TIDMRIG
For release on 9 December 2013
CQS Rig Finance Fund Limited
(the "Company")
Annual Report and Audited Financial Statements for the year ended 30
September 2013
The Company's audited annual report and audited financial statements for
the year ended 30 September 2013 (the "Accounts") will be posted to
shareholders shortly and, in accordance with AIM Rule 26, a copy of the
Accounts is available to view and download from the Company's website at
www.cqsrigfinance.com. The full text of the Accounts is also included at
the end of this announcement.
The notice of the Company's annual general meeting, which will be held
at the offices of Kleinwort Benson (Channel Islands) Fund Services
Limited on 5 March 2014, is incorporated in the Accounts.
Enquiries:
Alastair Moreton, Hannah Young
NOMAD and Broker
Westhouse Securities Limited
Telephone 020 7601 6118
Secretary
Kleinwort Benson (Channel Islands) Fund Services Limited
Telephone 01481 710607
CQS RIG FINANCE FUND LIMITED
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
30 SEPTEMBER 2013
Registered Number: 45805
Page
Management and Administration 1
Chairman's Statement 2
Investing Policy 4
Investment Manager's Report 5
Directors' Report 8
Corporate Governance Statement 11
Directors' Remuneration Report 13
Statement of Directors' Responsibilities 14
Financial Statements
Independent Auditor's Report 15
Audited Statement of Comprehensive Income 17
Audited Statement of Financial Position 18
Audited Statement of Changes in Equity 19
Audited Statement of Cash Flows 20
Notes to the Audited Financial Statements 21
Appendix
Notice of Annual General Meeting 47
Proxy Form 51
Directors Nominated Adviser and Broker
Michael Salter (Chairman) (UK resident) Westhouse Securities Limited
Bruce Appelbaum (US resident) Heron Tower
Trevor Ash (Guernsey resident) 110 Bishopsgate
Jonathan Gamble (Guernsey resident) London EC2N 4AY
Gavin Strachan (UK resident) England
Investment Manager Sub-Administrator
CQS Cayman Limited Partnership State Street Fund Services (Ireland) Limited
PO Box 242 78 Sir John Rogerson's Quay
45 Market Street Dublin 2
Gardenia Court Ireland
Camana Bay
Grand Cayman KY1-1104
Cayman Islands
Prime Broker and Custodian Registrar, Transfer Agent & Paying Agent
Credit Suisse Securities (Europe) Limited Capita Registrars (Guernsey) Limited
One Cabot Square Mont Crevelt House
London E14 4QJ Bulwer Avenue
England St Sampson
Guernsey GY2 4LH
Independent Auditor
Ernst & Young LLP
2(nd) Floor
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
Investment Adviser
CQS (UK) LLP
5th Floor
33 Grosvenor Place
London SW1X 7BL
England
Administrator and Secretary
Kleinwort Benson (Channel Islands) Fund Services Limited
Dorey Court
Admiral Park
St. Peter Port
Guernsey GY1 2HT
Registered Office
Dorey Court
Admiral Park
St. Peter Port
Guernsey GY1 2HT
Introduction
I present the Company's annual report for the year ended 30 September
2013.
I am encouraged with the progress that the Company has made over the
financial year including the payment of a regular dividend.
Investment Performance
The Company's performance for the year under review was positive,
despite periods of market volatility, as investors focused on whether
the US Federal Reserve would begin tapering asset purchases as well as
ongoing concerns over weak global growth.
The Company's Net Asset Value ("NAV") increased from 34.72 pence per
ordinary share on 30 September 2012 to 35.65 pence per ordinary share on
30 September 2013. The total return to shareholders (appreciation in NAV
plus dividend income) over the fiscal year was 7.17%.
The price per ordinary share ended the year higher, with a closing price
of 34.25 pence on 30 September 2013 versus a closing price of 30.88
pence on 30 September 2012, representing a return of 15.97% which
includes the 0.69 pence and 0.87 pence dividends paid to shareholders of
record on 10 April 2013 and 7 August 2013. The ordinary shares ended the
year at a 3.93% discount to the NAV, a fall from 11% discount at the
beginning of the fiscal year. As at 30 September 2013, the Company had
total liabilities of GBPGBP3.19m and a net cash position of GBPGBP2.19m.
Dividends
The Company's dividend policy is to pay regular cash distributions in
the form of semi-annual dividend payments and to target dividends
currently equivalent to an annual yield of 5% of NAV per ordinary share
at the start of each financial year.
The Board proposed a final dividend of 0.69 pence per ordinary share in
respect of the financial year ended 30 September 2012. The final
dividend was approved at the annual general meeting on 6 March 2013 and
paid to shareholders of record on 10 April 2013.
On 19 June 2013, the Company declared an interim dividend of 0.87 pence
per ordinary share in respect of the financial year ending 30 September
2013. The interim dividend was paid on 7 August 2013 to shareholders of
record on 12 July 2013.
The Company proposed, on 6 December 2013, a final dividend of 0.87 pence
per ordinary share in respect of the financial year ended 30 September
2013. The proposed dividend, assuming approval by the shareholders at
the annual general meeting on 5 March 2014, will be paid on 9 April 2014
to shareholders of record on 14 March 2014.
Mandatory Cash Offer for CQS RIG Finance Fund Limited
On 19 October 2012, CQS Cayman Limited Partnership, acting as the
investment manager on behalf of CQS Directional Opportunities Master
Fund Limited and, together with the other members of the CQS Group (the
concert party), announced a mandatory offer for the remaining shares in
the Company which were not already owned. The full terms and conditions
were set out in the Offer Document issued by CQS Cayman on 23 October
2012. Following the closing of the offer the concert party, CQS Cayman
Limited Partnership, together with the other members of the CQS Group
Entities and employees, held 65.73% of the voting rights of the Company.
As at the date of this report the concert party's holding is 68.70%.
Continuation Vote
The Company does not have a fixed life, but under the Articles of
Association, shareholders will be given the opportunity to vote on the
continuation of the Company at the annual general meeting to be held on
5 March 2014 proposing that the Company should continue its investment
activities for a further 5 year period. If such resolution is not
passed, the Directors are required to arrange for the Company's assets
to be realised and for the Company subsequently to be wound up.
The continuation vote could represent a material uncertainty about the
Company's ability to continue as a going concern. However the Directors
have made enquiries with several of the Company's largest shareholders
and have concluded that is sufficiently likely that the continuation
vote will be passed and consequently the Directors consider that any
uncertainty is not material. The Board intends to consult with
shareholders in relation to developing proposals for the future of the
Company during 2014. In view of this, and the Directors considerations
of the Company's liquidity projections, the Directors are satisfied that
it is appropriate to prepare the financial statements on the going
concern basis.
Outlook
The outlook for future energy demand and oil price levels remains
constructive. However, there are ongoing risks from global geopolitical
factors and economic and fiscal uncertainty, particularly in the US.
Demand for offshore infrastructure, from drilling rigs and floating
production units through to accommodation and supply vessels, continues,
although we acknowledge that the growth in international E&P spending
appears to be slowing.
High yield debt markets have remained robust, driven by investors'
search for yield, and new issuance continues apace. While care is needed
in selecting appropriate investments and risk/reward characteristics,
interesting new deals and opportunities are continually coming to the
market.
Annual General Meeting
The Company's annual general meeting will be held at the offices of
Kleinwort Benson (Channel Islands) Fund Services Limited on 5 March
2014.
Michael Salter
Chairman
December 2013
The Company's investing policy in the period under review was as
follows:
The Company's investment objective is to provide shareholders with an
attractive total return, through a combination of capital appreciation
and dividends.
The Investment Adviser seeks to achieve the investment objective of the
Company by sourcing and trading a portfolio comprising predominantly
debt instruments. The Investment Adviser seeks to use fundamental credit
and industry analysis to identify instruments expected to provide
attractive risk-adjusted returns which meet the investment objective of
the Company. Such instruments are expected to be issued primarily to
finance companies involved in the construction, modification and
operation of offshore rigs and related infrastructure equipment, and
companies involved in the development and operation of assets used in
the offshore and/or onshore exploration, production and distribution of
oil, natural gas and other resources. Investments in adjacent sectors
such as shipping and transportation may be included at the discretion of
the Investment Adviser.
It is expected that the Company's portfolio will continue to be
passively managed, although the Investment Adviser may elect to become
actively involved in workout situations should they arise. It is
expected that some investments will be held through to maturity (or
earlier redemption/repayment by the issuer/borrower), while others may
be held for shorter terms to capture mispricing of risk. The Investment
Adviser may trade investments depending on the prevailing market
conditions at any time.
The Company seeks, on a global basis, to capture on its investments
attractive risk-adjusted yields and potential capital appreciation
arising from possible corporate activity, including but not limited to,
refinancing, industry consolidation and workouts, and from equity
appreciation for securities exhibiting equity characteristics. The
Company is permitted to borrow to enhance the returns of the portfolio.
The gearing of the portfolio is not expected to exceed 30% of Net Asset
Value, and from time to time the portfolio may be constructed with
little or no gearing. The Company may retain amounts in cash, or cash
equivalents, pending reinvestment if this is considered appropriate to
the achievement of its investment objective.
The Company may construct the portfolio using a range of securities,
derivatives and other agreements including but not limited to positions
in secured, unsecured and subordinated bonds, including convertible
bonds, that may be fixed or floating rate securities, payment-in-kind
bonds, senior, second lien and mezzanine loans, equities and equity
warrants. The Company may trade both rated and unrated debt instruments
although it expects, in most cases, that such instruments will not be
rated by a recognised rating agency. Exposure to securities may be taken
directly or synthetically through the use of repurchase agreements,
total return swaps and other derivatives referencing the securities
selected for the portfolio. Interest rate and foreign exchange
transactions may be effected using swaps, forwards, futures and options
and other derivatives. The Company may trade listed and unlisted
securities, and may execute derivative transactions on exchange or over
the counter.
Dividend Policy
Pursuant to the announcement on 14 February 2012 the Company's dividend
policy is to make regular cash distributions in the form of semi-annual
dividend payments and to target dividends equivalent to an annual yield
of 5% of the Net Asset Value per share at the start of each financial
year. This dividend policy is applied to the financial year just ended
and based on the opening Net Asset Value per share on 1 October 2012 of
34.72 pence, a 5% yield amounted to approximately 1.74 pence per share
for the year ended 30 September 2013. The dividends declared and
proposed as per page 2, conform to the policy's yield of 5% of opening
Net Asset Value per share.
Oil Markets
The price of Brent Crude oil commenced the period at just over $105 per
barrel and closed around the $108 mark, trading in a range between $98
and $116. Despite trading in a reasonably narrow range, the geopolitical
environment has been volatile.
In its Global Energy Outlook(1) , September 2013, Barclays remains
resolute that Brent prices will stay above $100/bl, anticipating a
trading range of $100-120/bl during 2014. According to this outlook
"prices are now above Bloomberg consensus forecasts for the first time
since February 2013, and the political climate in several producer
countries is fragile. Syrian output is small in global terms, but that
is not the case in Iraq, Libya or Nigeria, or if the Egypt situation
leads to disruption of Suez Canal cargoes, with potential upside price
risks." Barclays concludes that "given the aforementioned geopolitical
undercurrents, the ongoing challenge of declining production from
existing fields and with developed economies on the mend, we remain
constructive on oil prices for the next several years."
