 2015, the Company redeemed 8,414,964 $1 participating shares as part of a tender offer at a price of $0.95 per share. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company.

 

During the year ended 31 December 2014, the Company agreed to accept the return of 1,197,945 participating shares from the Investment Manager for an aggregate price of $1. These shares are held as treasury shares and as such are not entitled to any dividends paid by the Company or any rights to vote at meetings of the Company. At 30 June 2016, this amount had not been paid and was held within Trade and other payables.

 

B Shares

This class of share has no rights to receive dividends, to receive notice of, or vote at, general meetings of the Company or to receive amounts available for distribution on a winding up, for the purpose of a reorganisation or otherwise or upon any distribution of capital.

 

C Shares

The Directors are authorised to issue C Shares of different classes which are convertible into Participating Shares. If the shares were converted into Participating Shares, then these shares would rank equal to, and hold the same rights attaching to, Participating Shares currently in issue at the date of conversion.

 

This class of share will be entitled to receive such dividends as the Directors may resolve to pay to such shares out of the assets attributable to this class of share. This class of share carries no right to attend or vote at any general meeting of the Company. The capital and assets of the Company on a winding up or on a return of capital attributable to this class of share shall be divided amongst the shareholders of this class of share according to their holding.

 

 

 


QANNAS INVESTMENTS LIMITED

23.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

13.       RETAINED EARNINGS - UNREALISED AND REALISED SPLIT

 

Retained earnings at 30 June 2016 comprise the following revenue items, split between realised and unrealised income: -

 



Unrealised


Realised


Total



$


$


$

Balance at 1 January 2016


9,769,524


(8,353,071)


1,416,453

Income


(364,368)


266,662


(97,706)

Expenditure


-


(827,651)


(827,651)

Net gains and losses on unquoted investments


(32,620)


(167,080)


(199,700)

Loan interest payable


-


(582,246)


(582,246)

Unrealised foreign exchange gain on loans receivable


133,612


-


133,612

(Loss) / gain on foreign exchange


11,496


(7,317)


4,179

Interest income - cash and cash equivalents


-


902


902

Interest income - loans receivable


-


694,243


694,243

Balance at 30 June 2016


9,517,644


(8,975,558)


542,086

 

The retained earnings are distributable to the investors at the discretion of the Directors if, in their opinion, the profits of the Company justify such payments. The Directors consider the future requirements of the Company when making such distributions.

 

 

14.       EARNINGS PER SHARE

 

Earnings per share is calculated by dividing the profit attributable to the participating shareholders of the Company by the weighted average number of participating shares in issue during the year, excluding the average number of participating shares purchased by the Company and held as treasury shares.

 

The Company has not issued any shares or other instruments that are considered to have dilutive potential.

 

 

15.       TAXATION

 

Provision has been made in these financial statements for Cayman Island income tax at 0%.

 

 

16.       DISTRIBUTIONS

 

Distributions of $nil (period ended 30 June 2015: $nil) were paid during the period.


QANNAS INVESTMENTS LIMITED

24.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

17.       PERFORMANCE FEES

 

The Investment Manager is entitled to a fee based upon the performance of the investments (the "Performance Fee"). The calculation for this fee changed during the year following the acquisition of ADCM SPEF L.P. and SPE Qannas C Ltd.

 

Performance Fee calculation to 27 March 2014

 

Up until 27 March 2014, the Performance Fee was payable once the Company had made aggregate distributions in cash to the shareholders, in accordance with the following methodology:

 

The Company firstly had to make distributions to shareholders equivalent to:

 

i) their gross share subscription price paid (the "contributed capital"), and

ii) a premium of "simple" interest of 7% per annum on the contributed capital (the "preferred return").

 

When the thresholds had been met then:

 

i) in the event of any further cash distributions to shareholders the Investment Manager was entitled to an equal amount until he had received payments which in total are equivalent to 20% of the amounts distributed to the shareholders in excess of the contributed capital.