On a more cautious note, DNB Bank(2) notes that the Exploration and
Production (E&P) spending growth is likely to moderate in 2014,
anticipating that the 62 oil companies in its E&P spending survey to
raise their 2013 spending by 8% year-on-year, but 2014 spending growth
to moderate to approximately 4% year-on-year. According to DNB, "oil
companies have historically been conservative when estimating next
year's spending hence we see upside risk to the 2014 spending figure,
albeit less than in previous years. Our impression from discussions with
oil companies is that they are being more vocal about tempering spending
growth."
Financial Markets
Despite a number of negative currents, global markets mostly rallied
over the Company's financial year. Going into the 2012 calendar year-end,
the US fiscal cliff was the dominant focus for investors and the
last-minute agreement to stave off the fiscal tightening prompted a
relief rally across world markets in early 2013. However, weak global
economic growth, continued US federal budget wrangling and European
political disorder, together with the financial crisis in Cyprus and
mixed macroeconomic data globally, led to varied market performance
during February and March. Since April 2013, global markets have ranged
from rallying on central bank intervention and on improving
macroeconomic data to selling-off on concerns of the US Federal Reserve
(Fed) tapering its quantitative easing programme. Geopolitical tensions
in the Middle East also served to unsettle markets. At end of period
under review, and although the Fed elected not to immediately taper
asset purchases, fiscal wrangling in the US and renewed political
uncertainty in Europe were again the focal points for investors and
weighed on global markets. The MSCI World Index rose 22.3% (in local
currency terms with net dividends reinvested), while the S&P 500 posted
a 16.7% rise over the period and the Eurostoxx advanced 17.9%. Credit
markets were also stronger with the European iTraxx Crossover (S18)
tightening to 379bps and iTraxx Main (S18) to 95bps.
European high yield issuance was robust over the period, with a record
EUR63.9bn of new issuance across all currencies. According to Barclays,
this was a 47% increase versus the same period last year. Continuing low
interest rates and strong investor demand for yield fuelled the market,
and drove credit spreads tighter. The Company participated in a number
of new issues but avoided several opportunistic deals as the buoyant
markets enticed less credit worthy companies to issue debt.
The Portfolio
Performance over the period was positively affected by a general
appreciation in the value of a number of the Company's investments and
by carry. The high yielding Chloe Marine secured bonds, which carry a
coupon of 12%, contributed most to the returns, while smaller losses
were recorded in Subsea 7 SA convertible bonds and Songa Offshore bonds.
During June, amidst weakness in the wider commodity markets and weak
data from China, the Company took advantage of decent market liquidity
to exit some smaller positions and trim other positions ahead of the
quieter summer months. The resulting cash balances were substantially
reinvested by the end of the period.
The Portfolio (continued)
As at 30 September 2013, the portfolio consisted of exposure to various
sub-sectors of the oil industry.
Analysed by face value, ultra-deepwater ("UDW") drilling
rigs are the largest category accounting for 44.4%
of assets, reduced from 57.9% from the end of September
2012. Demand for these rigs continues to be evident
however there are signs of slight headwinds in 2014.
In its research comments dated 16 October 2013, Pareto
notes that "market sources indicate that tendering
activity for deepwater campaigns with start-up in
2014 has slowed, with oil companies cautious to commit
to new exploration campaigns during a tight budgeting
season(3) ."
The portfolio's exposure to support-service vessels increased from 5.7%
at the end of last financial year to 14.7%, driven by the purchase of
Bassdrill bonds at new issue and Subsea 7 SA convertible bonds in the
secondary market.
Bonds issued by E&P companies made up 11.8% of the portfolio as new
issues from this sector increased during the period. The Company most
recently invested in bonds from Iona Energy for example.
Accommodation vessels made up 6.6% of the portfolio, down from 9.5% at
last financial year-end. As the number of offshore installations grows,
so does the need for workforce accommodation which offers complete
facilities for several hundred people and are positioned alongside the
host installation.
The remaining part of the portfolio's assets was invested in related
areas such as (seismic data collection vessels, FPSO's and transport
vessels.)
Exposure by Collateral Type (% Long Market Value)
UDW Driller 44.4%
Service Vessel 14.7%
E&P 11.8%
Accommodation Vessel 6.6%
Transport Vessel 6.5%
Seismic Vessel 4.9%
FPSO 4.7%
Jackup 3.8%
Well Intervention 1.9%
Other 0.6%
Tanker 0.1%
Total 100.0%
Seniority Analysis (% Long Market Value)
Unsecured 33.4%
1st Lien 31.2%
2nd Lien 17.5%
Convertible 17.5%
Equity 0.4%
Total 100.0%
Financing
The Company continues to operate a prime brokerage agreement with Credit
Suisse Securities (Europe) Limited that allows the Company to borrow in
one or more currencies against assets of the Company. The Company held a
positive net cash balance at the end of the period.
Outlook
Despite a number of negative currents, the period under review has seen
a risk-on environment across most global markets. The price of oil has
largely maintained the elevated levels of the past few years and
analysts remain constructive. Furthermore, strong demand for yield from
the investor community continues to drive credit spreads tighter.
We are once again encouraged by further year-on-year budgeted increases
in capital expenditure by the oil companies but note that the level of
year-on-year growth appears to be declining.
In this environment, we continue to see and participate in interesting
new issues, remaining vigilant in selecting those with attractive
risk/reward characteristics and sizing each investment appropriately.
(1) Source: Barclays, "Global Energy Outlook: A compelling time to
invest", 4 September 2013
(2) Source: DNB Markets Credit Research: High Yield Credit Report,
October 2013
(3) Source: Pareto Securities, Rig Sector Report, 16 October 2013
All market data sourced from Bloomberg and CQS.
CQS Cayman Limited Partnership
6 December 2013
The Directors present their report, corporate governance statement,
directors' remuneration report and the audited financial statements for
the year ended 30 September 2013.
CQS Rig Finance Fund Limited (the "Company") was registered on 8
November 2006 with registered number 45805 and is domiciled and
incorporated in Guernsey, Channel Islands. The Company is a closed-ended
investment company with limited liability formed under the Companies
(Guernsey) Law, 2008. On 18 December 2006 its ordinary shares were
listed on the Channel Islands Stock Exchange ("CISX") and admitted to
trading on the Alternative Investment Market ("AIM"), a market operated
by the London Stock Exchange plc.
In accordance with Guernsey Fund Rules, the Company is an authorised
Fund.
Principal activity and business review
The principal activity of the Company during the year was that of an
investment company. The Company is expecting to continue its activities
in the coming year. A review of the year is provided in the Investment
Manager's Report.
Going Concern
The Company's financial position, its cash flows and liquidity position
are set out in the financial statements. The Directors consider that the
Company has adequate financial resources and believe that the Company is
well placed to manage its business risks successfully and to continue in
operational existence for the foreseeable future.
The Company does not have a fixed life, but under the Articles of
Association, shareholders will be given the opportunity to vote on the
continuation of the Company at the annual general meeting to be held on
5 March 2014 proposing that the Company should continue its investment
activities for a further 5 year period. If such resolution is not
passed, the Directors are required to arrange for the Company's assets
to be realised and for the Company subsequently to be wound up.
The continuation vote could represent a material uncertainty about the
Company's ability to continue as a going concern. However the Directors
have made enquiries with several of the Company's largest shareholders
and have concluded that is sufficiently likely that the continuation
vote will be passed and consequently the Directors consider that any
uncertainty is not material. In view of this, and the Directors
considerations of the Company's liquidity projections, the Directors are
satisfied that it is appropriate to prepare the financial statements on
the going concern basis.
Results and dividends
The results for the year and the Company's financial position at the end
of the year are shown on pages 17 and 18.
A final dividend of 0.69 pence per ordinary share in respect of the
financial year ended 30 September 2012 was approved at the annual
general meeting ("AGM") of the Company on 6 March 2013, and was paid on
10 April 2013. An interim dividend of 0.87 pence per ordinary share in
respect of the financial year ended 30 September 2013 was announced on
19 June 2013 and was paid on 7 August 2013. The Company proposed, on 6
December 2013, a final dividend of 0.87 pence per ordinary share in
respect of the financial year ended 30 September 2013. The proposed
dividend, assuming approval by the shareholders at the annual general
meeting on 5 March 2014, will be paid on 9 April 2014 to shareholders of
record at 14 March 2014.
Directors
The Directors of the Company who served during the year were:
Michael Salter (Chairman)
Bruce Appelbaum
Trevor Ash
Jonathan Gamble
Gavin Strachan
Directors (continued)
The Directors' interests in the share capital of the Company at 30
September 2013 (some of which were held directly or by their close
relatives and related trusts) were:
Number of ordinary shares
Gavin Strachan 109,482
Michael Salter 88,964
Bruce Appelbaum 15,000
Please refer to note 12 for related party transactions between the
Company and the Directors.
Risks and uncertainties
The risks and uncertainties faced by the Company include market risk
(consisting of interest rate risk, currency risk, credit price risk,
equity price risk and commodity price risk), liquidity risk and
counterparty credit risk as detailed in note 14.
Substantial interests in share capital
As at the date of this report, the following holdings representing 3% or
more of the Company's issued share capital had been reported:
Number of ordinary
Name shares % of Issued shares
CQS Group entities ^ * 56,099,160 57.59%
RBC Nominees Limited* 9,850,118 10.11%
Investec Asset Management Limited 7,242,783 7.44%
Philip J Milton & Company PLC 4,183,901 4.30%
Premier 3,500,000 3.59%
FF&P Asset Management Ltd 3,300,000 3.39%
Reliance Mutual Insurance Society 3,071,400 3.15%
^ CQS (UK) LLP, CQS Asset Management Limited, CQS
Cayman Limited Partnership
* CQS Group concert party total including employees
= 66,924,185 (68.70%)
The statutory disclosure of significant shareholders is different for a
Guernsey company than that for a company incorporated in the United
Kingdom and the level of disclosure which the Company is able to make
for the purposes of AIM Rule 17, and concerning the percentage of AIM
securities not in public hands, may not be equivalent.
The Investment Manager
CQS Cayman Limited Partnership was appointed Investment Manager on 11
December 2006. The Directors have reviewed the performance of the
Investment Manager and are satisfied that the continued appointment of
the Investment Manager on the terms agreed is in the best interests of
the shareholders and the Company.
Auditor
Ernst & Young LLP have been appointed as Auditor of the Company and have
expressed their willingness to continue in office.
Authorised and issued share capital
There has been no movement in the authorised share capital or the issued
share capital during the year.
Disclosure of information to Auditor
The Directors at the date of approval of the financial statements
confirm that:
(i) so far as the Directors are aware, there is no relevant audit
information of which the Company's Auditor is unaware; and
(ii) the Directors have taken all steps they ought to have taken
as Directors to make themselves aware of any relevant audit information
and to establish that the Company's Auditor is aware of that
information.
This confirmation is given and should be interpreted in accordance with
the provisions of Section 249 of the Companies (Guernsey) Law, 2008.