 

ii) when the 20% has been achieved, the Investment Manager is entitled to 20% of any further cash distributions.

 

The above calculation was replaced by a new method of calculation that was applied from 27 March 2014.

 

Performance Fee calculation since 27 March 2014

 

Under the new method of calculation, the Investment Manager is entitled to be paid a performance fee in respect of each asset in the Company's portfolio from time to time.

 

On the disposal by the Company of the whole or part of its interest in any Asset, the Investment Manager shall be entitled to a Performance Fee equal to 15%. of the amount by which the net disposal proceeds (after deducting the costs incurred and any taxes payable in connection with such disposal) together with the net proceeds of any previous disposal of interests in such Asset (together, the "Total Proceeds") are greater than the cost (including any fees and expenses) of acquiring the Asset (the "Acquisition Cost").

 

For the unquoted investments of ADCM SPEF L.P. and SPE Qannas C Ltd, acquired in March 2014, each of their underlying fund investments will be considered as separate Assets. As such the Acquisition Cost in respect of each underlying fund investment shall be deemed to be such proportion of the ADCM SPEF L.P. and SPE Qannas C Ltd consideration (after being adjusted for the net receivables from ADCM SPEF L.P. and SPE Qannas C Ltd investors (on an individual basis)) as is attributable to such ADCM SPEF L.P. and SPE Qannas C Ltd Assets. Similarly, the date of acquisition of any ADCM SPEF L.P. and SPE Qannas C Ltd asset shall be deemed to be the effective date of 27 March 2014 relating to ADCM SPEF L.P. and SPE Qannas C Ltd.

 

Any Performance Fee payable by the Company to the Investment Manager shall be reduced to the extent required to ensure that, in respect of the Asset to which the Performance Fee relates, an amount equal to a simple 7 per cent per annum return on the Acquisition Cost of such Asset from the date of its acquisition to the date on which the Total Proceeds first exceed the Acquisition Cost has been retained by the Company before the payment of any Performance Fee to the Investment Manager.           

 

Any Performance Fee payable by the Company to the Investment Manager shall be paid to the Investment Manager within 10 days of the receipt by the Company of the relevant disposal proceeds.

 

As a result of the above mentioned change in Performance Fee structure, the Performance Fee accrual was reduced by $1,149,110 during the first quarter of 2014. The Investment Manager also returned 1,197,945 participating shares for an aggregate price of $1 which were issued under original agreement to the Investment Manager in lieu of management fee before 27 March 2014 (see note 12).


QANNAS INVESTMENTS LIMITED

25.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

17.       PERFORMANCE FEES - continued

 

Rebates

 

Following the acquisition of ADCM SPEF L.P., in order to prevent the double-charging of Management and Performance Fees ADCM Ltd (in its capacity as Investment Manager to ADCM SPEF L.P.) and ADCM SPEF GP Ltd (in its capacity as general partner of ADCM SPEF L.P.) entered into an agreement with the Company, such that they shall rebate to the Company any Management Fee or Performance Fee that they receive from ADCM SPEF L.P., which is attributable to the Company's percentage ownership of ADCM SPEF L.P.

 

Following the acquisition of SPE Qannas C, in order to prevent the double-charging of Performance Fees ADCM Ltd (in its capacity as Investment Manager to SPE Qannas C) entered into an agreement with the Company, such that they shall rebate to the Company any Performance Fee that they receive from SPE Qannas C.

 

The Company has accrued Management Fee rebate income in respect of ADCM SPEF L.P. of $203,631 to 30 June 2016 (30 June 2015: $107,606). The Company has accrued Performance Fee rebate income in respect of ADCM SPEF L.P. and SPE Qannas C Ltd of $6,459,921 (30 June 2015: $7,209,742) to 30 June 2016.

 

The timing of receipt of the Performance Fee rebate is uncertain and is dependent on the realisation of the underlying investments held by ADCM SPEF L.P. and SPE Qannas C Ltd. As such, the Performance Fee rebate has been classified as a non-current asset within the Statement of Financial Position.