Significant events during the year
On 19 October 2012, CQS Cayman Limited Partnership, acting as the
Investment Manager on behalf of CQS Directional Opportunities Master
Fund Limited, announced the acquisition of 22,424,600 ordinary shares of
the Company at a price of 31.5 pence per ordinary share from Ironsides
Partners Opportunity Master Fund LP representing approximately 23.02% of
the issued share capital of CQS Rig Finance Fund.
Accordingly, CQS Cayman Limited Partnership, together with the other
members of the CQS Group, were thus interested in 47,848,652 ordinary
shares representing approximately 49.12% of the issued share capital of
CQS Rig Finance Fund Limited and, as a result, CQS Cayman Limited
Partnership was required to make a mandatory takeover offer for the
remaining ordinary shares in CQS Rig Finance Fund Limited in which it
was not interested in accordance with Rule 9 of the Takeover Code. As
announced on 28 November 2012 by CQS Cayman Limited Partnership,
acceptances had been received in respect of 16,179,133 shares
(representing approximately 16.61% of the voting rights and issued
ordinary share capital of the Company).
As announced on 28 November 2012, CQS Cayman Limited Partnership,
together with the other members of the CQS Group which are considered to
be acting in concert by the Panel* for the purposes of the Code, held
64,027,785 ordinary shares (representing approximately 65.73% of the
existing voting rights and issued ordinary share capital of the
Company). On 23 July 2013, CQS Directional Opportunities Master Fund
Limited acquired 2,896,400 shares at a price of 33.0 pence per ordinary
share. In aggregate, therefore, CQS Cayman Limited Partnership, together
with the other members of the CQS Group Entities and employees, hold
66,924,185 ordinary shares, representing approximately 68.70% of the
voting rights and issued ordinary share capital of the Company.
Significant events after the year ended 30 September 2013
The Company does not have a fixed life, but under the Articles of
Association, shareholders will be given the opportunity to vote on the
continuation of the Company at the annual general meeting to be held on
5 March 2014 proposing that the Company should continue its investment
activities for a further 5 year period. If such resolution is not
passed, the Directors are required to arrange for the Company's assets
to be realised and for the Company subsequently to be wound up.
* The Panel is an independent body whose main functions are to issue and
administer the City Code on Takeovers and Mergers (the "Code") and to
supervise and regulate takeovers and other matters to which the Code
applies.
Signed on behalf of the Board of Directors by:
Director: Director:
Date: 6 December 2013 Date: 6 December 2013
The Directors are committed to ensuring that high standards of corporate
governance are maintained and have made it the Company's policy to
comply with best practice on corporate governance in so far as the
Directors believe it is relevant and appropriate to the Company and
notwithstanding the fact that, as a Company which is incorporated in
Guernsey and has been admitted to the Official List of the Channel
Islands Stock Exchange and to trading on the Channel Islands Stock
Exchange and the Alternative Investment Market of the London Stock
Exchange, the Company has no legal or regulatory obligation to comply
with the UK Corporate Governance Code published by the UK's Financial
Reporting Council.
On 30 September 2011 the Guernsey Financial Services Commission (the
"GFSC") issued a new Code of Corporate Governance (the "GFSC Code")
which came into effect on 1 January 2012. The GFSC Code replaces the
previous GFSC document entitled "Guidance on Corporate Governance in the
Finance Sector". The GFSC Code provides a framework which applies to all
companies which hold a licence from the GFSC under the regulatory laws
or which are registered or authorised as collective investment schemes.
The Board complies fully with the requirements of the GFSC Code.
The Board
Led by the Chairman, the Board is responsible for the corporate
governance of the Company and comprises five Directors, all of whom are
non-executive Directors. For the purposes of assessing compliance with
the GFSC Code, the Board considers the majority of the Directors as
independent of the Investment Manager and Investment Adviser and free
from any business or other relationship that could materially interfere
with the exercise of their independent judgement. The Directors have
overall responsibility for the Company's activities and the
determination of its investment policy and strategy. The Directors meet
at least quarterly to direct and supervise the Company's affairs. This
includes reviewing the investment strategy, risk profile and performance
of the Company and the performance of the Company's functionaries, and
to monitor compliance with the Company's objectives. During the year
under review there were a number of additional Board meetings held to
deal with operational matters as and when they arose. As those meetings
were convened to consider ad hoc matters arising, they are not included
in the schedule of formal Board and Audit Committee meetings set out
below. The Company's strategy for delivering its objectives and the
basis on which the Company generates or preserves value over the medium
to long-term are set in the Investing Policy, on page 4. The financial
risks and uncertainties of the Company are set out in note 14 of the
financial statements.
The terms and conditions of appointment of the Directors are available
for inspection on request at the offices of the Administrator.
The Company's Secretarial function and Administration has been delegated
to an independent third party, Kleinwort Benson (Channel Islands) Fund
Services Limited.
The Board ensures that the Company's contracts of engagement with the
Investment Manager, Investment Adviser, Administrator and other service
providers are operating satisfactorily so as to ensure the safe and
accurate management and administration of the Company's affairs and
business and that they are competitive and reasonable for shareholders.
Audit Committee
The audit committee meets at least twice a year and is responsible for
ensuring that the financial performance of the Company is properly
reported on and monitored, including reviews of the annual and interim
accounts, results announcements, internal control systems and procedures
and accounting policies. During the year under review, the audit
committee comprised Mr. Gamble, Mr. Ash and Mr. Appelbaum with Mr Gamble
acting as Chairman of the committee.
Internal Controls
The Board has overall responsibility for the Company's system of
internal controls, including its financial, operational and compliance
controls, risk management, and for reviewing its effectiveness. However,
as the Company has no direct employees, the Board has delegated the
responsibility for the Company's risk management and internal controls
to independent third parties including the Investment Manager,
Administrator, Sub-Administrator and other service providers. These
independent third parties report to the Board on a quarterly basis. The
Board is satisfied with the effectiveness of the Company's system of
internal controls.
The internal control systems are designed to meet the Company's
particular needs and the risks to which it is exposed. Accordingly, the
internal control systems are designed to manage rather than eliminate
the risk of failure to achieve business objectives and by their nature
can only provide reasonable and not absolute assurance against
misstatement and loss.
There is no internal audit function. The audit committee considers that
there is no need to have an internal audit function as all the Directors
are non-executive and the Company's administration functions have been
delegated to independent third parties.
Main Board Meetings Number of attendances
Board of Directors
Michael Salter (Chairman) 4 4
Bruce Appelbaum 4 4
Trevor Ash 4 3
Jonathan Gamble 4 4
Gavin Strachan 4 4
Number of meetings Number of attendances
Audit Committee
Jonathan Gamble (Chairman) 2 2
Trevor Ash 2 2
Bruce Appelbaum 2 2
Environmental and social policy
The principal objective of the Board when selecting investments is the
economic return for the risk taken. Environmental and social policies
are considered a differentiating factor when choosing between
investments displaying similar risk/economic return characteristics.
Relations with shareholders
The Investment Manager and the Company's broker maintain a regular
dialogue with institutional shareholders. In addition, Board members
will be available to respond to shareholders' questions at the annual
general meeting.
The Board monitors the trading activity on a regular basis and maintains
contact with the Company's broker to ascertain the views of the
shareholders. Shareholders sentiment is also ascertained by the careful
monitoring of the discount/premium that the shares are traded in the
market against the NAV per share.
At the forthcoming annual general meeting, the Company's current
authority to repurchase up to 14.99% of the ordinary shares in issue
expires and the Directors intend to seek renewal of this authority at
this meeting.
The Company reports to shareholders twice a year and a proxy voting card
will be sent with the Annual Report and Financial Statements. The
Registrar monitors the voting of the shareholders and proxy voting is
taken into account when votes are cast at the annual general meeting.
Shareholders may contact the Directors via the Secretary.
This report describes how the Board has applied the Principles of Good
Governance relating to Directors' remuneration. A resolution to approve
the report will be proposed at the annual general meeting of the Company
at which the financial statements will be presented.
The Chairman receives an annual fee of GBP25,000 and Mr. Appelbaum, Mr.
Ash, Mr. Gamble and Mr. Strachan receive an annual fee of GBP15,000
each. Mr Gamble as Chairman of the Audit Committee also receives an
additional annual fee of GBP2,500.
Total Directors fees paid:
30 Sept 2013 30 Sept 2012
GBP GBP
Michael Salter (Chairman) 25,000 25,000
Bruce Appelbaum 15,000 15,000
Trevor Ash 15,000 15,000
Jonathan Gamble 17,500 17,500
Gavin Strachan 15,000 15,000
87,500 87,500
The Directors are responsible for preparing the Directors' report and
the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law they have elected to prepare the
financial statements in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union and
applicable law.
The financial statements are required by law to give a true and fair
view of the state of affairs of the Company and of the profit or loss of
the Company for the period.
In preparing these financial statements, the Directors should:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards 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 proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Company and to enable them to ensure that the financial
statements comply with The Companies (Guernsey) Law, 2008. They are
responsible for safeguarding the assets of the Company. In this regard
they have entrusted the assets of the Company to the Custodian who has
been appointed as Custodian of the Company pursuant to the terms of the
Custodian Agreement. The Directors have a general responsibility for
taking such steps as are reasonably open to them to prevent and detect
fraud and other irregularities.
Signed on behalf of the Board of Directors by:
Director: Director:
Date: 6 December 2013 Date: 6 December 2013
We have audited the financial statements of CQS Rig Finance Fund Limited
for the year ended 30 September 2013 which comprise the Statement of
Comprehensive Income, the Statement of Financial Position, the Statement
of Changes in Equity, the Statement of Cash Flows and the related notes
1 to 22. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards as adopted by the European Union.
This report is made solely to the Company's members, as a body, in
accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our
audit work has been undertaken so that we might state to the Company's
members those matters we are required to state to them in an auditor's
report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company and the Company's members as a body, for our audit work, for
this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Statement of Directors' Responsibilities
set out on page 14, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view.
Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to comply with
the Auditing Practices Board's Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures
in the financial statements sufficient to give reasonable assurance that
the financial statements are free from material misstatement, whether
caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the company's circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in
the Annual Report for the year ended 30 September 2013 to identify
material inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect based
on, or materially inconsistent with, the knowledge acquired by us in the
course of performing our audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications
for our report.
Opinion on financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's affairs as at 30
September 2013 and of its profit for the year then ended;
-- have been properly prepared in accordance with International Financial
Reporting Standards as adopted by the European Union; and
-- have been prepared in accordance with the requirements of the Companies
(Guernsey) Law, 2008.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting
records; or
-- we have not received all the information and explanations we require for
our audit.
Ernst & Young LLP
Guernsey
Date: 6 December 2013
-- The maintenance and integrity of the CQS Rig Finance Fund Limited website
is the responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and accordingly,
the auditors accept no responsibility for any changes that may have
occurred to the financial statements since they were initially presented
on the website.
-- Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Year ended Year ended
30 Sept 2013 30 Sept 2012
GBP GBP
Notes
Operating income 4 3,499,160 9,167,981
Expenses
Operating expenses 5 (1,059,843) (963,151)
Finance costs (6,949) (7,003)
Total expenses (1,066,792) (970,154)
Net profit 2,432,368 8,197,827
Total comprehensive income for the year 2,432,368 8,197,827
Earnings per ordinary share
Basic and Diluted 6 2.50p 8.42p
All items in the above statement are derived from continuing operations.
All income is attributable to the ordinary shareholders of the Company.
The accompanying notes form an integral part of the financial
statements.
30 Sept 2013 30 Sept 2012
Assets Notes GBP GBP
Non-current assets
Financial instruments designated at fair value through
profit or loss 7 29,319,859 32,089,279
Current assets
Financial instruments designated at fair value through
profit or loss 7 4,539,521 680,473
Cash and cash equivalents 9 2,186,170 1,448,824
Derivative financial assets at fair value 778,348 5,945
Receivable for securities sold 2 376,832 -
Other assets 717,203 674,619
8,598,074 2,809,861
Total assets 37,917,933 34,899,140
Equity and liabilities
Equity
Other reserve 16 86,696,344 88,215,940
Accumulated losses (51,965,948) (54,398,316)
34,730,396 33,817,624
Current liabilities
Financial instruments designated at fair value through
profit or loss 7 1,398,918 505,330
Payable for securities purchased 2 1,639,782 248,328
Derivative financial liabilities at fair value 44,620 182,161
Other liabilities and payables 10 104,217 145,697
Total liabilities 3,187,537 1,081,516
Total equity and liabilities 37,917,933 34,899,140
Net Asset Value per Share 35.65p 34.72p
The accompanying notes form an integral part of the financial
statements.
These financial statements were approved by the Board of Directors on 6
December 2013.
Signed on behalf of the Board of Directors by:
Director: Director:
Date: 6 December 2013 Date: 6 December 2013
Other Accumulated
Reserve Losses Total
GBP GBP GBP
Balance at 1 October 2012 88,215,940 (54,398,316) 33,817,624
Total comprehensive income for the year - 2,432,368 2,432,368
Total recognised income and expense plus equity
brought forward 88,215,940 (51,965,948) 36,249,992
Dividends to shareholders (1,519,596) - (1,519,596)
Balance at 30 September 2013 86,696,344 (51,965,948) 34,730,396
For the year ended 30 September 2012
Other Accumulated
Reserve Losses Total
GBP GBP GBP
Balance at 1 October 2011 89,472,529 (62,596,143) 26,876,386
Total comprehensive income for the year - 8,197,827 8,197,827
Total recognised income and expense plus equity brought
forward 89,472,529 (54,398,316) 35,074,213
Dividends to shareholders (1,256,589) - (1,256,589)
Balance at 30 September 2012 88,215,940 (54,398,316) 33,817,624
The accompanying notes form an integral part of the financial
statements.
Year ended Year ended
30 Sept 2013 30 Sept 2012
GBP GBP
Total comprehensive income for the year 2,432,368 8,197,827
Adjustments to reconcile total comprehensive income
for the year to net cash from operating activities:
Effect of exchange rate changes on cash and cash
equivalents 41,135 257
Net change in operating assets and liabilities
Movement in other assets (42,584) (167,703)
Movement in other payables (43,290) 3,255
Movement in interest expense payable 1,810 (20,385)
Movement in derivative financial assets (772,403) 175,116
Movement in derivative financial liabilities (137,541) 95,707
Movement in financial instruments designated as at
fair value through profit or loss 818,582 (7,904,586)
Net cash flows from operating activities 2,298,077 379,488
Financing Activities:
Dividends paid to shareholders (1,519,596) (1,792,344)
Net cash outflows from financing activities (1,519,596) (1,792,344)
Net increase/(decrease) in cash and cash equivalents 778,481 (1,412,856)
Effect of exchange rate changes on cash and cash
equivalents (41,135) (257)
Cash and cash equivalents at start of year 1,448,824 2,861,937
Cash and cash equivalents at end of year 2,186,170 1,448,824
Interest received 3,469,465 2,970,170
Interest paid (19,699) (49,099)
The accompanying notes form an integral part of the financial
statements.
1. General information
CQS Rig Finance Fund Limited (the "Company") was registered on 8
November 2006 with registered number 45805 and is domiciled and
incorporated in Guernsey, Channel Islands. The Company is a closed-ended
investment company with limited liability formed under The Companies
(Guernsey) Law, 2008, as amended and its ordinary shares are listed on
the Channel Island Stock Exchange ("CISX") and traded on the Alternative
Investment Market ("AIM"), a market operated by the London Stock
Exchange plc.
The Company does not have a fixed life but, under the Articles of
Association, shareholders will be given the opportunity to vote on the
continuation of the Company at the annual general meeting to be held on
5 March 2014.
The Company's investment objective is to provide shareholders with an
attractive total return through a combination of capital appreciation
and dividends.
The Investment Adviser seeks to achieve the investment objective of the
Company by sourcing and trading a portfolio comprising predominantly
debt instruments. The Investment Adviser seeks to use fundamental credit
and industry analysis to identify instruments expected to provide
attractive risk-adjusted returns which meet the investment objective of
the Company. Such instruments are expected to be issued primarily to
finance companies involved in the construction, modification and
operation of offshore rigs and related infrastructure equipment, and
companies involved in the development and operation of assets used in
the offshore and/or onshore exploration, production and distribution of
oil, natural gas and other resources. Investments in adjacent sectors
such as shipping and transportation may be included at the discretion of
the Investment Adviser.
It is expected that the portfolio will continue to be passively managed,
although the Investment Adviser may elect to become actively involved in
workout situations should they arise. It is expected that some
investments will be held through to maturity (or earlier
redemption/repayment by the issuer/borrower), while others may be held
for shorter terms to capture mispricing of risk. The Investment Adviser
may trade investments depending on the prevailing market conditions at
any time.
2. Significant accounting policies
Statement of compliance
The financial statements of the Company have been prepared in accordance
with International Financial Reporting Standards ("IFRS") as adopted by
the European Union, which comprise standards and interpretations
approved by the International Accounting Standards Board ("the IASB")
and International Accounting Standards and Standing Interpretations
Committee interpretations approved by the International Accounting
Standards Committee ("IASC") that remain in effect, together with
applicable legal and regulatory requirements of Guernsey Law and the AIM
rules for companies of the London Stock Exchange and the Channel Islands
Stock Exchange.
Basis of preparation
The financial statements of the Company are prepared on a historical
cost or amortised cost basis except the following assets and liabilities
which are stated at their fair value: financial instruments designated
as fair value through profit or loss upon initial recognition and
derivative financial assets and liabilities.
These annual financial statements are presented in GBP. The functional
currency of the Company is also considered to be GBP because that is the
currency of the primary economic environment in which the Company has
raised capital and in which dividends are paid to shareholders.
2. Significant accounting policies (continued)
The principal accounting policies are set out below.
Going Concern
The Company's financial position, its cash flows and liquidity position
are set out in the financial statements. The Directors consider that the
Company has adequate financial resources and believe that the Company is
well placed to manage its business risks successfully and to continue in
operational existence for the foreseeable future.
The Company does not have a fixed life, but under the Articles of
Association, shareholders will be given the opportunity to vote on the
continuation of the Company at the annual general meeting to be held on
5 March 2014 proposing that the Company should continue its investment
activities for a further 5 year period. If such resolution is not
passed, the Directors are required to arrange for the Company's assets
to be realised and for the Company subsequently to be wound up.
The continuation vote could represent a material uncertainty about the
Company's ability to continue as a going concern. However the Directors
have made enquiries with several of the Company's largest shareholders
and have concluded that is sufficiently likely that the continuation
vote will be passed and consequently the Directors consider that any
uncertainty is not material. In view of this, and the Directors
considerations of the Company's liquidity projections, the Directors are
satisfied that it is appropriate to prepare the financial statements on
the going concern basis.
Standards and amendments to existing standards adopted during the period
IAS 1, "Presentation of Financial Statements" (Amendment) requires
entities to group items presented in Other Comprehensive Income based on
whether they are potentially reclassifiable to profit or loss
subsequently and tax associated with items presented before tax to be
shown separately for each of the two groups. The amendment is applicable
to annual periods beginning on or after 1 July 2012 and did not have an
impact on the disclosures of the financial statements.
Standards, interpretations and amendments issued but not yet effective
IFRS 9 "Financial Instruments" issued in November 2009 (IFRS 9(2009))
will change the classification of financial assets. The standard is not
expected to have an impact on the measurement basis of the financial
assets since the majority of the Company's financial assets are measured
at fair value through profit or loss. IFRS 9 is effective for annual
periods beginning on or after 1 January 2015 but is not yet approved by
the European Union. Earlier application is permitted. The Company does
not plan to adopt this standard early.
In May 2011, the IASB issued IFRS 10, "Consolidated Financial
Statements" which is effective for annual periods beginning on or after
1 January 2014. The standard establishes principles for the presentation
and preparation of consolidated financial statements when an entity
controls one or more other entities. IFRS 10 replaces the consolidation
requirements in SIC-12 Consolidation - Special Purpose Entities and IAS
27 Consolidated and Separate Financial Statements. IFRS 10 (amendment)
as issued provides an exception to consolidation requirements for
entities that meet the definition of an investment entity. The exception
to consolidation requires investment entities to account for
subsidiaries at fair value through profit or loss in accordance with
IFRS 9 Financial Instruments. The standard is effective for annual
periods beginning on or after 1 January 2014. The Company is currently
assessing the impact of this standard and does not plan to adopt it
early.
In May 2011, the IASB issued IFRS 11, "Joint Arrangements" which is
effective for annual periods beginning on or after 1 January 2014. The
standard establishes principles for financial reporting by parties to a
joint arrangement. The Company is currently assessing the impact of this
standard and does not plan to adopt it early.
In May 2011, the IASB issued IFRS 12, "Disclosure of Interests in Other
Entities" which is effective for annual periods beginning on or after 1
January 2014. The standard requires entities to disclose the nature,
risk, and financial effects of its interests in other entities. The
Company is currently assessing the impact of this standard and does not
plan to adopt it early.
2. Significant accounting policies (continued)
Standards, interpretations and amendments issued but not yet effective
(continued)
In May 2011, the IASB issued IFRS 13, "Fair Value Measurement" which is
effective for annual periods beginning on or after 1 January 2013. The
standard defines fair value as 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 (i.e. an exit
price). The Company is currently assessing the impact of this standard
and does not plan to adopt it early.
IFRS 10 "Consolidated Financial Statements, IFRS 11, "Joint
Arrangements", IFRS 12, "Disclosure of interests in other entities" and
IFRS 13, "Fair Value Measurement" were endorsed by the European Union on
11 December 2012.
There are no other standards, interpretations or amendments to existing
standards that are effective that would be expected to have a
significant impact on the Company.
Significant accounting judgments and estimates
The preparation of the Company's financial statements in conformity with
IFRS as adopted by the European Union requires management to make
judgements, estimates and assumptions that affect the amounts recognised
in the financial statements. However, uncertainty about these
assumptions and estimates could result in outcomes that could require a
material adjustment to the carrying amount of the asset or liability
affected in the future.
Fair value of financial instruments
When the fair value of financial assets and financial liabilities
recorded in the Statement of Financial Position cannot be derived from
active markets, they are determined using broker quotes (refer to note
2(f) and note 8).
Financial instruments
(a) Classification
The Company classifies its financial assets and financial liabilities as
financial assets and liabilities at fair value through profit or loss in
categories in accordance with IAS 39.