 

A reconciliation of the rebate recognised in the statement of comprehensive income can be seen below:

 




30.06.16


30.06.15




$


$







Opening performance fee rebate receivable (see note 7)



(7,027,920)


(7,315,202)

Opening management fee rebate receivable (see note 7)



(318,552)


(465,925)

Management fee rebate received in period



318,552 


573,185 

Closing performance fee rebate receivable (see note 7)



6,459,921 


7,209,742 

Closing management fee rebate receivable (see note 7)



203,631 


107,606 

Management and performance fee rebate (expense) / income




109,406 

 

18.       FINANCIAL RISK MANAGEMENT

 

The Company's activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk and foreign currency risk), credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.

 

             The management of these risks is performed by the Board of Directors. The policies for managing each of these risks are summarised below.

 

             Market risk

 

             Price risk

             The Company is exposed to market price risk in respect of its portfolio of investments via equity securities price risk. The risk arises from investments held by the Company for which prices in the future are uncertain. Where non-monetary financial instruments are denominated in currencies other than the US dollar, the price initially expressed in foreign currency and then converted into US dollar will also fluctuate because of changes in foreign exchange rates (further details on the foreign exchange risk can be seen later in this note).

 

The Company mitigates price risk by having established investment appraisal processes and asset monitoring procedures, which are subject to overall review by the Board. The Company also manages the risk by appropriate diversification of its assets.

 

             Details of the Company's investments are given in notes 4, 5 and 6.


QANNAS INVESTMENTS LIMITED

26.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

18.       FINANCIAL RISK MANAGEMENT - continued

 

Interest rate risk

             The Company's interest rate risk principally arises from borrowings in the form of the Loan Payable (see note 11) and receivables in the form of Loans Receivable (see note 5).

 

The Company relies on receipt of investment income and realised gains on investments to meet interest obligations due on the Loan Payable. The Loan Payable is a short term two year facility which bears interest at 2.5% plus US LIBOR. The Board has, in consultation with the Investment Manager, reviewed the terms of the loan and is satisfied that the risk of significant movements in US LIBOR over the term of the loan is low. Through cash flow projections and the structuring of the Company, the Board of Directors believe the Company will have sufficient cash available to meets its obligations as they fall due and, therefore, there is no material interest rate risk.

 

             The Loans receivables carry fixed rates of interest, as such there is no risk arising from movement in interest rates on income receivable by the Company.

 

             Foreign exchange risk

             The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures.

 

             Foreign exchange risk is the risk that the fair value of future transactions, recognised monetary and non-monetary assets and liabilities denominated in other currencies fluctuate due to changes in foreign exchange rates. Trade payables are settled within short time periods in order to minimise the fluctuation between expected and actual expenditure.

 

             The Company's investments in financial instruments are valued in US dollars. The Company holds cash deposits denominated in a currency other than US dollars, the functional/presentational currency. Some of the Company's payables are transacted in currencies other than US dollars.

 

The Board considers that its exposure to foreign exchange risk is limited as the significant currency assets of the Company are held in AED, GBP and EUR. The AED is 'pegged' to USD and the Investment Manager monitors EUR and GBP currency movements and proposes any action deemed appropriate.

 

Credit risk

             The Company's principal financial assets are Trade and other receivables, Receivable from investment manager, Cash & cash equivalents and Loans receivable.

 

             Credit risk on Trade and other receivables is managed by regular review by the Board of Directors of the positions with debtors to ensure that amounts included remain recoverable. The Board of Directors is satisfied that amounts included within Trade and other receivables are recoverable. The Company's maximum exposure in respect of Trade & other receivables is detailed in note 7.

               

The Company seeks to limit the level of credit risk on cash balances by only depositing surplus liquid funds with counterparty banks with high credit ratings. The Company does not hold any derivative financial instruments.

 

             The credit risk associated with trading and portfolio investments is considered minimal.