Financial assets and liabilities at fair value through profit or loss
Financial assets and liabilities designated as at fair value through
profit or loss upon initial recognition comprise mainly debt instruments
that are not held for trading. These financial instruments are
designated on the basis that they are part of a group of financial
assets and liabilities which are managed and have their performance
evaluated on a fair value basis, in accordance with risk management and
investment strategies of the Company, as set out in the Company's
offering document (see also note 14). The financial information about
these financial assets is provided internally on that basis to the
Investment Manager and to the Board of Directors.
(b) Recognition
The Company recognises a financial asset or a financial liability when,
and only when, it becomes a party to the contractual provisions of the
instrument. Purchases or sales of financial assets that require delivery
of assets within the time frame generally established by regulation or
convention in the marketplace are recognised on the trade date, i.e.,
the date that the Company commits to purchase or sell the asset.
(c) Derecognition
A financial asset (or, where applicable a part of a financial asset or
part of a group of similar financial assets) is derecognised where the
rights to receive cash flows from the asset have expired, the Company
has transferred its rights to receive cash flows from the asset and
either (a) the Company has transferred substantially all the risks and
rewards of the asset, or (b) the Company has neither transferred nor
retained substantially all the risks and rewards of the asset, but has
transferred control of the asset. The Company derecognises a financial
liability when the obligation under the liability is discharged,
cancelled or expires.
2. Significant accounting policies (continued)
Financial instruments (continued)
(d) Initial measurement
Financial assets and financial liabilities designated at fair value
through profit or loss are recorded in the Statement of Financial
Position at fair value. All transaction costs for such instruments are
recognised directly in Statement of Comprehensive Income when incurred.
(e) Subsequent measurement
After initial measurement, the Company measures financial instruments
which are classified as at fair value through profit or loss at fair
value. Subsequent changes in the fair value of those financial
instruments are recorded in 'Movement in unrealised gain or loss on
financial investments at fair value through profit or loss'. Interest
earned elements of such instruments are recorded separately in 'Interest
income from investments at fair value through profit or loss'.
(f) Determination of fair value
Fair value is the amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arm's
length transaction. The fair values for financial instruments traded in
active markets at the reporting date are based on their quoted bid price
for assets and quoted offer price for liabilities or third party broker
price quotations without any deduction for transaction costs. Where
possible the Company receives at least three broker quotes for each
financial instrument held. The preferred broker quote is compared to the
other broker quotes for consistency. If the preferred broker quote is
not consistent, the Company will adjust the valuation based on the
assessment of the other broker quotes and any other available
information . In some cases only a single broker quote is
available. When this situation arises, the Investment Manager reviews
the prices independently received as single broker quotes, ensures that
they are in line with expectations and reviews the prices for
reasonableness against similar positions and recent transactions.
(g) Derivative financial instruments
Derivative financial instruments which include forward foreign exchange
contracts and interest rate swaps are recognised initially at fair
value. Subsequent to initial recognition, derivative financial
instruments are stated at fair value. The gain or loss on measurement at
fair value is recognised immediately in the Statement of Comprehensive
Income.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances held with the Prime
Broker, excluding unsettled trades, with original maturities of three
months or less.
Interest income
Interest income and expense is recognised in the Statement of
Comprehensive Income as it accrues on an effective yield basis.
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction from the transaction
currency to the functional currency. Monetary assets and liabilities
denominated in foreign currencies at the Statement of Financial Position
date are translated to GBP at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on translation are recognised
in the Statement of Comprehensive Income. Foreign exchange differences
arising on assets and liabilities measured at fair value are included in
the fair value movements.
2. Significant accounting policies (continued)
Receivable from securities sold / Payable for securities purchased
Receivable from securities sold / Payable for securities purchased
comprises transactions contracted for but not yet delivered or settled
at the reporting date.
Other receivables
Other receivables do not carry any interest and are short-term in nature
and are accordingly stated at their nominal value as reduced by
appropriate allowances for estimated irrecoverable amounts.
Other accruals and payables
Other accruals and payables are not interest-bearing and are stated at
their fair value.
Finance costs
Finance costs arise on interest bearing borrowings held by the Company.
These costs are recognised in the Statement of Comprehensive Income on
an accruals basis.
3. Segmental Reporting
IFRS 8 'Operating Segments' requires a 'management approach', under
which segment information is presented on the same basis as that used
for internal reporting purposes. Operating segments are reported in a
manner consistent with the internal reporting used by the Chief
Operating Decision Maker. The Chief Operating Decision Maker is
responsible for allocating resources and assessing the performance of
the operating segments.
The Board of Directors is charged with the overall governance of the
Company in accordance with the Company's Admission Document and the
Company's Memorandum and Articles of Incorporation. The Board has
appointed CQS Cayman Limited Partnership as the Investment Manager. The
Board of Directors and CQS Cayman Limited Partnership are considered the
Chief Operating Decision Maker ("CODM") for the purposes of IFRS 8.
The Investment Manager is responsible for decisions in relation to both
asset allocation, asset selection and any investment adviser delegation.
The Investment Manager has been given authority to act on behalf of the
Company, including the authority to purchase and sell securities and
other investments on behalf of the Company and to carry out other
actions as appropriate to give effect thereto. Any changes to the
investment strategy outside of the Company's Admission Document must be
approved by the Board and then the Company's shareholders in accordance
with the terms of the Admission Document, the Company's Articles and the
AIM Rules for Companies.
The Company sources and trades in a portfolio of secured debt
instruments which are expected to be primarily issued to finance the
construction, modification and/or refurbishment of rigs and other
infrastructure and/or equipment used for the exploration of oil and
natural gas. The Company operates a single operating segment under IFRS
8 with all investment cash and investment holdings being managed at a
Company level. The Investment Manager allocates decisions based on a
single integrated investment strategy and the Company's performance is
evaluated on an overall basis. Investment cash is allocated to the
Investment Manager who has discretionary authority to invest the
Company's assets and is responsible for all investment decisions made on
behalf of the Company, subject to the control and policies of the Board
of Directors of the Company. The Investment Manager has appointed an
investment adviser, CQS (UK) LLP. The Investment Adviser is responsible
for the management of and/or providing investment advice on the
portfolio and also assists the Investment Manager with related ancillary
services. The internal reporting provided to the Investment Manager for
the Company's assets and 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 year
ended 30 September 2013 or 30 September 2012.
4. Operating income
Year ended Year ended
30 Sept 2013 30 Sept 2012
GBP GBP
Interest income from financial instruments designated
at
fair value through profit or loss 2,697,062 2,994,868
Other income 10,136 384,115
Realised foreign exchange (loss)/gain (1,139,981) 1,594,237
Realised (loss) on financial instruments at fair value
through profit and loss (7,377,014) (14,655,015)
Realised gain on derivative financial assets and
liabilities 3,744 69,570
Movement in unrealised gain on financial instruments
at
fair value through profit or loss 8,368,695 19,072,487
Movement in unrealised gain/(loss) on forward contracts 898,633 (274,080)
Movement in unrealised gain on derivative financial
assets
and liabilities 11,311 3,255
Movement in unrealised foreign exchange gain/(loss) 26,574 (21,456)
Total operating income 3,499,160 9,167,981
5. Operating expenses
Year ended Year ended
30 Sept 2013 30 Sept 2012
Notes GBP GBP
Investment management and
administration fees
Investment management and performance
fee 12 (522,740) (481,212)
Administration fee 12 (164,235) (157,001)
Operating expenses
Audit and other assurance fees* (41,548) (30,537)
Directors' fees (87,500) (87,500)
Broker fees (98,232) (60,500)
Legal fees (57,971) (19,998)
Other expenses (87,617) (126,403)
Total operating expenses (1,059,843) (963,151)
* Included within this fee are interim assurance review fees, there were
no other non-audit fees during the year.
6. Earnings per share
Year ended Year ended
30 Sept 2013 30 Sept 2012
GBP GBP
The calculation of the basic and diluted earnings
per share
is based on the following data:
Earnings for the purposes of basic earnings per share
being
net profit attributable to equity holders 2,432,368 8,197,827
Weighted average number of ordinary shares for the
purposes of basic earnings per share 97,410,000 97,410,000
7. Financial instruments designated at fair value through
profit or loss
Year ended Year ended
30 Sept 2013 30 Sept 2012
GBP GBP
Cost of financial instruments at start of year 48,098,374 58,517,983
Purchase of financial instruments 48,476,235 42,324,228
Sales proceeds on disposal of financial
instruments (49,271,876) (38,088,822)
Realised loss on sale of financial instruments (7,377,014) (14,655,015)
Cost of financial instruments at end of year 39,925,719 48,098,374
Unrealised loss on financial instruments (7,465,257) (15,833,952)
Financial instruments at end of year 32,460,462 32,264,422
Split as follows:
Non-current assets 29,319,859 32,089,279
Current assets 4,539,521 680,473
Current liabilities (1,398,918) (505,330)
Financial instruments at end of year 32,460,462 32,264,422
8. Measurement of financial instruments designated at fair value
through profit or loss
Fair value hierarchy
The amendment to IFRS 7, "Financial Instruments: Disclosures", requires
disclosures surrounding the level in the fair value hierarchy in which
fair value measurements are categorised for financial instruments
measured in the Statement of Financial Position. It requires the Company
to classify fair value measurements using a fair value hierarchy that
reflects the significance of the inputs used in making the measurements.
The financial instruments are analysed between those whose fair value is
based on:
-- Level 1 - Quoted market price in an active market for an identical
instrument.
-- Level 2 - Valuation techniques based on observable inputs. This
category includes instruments valued using: quoted market prices in
active markets for similar instruments; quoted prices for similar
instruments in markets that are considered less than active; or other
valuation techniques where all significant inputs are directly or
indirectly observable from market data.
-- Level 3 - Valuation techniques using significant unobservable inputs.
This category includes all instruments where the valuation technique
includes inputs not based on observable data and the unobservable inputs
could have a significant impact on the instrument's valuation. This
category includes instruments that are valued based on quoted prices for
similar instruments where significant unobservable adjustments or
assumptions are required to reflect differences between the instruments.
The level in the fair value hierarchy within which the instrument is
categorised in its entirety is determined on the basis of the lowest
level input that is significant to the fair value measurement. For this
purpose, the significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses observable
inputs that require significant adjustment based on unobservable inputs,
that measurement is a Level 3 measurement. Assessing the significance of
a particular input to the fair value measurement requires judgement,
considering factors specific to the asset or liability.
8. Measurement of financial instruments designated at fair value
through profit or loss (continued)
Fair value hierarchy (continued)
The determination of what constitutes 'observable' requires significant
judgement by the Company. The Company considers observable data to be
that market data that is readily available, regularly distributed or
updated, reliable and verifiable, not proprietary and provided by
independent sources that are actively involved in the relevant market.
Although the financial instruments with single broker quotes have inputs
into the price supplied by the brokers that are observable, for example,
rate yield, industry classification and credit rating, they are
classified as Level 3 holdings because the actual price may differ to
the broker estimates.
The following tables present the Company's fair value hierarchy for
those assets and liabilities measured at fair value on a recurring basis
as of 30 September 2013 and 30 September 2012.
Quoted prices Significant
in active other Significant
markets for observable unobservable
At 30 September 2013 identical assets inputs inputs Total
(Level 1) (Level 2) (Level 3)
2013 2013 2013 2013
Assets GBP GBP GBP GBP
Financial instruments designated at fair value through
profit or loss 133,720 33,535,591 190,069 33,859,380
Derivative financial assets - 778,348 - 778,348
133,720 34,313,939 190,069 34,637,728
Liabilities
Financial instruments designated at fair value through
profit or loss (1,398,918) - - (1,398,918)
Derivative financial liabilities - (44,620) - (44,620)
(1,398,918) (44,620) - (1,443,538)
Quoted prices in Significant
active markets other Significant
for identical observable unobservable
At 30 September 2012 assets inputs inputs Total
(Level 1) (Level 2) (Level 3)
2012 2012 2012 2012
Assets GBP GBP GBP GBP
Financial instruments designated at fair value through
profit or loss 663,233 31,932,532 173,987 32,769,752
Derivative financial assets - 5,945 - 5,945
663,233 31,938,477 173,987 32,775,697
Liabilities
Financial instruments designated at fair value through
profit or loss (432,735) (72,595) - (505,330)
Derivative financial liabilities - (182,161) - (182,161)
(432,735) (254,756) - (687,491)
Level 3 investments in securities (assets) comprise corporate bonds
valued by means of one broker quote, and analysed using comparison to
market activity, similar issuers, and inputs such as credit spreads and
duration assumptions, implied and observed, to assess the accuracy of
the single bond quote.
8. Measurement of financial instruments designated at fair value
through profit or loss (continued)
Fair value hierarchy (continued)
The following table shows the movement in Level 3 of the fair value
hierarchy for the years ended 30 September 2013 and 30 September 2012.
Financial instruments designated at fair value through Year ended Year ended
profit or loss 30 September 2013 30 September 2012
GBP GBP
Opening balance 173,987 1,232,693
Total losses recognised in the Statement of Comprehensive
Income (2,665) (361,025)
Transfer into Level 3 18,747 (697,681)
Closing balance 190,069 173,987
There were no significant transfers between Level 1 and Level 2 of the
fair value hierarchy during the years ended 30 September 2013 and 30
September 2012. The transfer into Level 3 during the year ended 30
September 2013 consisted of Remedial Cayman Limited, Master Marine AS
and NV Profit Share Limited. The transfer out of Level 3 during the year
ended 30 September 2012 consisted of Oceanteam Shipping ASA and Remedial
Cayman Limited.
The table below discloses how the gains or losses in Level 3 were
accounted for in the Statement of Comprehensive Income for the years
ended 30 September 2013 and 30 September 2012.
Financial instruments designated at fair value through Year ended Year ended
profit or loss 30 September 2013 30 September 2012
GBP GBP
Total gains or losses recognised in the Statement
of Comprehensive Income for financial instruments
held at the end of the reporting year: 16,082 (361,025)
- Included within net gain/(loss) on financial instruments
designated at fair value through profit or loss 16,082 (361,025)
9. Cash and cash equivalents
30 Sept 2013 30 Sept 2012
GBP GBP
Sterling cash 6,258,766 1,340,837
Euro cash (682,500) (605,716)
Norwegian Krone cash (337,558) 243,608
Swedish Krone cash 8,322 (94,450)
US Dollar cash (3,060,860) 564,545
Cash and bank balances 2,186,170 1,448,824
The Company is in a net surplus cash position with its Prime Broker.
However, as detailed in the above table, the Company does borrow in
several currencies against assets of the Company and is entitled to
offset under a master netting agreement with the Prime Broker.
10. Other liabilities and payables
30 Sept 2013 30 Sept 2012
Notes GBP GBP
Due to related parties
- Investment management fees 12 43,324 41,680
Interest payable 3,621 1,811
Accrued expenses 57,272 102,206
Total payables 104,217 145,697
Other liabilities principally comprise amounts outstanding in respect of
ongoing costs. The Directors consider the carrying amount of other
liabilities to approximate their fair value.
11. Share capital
Authorised share capital 30 Sept 2013 30 Sept 2012
GBP GBP
Number of Number of
ordinary shares ordinary shares
Ordinary shares of no par value each Unlimited Unlimited
Issued and fully paid 30 Sept 2013 30 Sept 2012
GBP GBP
Number of Number of
ordinary shares ordinary shares
Balance at the start and end of the year 97,410,000 97,410,000
On incorporation, 2 ordinary shares were issued and fully paid to the
subscribers to the Memorandum of Association of the Company. Those
ordinary shares were made available under the initial placing.
Rights
The Company has the power to increase or reduce its share capital and to
attach to any shares in the initial or increased or reduced capital any
preferred, deferred, qualified or special rights, privileges and
conditions or to subject the same to any restrictions or limitations and
to consolidate or sub-divide all or any of its shares into shares of a
larger or smaller denomination.
The holders of the ordinary shares have the following rights:
Dividends: Holders of ordinary shares are entitled to receive, and
participate in, any dividends or other distributions out of the profits
or otherwise of the Company available for dividend and resolved to be
distributed in respect of any accounting period or other income or right
to participate therein.
Winding Up: Holders of ordinary shares are entitled to the surplus
assets remaining after payment of all creditors of the Company.
Voting: Holders of ordinary shares shall have the right to receive
notice of, and to attend and vote at general meetings of the Company and
each shareholder being present in person or by proxy or by a duly
authorised representative (if a corporation) at a meeting shall upon a
show of hands have one vote and upon a poll each such shareholder shall
have one vote in respect of each ordinary share held.
12. Material agreements and related parties
Investment Manager
The Company is a party to an Investment Management Agreement with the
Investment Manager, dated 8 November 2006, pursuant to which the Company
appointed the Investment Manager to manage its assets on a day-to-day
basis in accordance with its investment objectives and policies, subject
to the overall supervision and direction of the respective Boards of
Directors.
The Company pays the Investment Manager a management fee and performance
fee (see note 5).
Management fee
Under the terms of the Investment Management Agreement, the Investment
Manager is entitled to receive from the Company a monthly management fee
payable in arrears as at the last business day of each month that is
equal to 0.125% (equivalent to 1.5% per annum) of the net asset value of
the Company as at the first business day of the month. Management fees
for the year were GBP522,740 (30 September 2012: GBP481,212) of which
GBP43,324 was outstanding at 30 September 2013 (September 2012:
GBP41,680).
Performance fee
The performance fee in respect of each performance year is equal to 20%
of the amount, if any, by which the total return for such performance
year exceeds the performance hurdle. For the avoidance of doubt, the
performance fee arrangements are subject to a minimum of zero and will
not result in any repayment of performance fees in respect of previous
performance periods. There was no performance fee for the year ended 30
September 2013 or 30 September 2012.
Administration fee
Under the terms of the Administration Agreement, the Administrator is
entitled to receive from the Company an administration fee of 0.095% of
the net asset value of the Company with a minimum of USD14,200 per
month. In addition, the Administrator is entitled to an annual company
secretarial fee on a time charge basis with a minimum of USD50,400 per
annum. Administration fees for the year were GBP164,235 (September 2012:
GBP157,001) of which GBP14,584 was outstanding at 30 September 2013 (30
September 2012: GBP23,009).
Prime broker and custodian fee
The prime broker and custodian are entitled to receive such fees as may
be agreed with the Company from time to time, reflecting normal
commercial rates which may be based upon a combination of transaction
charges and interest costs.
Investment by CQS Cayman Limited Partnership and all entities managed or
advised by, and employees of CQS(UK)LLP and CQS Asset Management Limited
("CQS Group Entities")
CQS Group Entities held 66,924,185 shares as at 30 September 2013 (30
September 2012: 14,599,027). There were purchases of 52,325,158 shares
during the year from 1 October 2012 to 30 September 2013 (no purchases
of shares during the year from 1 October 2011 to 30 September 2012).
There were no sales of shares during the year from 1 October 2012 to 30
September 2013 (sales of 450,000 shares during the year from 1 October
2011 to 30 September 2012).
Directors' interests
Mr. Gavin Strachan held 109,482 shares as at 30 September 2013 (30
September 2012: 109,482). A person closely connected to Mr. Michael
Salter held 88,964 shares as at 30 September 2013 (30 September 2012:
88,964). Mr. Bruce Appelbaum held 15,000 shares as at 30 September 2013
(30 September 2012: 15,000).
Directors' remuneration
The Chairman receives an annual fee of GBP25,000 and Mr. Appelbaum, Mr.
Ash, Mr. Gamble and Mr. Strachan each receive an annual fee of GBP15,000
each. Mr. Gamble as chairman of the audit committee also receives an
additional annual fee of GBP2,500.
13. Capital risk management
The Company's objectives when managing capital are to safeguard the
Company's ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of capital. The
Company monitors capital on the basis of the gearing ratio. This ratio
is calculated as total debt divided by the net asset value.
Returns are expected to be enhanced through gearing the portfolio by up
to 30%.
The Company had no net borrowings (30 September 2012: GBP Nil) and had
total payables of GBP3,187,537 (30 September 2012: GBP1,081,516) as at
30 September 2013. Also, as at 30 September 2013, the Company had cash
and cash equivalents of GBP2,186,170 (30 September 2012: GBP1,448,824),
investment assets of GBP33,859,380 (30 September 2012: GBP32,769,752)
and other assets of GBP1,872,383 (30 September 2012: GBP680,564).
30 September 2013 30 September 2012
GBP GBP
Total assets 37,917,933 34,899,140
Less: total liabilities (3,187,537) (1,081,516)
Net asset value 34,730,396 33,817,624
Gearing ratio 8% 3%
14. Financial risk management objectives and policies
Introduction
The Company's objective in managing risk is the creation and protection
of shareholder value. Risk is inherent in the Company's activities, but
it is managed through a process of on-going identification, measurement
and monitoring, subject to investment guidelines and other controls. The
process of risk management is critical to the Company's continuing
profitability.
The Company is exposed to the following categories of risk that arise
from the financial instruments it holds:
-- Market risk
-- Interest rate risk
-- Currency risk
-- Credit price risk
-- Equity price risk
-- Commodity price risk
-- Liquidity risk
-- Counterparty credit risk
The Company is also exposed to operational risk arising from both its
investment activities and other activities conducted both by the Company,
the Investment Manager, the Investment Adviser and other third party
agents in support of its investments.
Risk management structure
The Company's Investment Manager, CQS Cayman Limited Partnership has
delegated responsibility for the identification, control and management
of risk to the Investment Adviser, CQS (UK) LLP. The Board of Directors
supervises the Investment Manager and the Investment Adviser and is
ultimately responsible for the overall risk management approach within
the Company.
14. Financial risk management objectives and policies (continued)
Risk measurement and reporting system
The Company's risks are measured using methods that reflect both the
expected loss likely to arise in normal circumstances and unexpected
losses that are an estimate of the ultimate actual loss following the
default of an individual issuer or counterparty.
The monitoring and controlling of risks is set up to be performed
primarily based on investment guidelines established by the Board of
Directors and set out within the Company's Admission Document. These
guidelines reflect the business strategy and market environment of the
Company as well as the level of the risk that the Company is willing to
accept. In addition, the Investment Adviser monitors and measures the
overall risk bearing capacity in relation to the aggregate risk exposure
across all risk types and activities.