 

The Company has significant Loans receivable at the period end. The Board of the Directors reviews the position of the counterparty prior to entering into any loan arrangement and the Investment Manager provides subsequent quarterly updates. The Investment Manager's review includes review of external ratings, where available, and financial information in respect of the counterparty. Further disclosure in respect of Loans receivable can be seen in note 5.

 

The Company does not consider that any changes in fair value of financial assets in the year are attributable to credit risk.

 

 


QANNAS INVESTMENTS LIMITED

27.

NOTES TO THE FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

18.       FINANCIAL RISK MANAGEMENT - continued

 

Liquidity risk

             The Company seeks to manage liquidity risk to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Company deems there is sufficient liquidity for the foreseeable future. The Company has a strong relationship with various financial institutions and has utilised these relationships to borrow funds when necessary. The Board of Directors is comfortable that the Company has sufficient resources to meet the requirements of the Company.

 

During the year ended 31 December 2014 the Company entered into a facility for $30 million from First Gulf Bank and drew down the full loan during the year ended 31 December 2015. The loan is due for repayment in November 2016 (see note 11). The Directors have approached First Gulf Bank who has indicated its willingness to extend this loan facility for a foreseeable future. Alternatively, should the existing facility not be extended with First Gulf Bank, the Directors' are confident that a new loan facility can be obtained for at least a year before the existing loan facility expires.

 

Capital risk management

 

            The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders.

 

             The capital of the Company is represented by the share capital of the Company. The Company has sufficient assets to cover the Company's liabilities at the statement of financial position date. As such at 30 June 2016 the Company has $67,799,021 of share capital (30 June 2015: $76,638,588).

 

             To maintain or adjust the capital structure, the Company may propose dividend payments to the shareholders, buy back shares or issue new shares.

 

Concentration risk

             The Company aims to mitigate concentration risk through investing in companies that operate in a variety of different markets.

 

 

19.       RELATED PARTY TRANSACTIONS

 

             Richard John Stobart Prosser, a Director of the Company, is also an officer of Estera Fund Administrator (Jersey) Limited, which acts as administrator. Secretarial and administration fees incurred by the Company with Estera Fund Administrator (Jersey) Limited for the period ended 30 June 2016 were $58,771 (period ended 30 June 2015: $45,578) of which $30,738 (30 June 2015: $42,675) was outstanding at 30 June 2016.

 

Jassim Alseddiqi, a former Director of the Company, is also a Director of ADCM Ltd, which acts as Investment Manager to the Company. Investment manager fees incurred by the Company with ADCM Ltd for the period ended 30 June 2016 were $633,227 (period ended 30 June 2015: $669,225) of which $947,049 (30 June 2015: $748,385) was outstanding at 30 June 2016. At 30 June 2016, the Investment Manager held $nil (30 June 2015: $18,000,000) on behalf of the Company for onward investment.

 

The Investment Manager will be entitled to be paid a performance fee by the Company, full details of which can be seen in note 17. Performance fees accrued by the Company with ADCM Ltd for the period ended 30 June 2016 were $(96,600) (period ended 30 June 2015: $(155,430)) of which $1,963,813 (30 June 2015: $2,151,518) were outstanding at 30 June 2016.

 

Divyesh Mahajan owns 250,655 (30 June 2015 287,487) shares in the Company. Divyesh Mahajan is a full time employee of the Investment Manager.

 

ADCM Ltd, the Investment Manager, owns 2 (30 June 2015: 2) management shares in the Company at 30 June 2016.

 


QANNAS INVESTMENTS LIMITED

28.

NOTES TO THE FINANCIAL STATEMENTS - continued




FOR THE PERIOD ENDED 30 JUNE 2016


 

19.       RELATED PARTY TRANSACTIONS - continued

 

Richard John Stobart Prosser, a Director of the Company, is also a director of Palace Investors Holdings Limited and Mustafa Kheriba, a Director of the Company, is also a director of Palace Real Estate Partners GP Ltd. The Company has an investment of $7,147,730 in Palace Preferred Partners LP at 30 June 2016 (30 June 2015: $7,448,830) which hold shares indirectly in Palace Investors Holdings Limited and of which Palace Real Estate Partners GP is the general partner.