Risk mitigation
The Company has investment guidelines that set out its overall business
strategies, its tolerance for risk and its general risk management
philosophy. The Company may use derivatives in connection with its risk
management activities with regard to interest rate and foreign exchange
exposures.
The Investment Manager assesses the risk profile before entering into
economic hedge transactions. The effectiveness of hedges is assessed by
the Board of Directors (based on economic considerations rather than
IFRS hedge accounting conditions). The effectiveness of all hedge
relationships is monitored by the Board of Directors on a quarterly
basis.
Excessive risk concentration
Concentration indicates the relative sensitivity of the Company's
performance to developments affecting a particular industry or
geographical location. Concentrations of risk arise when a number of
financial instruments or contracts are entered into with the same
counterparty, or where a number of counterparties are engaged in similar
business activities, or activities in the same geographic region, or
have similar economic features that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic,
political or other conditions. Concentrations of liquidity risk may
arise from the repayment terms of financial liabilities, sources of
borrowing facilities or reliance on a particular market in which to
realise liquid assets. Concentrations of foreign exchange risk may arise
if the Company has a significant net open position in a single foreign
currency, or aggregate net open positions in several currencies that
tend to move together.
The Company has invested predominantly all its assets in debt
instruments issued to finance the construction, modification and
operation of offshore rigs and related infrastructure equipment, and the
development and operation of assets used in the offshore and/or onshore
exploration, production and distribution of oil, natural gas and other
resources. The Company therefore has risk concentrated to the
performance of this specific industry sector. In order to avoid
excessive concentration of issuer risk, the Company's policies and
procedures include specific guidelines to focus on maintaining a
diversified portfolio within the specific industry sector. The Company
will not invest more than 20% of its gross assets in any one issuer of
debt securities.
Market risk
Market risk is the risk that the fair value or future cash flows of
financial instruments will fluctuate due to changes in market variables
such as interest rates, foreign exchange rates, credit spreads and
equity prices. The maximum risk resulting from financial instruments
traded by the Company, with the exception of interest rate swaps and
foreign exchange contracts equals their fair value.
14. Financial risk management objectives and policies (continued)
Market risk (continued)
Interest rate risk
Interest rate risk arises from the possibility that changes in interest
rates will affect future cash flows or the fair values of financial
instruments. The Company may enter into interest rate derivatives,
mainly interest rate swaps, in which the Company agrees to exchange, at
specified intervals, the difference between fixed and variable interest
amounts calculated by reference to an agreed-upon notional principal
amount in an effort to manage these risks.
The majority of interest rate exposure arises on investment in debt
securities denominated in US Dollars and Norwegian Krone. The Company's
investments in debt securities have been made in both fixed coupon bonds
and floating rate coupon bonds with scheduled maturities within ten
years.
The secured financing offered by the Company's Prime Broker, Credit
Suisse Securities (Europe) Limited is based on one month LIBOR for each
currency plus a financing spread of 100 basis points. The rate resets on
a daily basis and as such may be treated as an overnight exposure to
each currency's interest rates.
The table below demonstrates the sensitivity of the Company's profit for
the year to a one basis point increase in interest rates for performing
investments within the portfolio only, with all other variables held
constant.
The sensitivity of the profit for the year is the effect of the assumed
changes in interest rates on changes in fair value of performing
investments for the year, based on revaluing fixed rate financial assets
at the Statement of Financial Position date.
In practice, the actual trading results may differ from the below
sensitivity analysis and the difference could be significant.
Performing Investments by Currency by Tenor (GBP '000):
As at 30 September 2013
<1 year 1-2 years 2-3 years 3-5 years > 5 years
GBP '000 GBP '000 GBP '000 GBP '000 GBP '000
EUR Fixed - - (0.31) - -
USD Fixed - (0.27) (1.25) (3.89) (0.51)
USD Float - - - - -
NOK Fixed - (0.06) - - -
NOK Float (0.01) - - - -
SEK Fixed - - - - -
As at 30 September 2012
<1 year 1-2 years 2-3 years 3-5 years > 5 years
GBP '000 GBP '000 GBP '000 GBP '000 GBP '000
EUR Fixed - - (0.03) - (0.08)
USD Fixed (0.04) (0.06) (1.15) (3.01) (0.62)
USD Float - 0.05 - - -
NOK Fixed - (0.01) - - -
NOK Float - (0.02) (0.09) (0.12) -
SEK Fixed - - (0.02) - -
14. Financial risk management objectives and policies (continued)
Market risk (continued)
Interest rate risk (continued)
The following table sets out the carrying amount, by maturity, of the
Company's investments, deposits and the interest rate swap that are
exposed to interest rate risk:
As at 30
September On < 3 3 to 12 1 to 5 > 5
2013 Demand months months years years Total
GBP '000 GBP '000 GBP '000 GBP '000 GBP '000 GBP '000
Fixed rate
debt - 2,169 - 24,587 1,147 27,903
Floating rate
debt - - 515 5,099 - 5,614
Cash 2,186 - - - - 2,186
Non-interest
bearing
assets - - - - - 342
2,186 2,169 515 29,686 1,147 36,045
As at 30
September On < 3 3 to 12 1 to 5 > 5
2012 Demand months months years years Total
GBP '000 GBP '000 GBP '000 GBP '000 GBP '000 GBP '000
Fixed rate
debt - 30 310 23,593 1,202 25,135
Floating rate
debt - 172 46 7,047 248 7,513
Cash 1,449 - - - - 1,449
Non-interest
bearing
assets - - - - - 770
1,449 202 356 30,640 1,450 34,867
Currency risk
Currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. The Company invests
in securities and other investments that are denominated in currencies
other than GBP. Accordingly, the value of the Company's assets may be
affected favourably or unfavourably by fluctuations in currency rates
and therefore the Company will necessarily be subject to foreign
exchange risks.
The primary purpose of the Company's foreign currency economic hedging
activities is to manage the volatility of returns associated with
investments denominated in foreign currencies and other assets and
liabilities denominated in foreign currencies created in the normal
course of business. The Company utilises primarily spot and forward
foreign exchange contracts to hedge foreign currency denominated
financial instruments. Increases or decreases in the fair values of the
Company's foreign currency denominated financial assets and liabilities
are partially offset by gains and losses on the economic hedging
instruments.
The Company's exposure to a 5% positive or negative shift in all
exchange rates against GBP as at 30 September 2013 is less than
GBP200,000 (30 September 2012: GBP200,000) in absolute terms. This may
change from time to time.
14. Financial risk management objectives and policies (continued)
Market risk (continued)
Concentration of foreign currency exposure
The table below sets out the Company's exposure to foreign currency
exchange rates of the monetary assets and liabilities at the reporting
date:
As at 30 Other
September Financial instruments at fair value through assets &
2013 profit or loss liabilities Derivatives Net
GBP
GBP '000 GBP '000 GBP '000 '000
Euro 1,716 (675) (836) 205
Norwegian
Krone 1,238 (642) (565) 31
Swedish
Krone - 8 - 8
US Dollar 29,506 (3,415) (22,805) 3,286
Total 32,460 (4,724) (24,206) 3,530
As at 30 Other
September Financial instruments at fair value through profit assets &
2012 or loss liabilities Derivatives Net
GBP
GBP '000 GBP '000 GBP '000 '000
Euro 712 (606) - 106
Norwegian
Krone 7,189 244 (7,837) (404)
Swedish
Krone 97 (94) - 3
US Dollar 24,266 813 (22,675) 2,404
Total 32,264 357 (30,512) 2,109
Credit price risk
Credit price risk is the risk of unfavourable changes in the fair values
of fixed and floating rate bonds issued by corporations as the result of
changes in the levels of credit indices and the credit spreads of
individual issuers. The credit price risk exposure arises from the
Company's investments in corporate debt securities.
The Company has invested in a portfolio of first and second lien secured
debt obligations, unsecured and convertible debt obligations of
companies engaged in the construction of offshore infrastructure in
support of the offshore oil and gas exploration, drilling and production
industry, and related sectors.
A number of issuers to which the Company has exposure have defaulted,
sought protection from creditors or entered into negotiations with
creditors to restructure their obligations and are considered
non-performing.
The Company quantifies potential losses as a result of defaults by
individual issuers by assessing the loss suffered on the basis of a zero
recovery being achieved by creditors. In practice, the Company is often
able to achieve a higher recovery through a combination of factors
including each obligation's standing in the capital structure of the
issuer and the active participation of the Investment Adviser on the
creditor committees contributing to any restructuring or bankruptcy
proceedings.
The Company also complements the credit risk characterisation of a zero
recovery being achieved by assessing the sensitivity of performing
investments within the portfolio to a 1 basis point widening in credit
spread.
14. Financial risk management objectives and policies (continued)
Market risk (continued)
Credit price risk (continued)
The table below analyses the Company's portfolio of debt instruments by
security category and the status of the obligation.