 

Mustafa Kheriba, a Director of the Company, is also a director of SPE Qannas C Ltd. The Company has an investment of $8,130,431 at 30 June 2016 in SPE Qannas C Ltd (30 June 2015: $8,235,022). Dividends totalling $nil (period ended 30 June 2015: $72,448) were received from SPE Qannas C Ltd during the period.

 

Mustafa Kheriba, a Director of the Company, is also a director of ADCM SPEF GP Ltd. ADCM SPEF GP Ltd is the general partner of ADCM SPEF L.P. in which the Company had an investment of $33,196,572 at 30 June 2016 (30 June 2015: $38,191,725). Dividends totalling $194,410 (period ended 30 June 2015: $187,249) were received from ADCM SPEF L.P. during the year and were included as part of investment income within the statement of comprehensive income.

 

The Loans receivable from Injaz Eastern Property Development Company Limited, Lucice Montenegro d.o.o. and Arqutino EAD (the 'IEEPDC'), which totalled (including capitalised interest) $8,917,317 at 30 June 2016 (30 June 2015: $7,766,634), were arranged by Integrated Alternative Finance ("IAF"), a wholly owned subsidiary of Abu Dhabi Financial Group (which is the ultimate parent company of ADCM Ltd, the Company's Investment Manager) and regulated by the Dubai Financial Services Authority. Jassim Alseddiqi, a former Director of the Company, is also a director of ADFG, ADCM Ltd and of IEEPDC, and of its owner, Injaz MENA Investment Company. IEEPDC will pay a fee to IAF of 3% of the value of the Loan on completion. Interest of $658,762 (€598,830) was recognised in the statement of comprehensive income of the Company in respect of loans to IEEPDC for the period to 30 June 2016 (period ended 30 June 2015: $1,050,325), none of the interest income has been received in the period and the balance is recognised in trade and other receivables (see note 7).

 

Abu Dhabi Financial Group ("ADFG"), the ultimate controlling shareholder of the Company's Investment Manager, is a co-investor in the issue of shares by Verne Preferred Limited. The Issue was arranged by IAF, a related company to ADFG, which is regulated by the Dubai Financial Services Authority. Mustafa Kheriba, a Director of the Company, is also a director of IAF. Jassim Alseddiqi, a former Director of the Company, is also a director of ADFG. On completion, the Verne Preferred Limited's investment (Downtown Hotel Limited) will pay a fee to IAF of 1.75% of the value of the Issue. At 30 June 2016, the Company's loan to Verne Preferred Limited was carried at $nil (30 June 2015: $ l,089,918) Loan interest receivable of $18,352 was included within investment income in the statement of comprehensive income for the period to 30 June 2016 (period ended 30 June 2015: $10,445). The loan was fully repaid during the period ended 30 June 2016 (see note 5).

 

ADFG, the ultimate controlling shareholder of the Company's Investment Manager, is also the owner of BL Development Limited and Jassim Alseddiqi, a former Director of the Company, is also a director of BL Development Limited. At 30 June 2016 the Company had an investment of $nil (30 June 2015: $2,358,767) in BL Development Limited. Preference dividend income of $72,251 (period ended 30 June 2015: $75,998) was included within investment income in the statement of comprehensive income for the period ended 30 June 2016. The entire holding in BL Development limited was divested during the period ended 30 June 2016 realising proceeds of £3,500,000 ($5,000,100) and a loss on disposal of $167,080.

 

 

20.       IMMEDIATE HOLDING COMPANY AND ULTIMATE CONTROLLING PARTY

 

             In the Directors' opinion there is no controlling or ultimate controlling party.

 

21.       INTERIM FINANCIAL STATEMENTS

             A copy of these financial statements will be distributed to the shareholders and is also available on the Company's website at www.qannasinvestments.com.



[1] Including the interest payments received


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