As at 30 September 2013
Performing
1(st) Lien Coupon Jump to default Credit spread
Name Rate Maturity with zero recovery +01 basis point
GBP mm GBP '000
GCM Corp. 11.00% 09/12/2015 3.57 (0.65)
Santa Maria
Offshore Ltd 8.88% 03/07/2018 1.32 (0.48)
Iona Energy 9.50% 27/09/2018 0.97 (0.36)
Afren Plc 11.50% 01/02/2016 0.72 (0.15)
Pacific Drilling 7.25% 01/12/2017 0.67 (0.23)
WellTec A/S 8.00% 01/02/2019 0.67 (0.28)
NorECo 12.90% 20/11/2014 0.64 (0.06)
Boa Deep C AS FRN 27/04/2016 0.59 (0.13)
Offshore Group 7.50% 01/11/2019 0.51 (0.23)
Sea Trucks Group 9.00% 26/03/2018 0.43 (0.14)
Millenium Offshore 9.50% 15/02/2018 0.32 (0.11)
Golar LNG 3.75% 07/03/2017 0.31 (0.06)
Total 10.72 (2.88)
2(nd) Lien Coupon Jump to default Credit spread
Name Rate Maturity with zero recovery +01 basis point
GBP mm GBP '000
Chloe Marine 12.00% 28/12/2016 2.79 (0.70)
Floatel Intl. 8.00% 11/10/2017 1.94 (0.64)
BassDrill Limited 8.50% 24/04/2017 0.64 (0.18)
Ion Geophysical 8.13% 15/05/2018 0.48 (0.17)
Total 5.85 (1.69)
Unsecured Coupon Jump to default Credit spread
Name Rate Maturity with zero recovery +01 basis point
GBP mm GBP '000
Seadrill Ltd 6.50% 05/10/2015 3.23 (0.60)
Ocean Rig UDW Inc 9.50% 27/04/2016 2.04 (0.11)
Pacific Drilling 8.25% 23/02/2015 1.96 (0.25)
Polarcus Ltd 8.00% 07/06/2018 1.21 (0.44)
Bluewater Holding
BV FRN 30/07/2014 1.54 (0.12)
Seadrill Ltd FRN 13/02/2014 0.52 (0.02)
Teekay Partners FRN 27/01/2017 0.33 (0.09)
Global Investment
Group 11.00% 24/09/2017 0.33 (0.10)
Oceanteam Power FRN 24/10/2017 0.32 (0.09)
Total 11.48 (1.82)
14. Financial risk management objectives and policies (continued)
Market risk (continued)
Credit price risk (continued)
Convertible Coupon Jump to default Credit spread
Name Rate Maturity with zero recovery +01 basis point
GBP mm GBP '000
Subsea 7 SA 2.25% 11/10/2013 2.16 (0.00)
Snam SpA (ENI) 0.63% 18/01/2016 1.72 (0.31)
Ship Finance Intl
Ltd 3.25% 01/02/2018 1.25 (0.29)
Subsea 7 SA 3.50% 13/10/2014 0.85 (0.02)
Total 5.98 (0.62)
Non-Performing
1(st) Lien Jump to default
Name Maturity with zero recovery
GBP mm
Remedial Cayman 28/03/2012 0.02
Total 0.02
2(nd) Lien Jump to default
Name Maturity with zero recovery
GBP mm
FPS Ocean AS 05/12/2011 0.17
Total 0.17
Convertible Jump to default
Name Maturity with zero recovery
GBP mm
Berlian Laju Tanker Tbk Pt 10/02/2015 0.02
Total 0.02
As at 30 September 2012
Performing
1(st) Lien Jump to default Credit spread
Name Coupon Rate Maturity with zero recovery +01 basis point
GBP mm GBP '000
GCM Corp. 11.00% 09/12/2015 3.24 (0.79)
Rubicon
Offshore
Holding FRN 16/04/2014 1.68 (0.20)
WellTec AS 8.00% 01/02/2019 0.91 (0.43)
Troll Drilling 13.75% 19/08/2016 0.70 (0.19)
Boa Deep C AS FRN 27/04/2016 0.67 (0.20)
Polarcus
Limited 2.88% 27/04/2016 0.60 (0.14)
Vantage
Drilling 11.50% 01/08/2015 0.59 (0.02)
NorECo 12.90% 20/11/2014 0.54 (0.09)
Afren Plc. 11.50% 01/02/2016 0.36 (0.10)
Drill Rigs
Holdings 6.50% 01/10/2017 0.31 (0.13)
Tethys Oil Ab 9.50% 07/09/2015 0.10 (0.02)
Total 9.70 (2.31)
14. Financial risk management objectives and policies (continued)
Market risk (continued)
Credit price risk (continued)
2(nd) Lien Coupon Jump to default Credit spread
Name Rate Maturity with zero recovery +01 basis point
GBP mm GBP '000
Chloe Marine 12.00% 28/12/2016 2.41 (0.75)
Floatel Intl. 13.00% 02/09/2015 2.42 (0.56)
RDS
Ultra-deepwater
Limited 11.88% 15/03/2017 1.04 (0.14)
Polarcus Limited 12.50% 29/10/2015 0.40 (0.09)
Total 6.27 (1.54)
Unsecured Coupon Jump to default Credit spread
Name Rate Maturity with zero recovery +01 basis point
GBP mm GBP '000
Pacific Drilling 8.25% 23/02/2015 2.42 (0.50)
Aker Drilling AS FRN 24/02/2016 2.10 (0.13)
Ocean Rig UDW
Inc. 9.50% 27/04/2016 1.92 (0.54)
Seadrill 6.50% 05/10/2015 2.01 (0.52)
Songa FRN 17/11/2016 1.13 (0.33)
Aker Drilling AS 11.00% 24/02/2016 1.16 (0.07)
Bluewater
Holding BV FRN 30/07/2014 1.16 (0.19)
Seadrill FRN 13/02/2014 0.55 (0.07)
OceanTeam
Shipping ASA FRN 18/06/2014 0.50 (0.08)
Global
Investment
Group 11.01% 24/09/2017 0.37 (0.13)
Songa Offshore FRN 11/06/2015 0.34 (0.07)
Teekay LNG
Partners FRN 03/05/2017 0.34 (0.12)
Havila Shipping
ASA FRN 30/08/2016 0.32 (0.09)
Total 14.32 (2.84)
Convertible Coupon Jump to default Credit spread
Name Rate Maturity with zero recovery +01 basis point
GBP mm GBP '000
Subsea 7 SA 2.25% 11/10/2013 0.72 (0.03)
Salamander
Energy 5.00% 30/03/2015 0.41 (0.06)
Parpublica 5.25% 28/09/2017 0.38 (0.08)
Premier Oil Plc. 2.88% 27/06/2014 0.35 (0.03)
Maurel Et Prom 7.13% 31/07/2015 0.33 (0.03)
Polarcus Limited 8.50% 30/07/2013 0.32 (0.02)
Subsea 7 SA 1.00% 05/10/2017 0.25 (0.07)
Total 2.76 (0.32)
Non-Performing
1(st) Lien Jump to default
Name Maturity with zero recovery
GBP mm
Remedial Cayman 28/03/2012 0.03
Viking Drilling ASA 05/10/2011 0.00
Viking Drilling ASA 05/10/2011 0.00
Total 0.03
14. Financial risk management objectives and policies
(continued)
Market risk (continued)
Credit price risk (continued)
2(nd) Lien Jump to default
Name Maturity with zero recovery
GBP mm
FPS Ocean AS 05/12/2011 0.17
Petrorig Iii Pte Limited 20/02/2014 0.08
Nexus 1 Pte Limited 07/03/2012 0.00
Total 0.25
Convertible Jump to default
Name Maturity with zero recovery
GBP mm
Berlian Laju Tanker Tbk Pt 10/02/2015 0.05
Total 0.05
Concentration of credit price risk
The table below analyses the Company's concentration of credit price
risk based on the collateral type of the assets on which the issuer
obligations are secured:
30 September 2013 30 September 2012 30 September 2011
Collateral Type (% of Long Market Value) (% of Long Market Value) (% of Total Market Value)
Accommodation
Vessel 6.6% 8.2% 7.3%
Barge/Service
Vessel 5.9% 4.2% 4.4%
Drillship 5.9% 6.5% -
E&P 9.9% 5.2% -
Elevating
Support Vessel 0.1% 2.5% 2.8%
FPSO 5.3% 9.9% 14.4%
Jackup 3.8% - 10.6%
Other 10.7% 5.0% 5.0%
Seismic Vessel 4.9% 4.4% 16.7%
Semisubmersible
Driller 38.5% 47.5% -
Transport Vessel 6.5% 3.5% 1.2%
Well
Intervention 1.9% 3.1% -
Note that this table differs to the Exposure by Collateral Type table in
the Investment Manager's Report on page 6 as a different level of
aggregation by collateral type has been used.
Equity price risk
Equity price risk is the risk of unfavourable changes in the fair values
of equities and warrants as the result of changes in the levels of
equity indices and the value of individual shares. The fair value of
warrants may also be affected by changes in the levels of interest rates
and the volatility of the underlying reference equity. The equity price
risk exposure arises from the Company's investments in equity securities
and warrants.
14. Financial risk management objectives and policies (continued)
Concentration of equity price risk
The Company's total exposure to equity price risk on 30 September 2013
is indicated in the tables below. In practice, the actual trading
results may differ from the sensitivity analysis below and the
difference could be material.
As at 30 September 2013:
Impact of (25%) Impact of 25%
Underlying Market Value Price movement Price movement
Name Type Equity GBP '000 GBP '000 GBP '000
Golar LNG Convertible Golar LNG 315 (19) 31
Ship
Finance Ship Finance
Intl Ltd Convertible Intl Ltd 1,241 (99) 138
Snam SpA Snam Rete
(ENI) Convertible Gas 1,716 (38) 151
Subsea 7
SA 2.25% Convertible Subsea 7 SA 2,168 (14) 479
Subsea 7
SA 3.5% Convertible Subsea 7 SA 844 (143) 182
OceanTeam
Shipping
ASA Stock 46 (11) 11
Seadrill
Limited Stock (305) 76 (76)
Sevan
Drilling
AS Stock 88 (22) 22
Ship
Finance
Intl Ltd Stock (453) 113 (113)
Subsea 7
SA Stock (642) 160 (160)
Total 3 665
As at 30 September 2012:
Market Impact of (25%) Impact of 25%
Underlying Value Price movement Price movement
Name Type Equity GBP '000 GBP '000 GBP '000
Premier Oil Premier Oil
Plc. Convertible Plc. 351 (21) 34
Polarcus Polarcus
Limited Convertible Limited 318 (0) 0
Salamander Salamander
Energy Convertible Energy 412 (19) 27
Maurel Et Maurel Et
Prom Convertible Prom 333 (34) 47
Galp
Parpublica Convertible Energia 379 (33) 44
Polarcus Polarcus
Limited Convertible Limited 612 (30) 40
Subsea 7 SA Convertible Subsea 7 SA 247 (24) 30
Subsea 7 SA Convertible Subsea 7 SA 725 (75) 103
Polarcus
Limited Stock (33) 8 (8)
Premier Oil
Plc. Equity Swap 1 9 (9)
Maurel Et
Prom Equity Swap 6 41 (41)
OceanTeam
Shipping
ASA Stock 49 (15) 15
Seadrill
Limited Stock (73) 18 (18)
Sevan
Drilling
ASA Stock 62 (16) 16
Subsea Stock (398) 100 (100)
OceanTeam
Shipping
ASA Warrant 0 0 0
Total (91) 180
Commodity price risk
Commodity price risk refers to the risk of unfavourable changes in the
fair values of commodities and futures and options referencing
underlying commodity prices as the result of changes in market prices
for commodities. The fair value of commodity futures and options may
also be affected by changes in the levels of interest rates and
volatility of the underlying commodity. The Company has no direct
commodity price risk exposure as at 30 September 2013. However, in the
view of the Investment Manager, a number of the Company's investments
have an indirect sensitivity to commodity price risk.
14. Financial risk management objectives and policies (continued)
Concentration of commodity price risk
The Company's total direct exposure to commodity price risk as at 30
September 2013 is nil and at 30 September 2012 is shown in the table
below. In practice, the actual trading results may differ from the
sensitivity analysis below and the difference could be material.
30 September 2012
Market Value Brent Oil -10% Brent Oil +10%
Name Type Maturity GBP '000 GBP '000 GBP '000
Listed
Brent Oil Option 28/02/2013 46 48 (20)
Total 48 (20)
Liquidity risk
Liquidity risk is defined as the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities.
Liquidity risk arises because of the possibility that the Company could
be required to pay its liabilities earlier than expected.
The Company has a financing facility with its Prime Broker to finance
the portfolio and additionally to manage the operating costs of the
Company.
It is the Company's policy that the Investment Manager monitors the
Company's liquidity position on a daily basis and that the Board of
Directors reviews it on a quarterly basis.
The Company invests primarily in marketable securities and other
financial instruments, which under normal market conditions are readily
convertible to cash. The Company owns a few debt obligations that are
currently either subject to protection from creditors, voluntary
restructuring or liquidation proceedings. These bonds are distressed
assets and exhibit lower liquidity than comparable performing assets.
The table below summarises the maturity profile of the Company's
financial liabilities and gross-settled derivatives based on contractual
undiscounted cash flows. The table also analyses the maturity profile of
the Company's financial assets in order to provide a complete view of
the Company's contractual commitments.
The analysis into relevant maturity groupings is based on the remaining
period at the end of the reporting period to the contractual maturity
date.
As at 30 6 to 2 to
September < than 12 1 to 2 3 3 to 4 4 to 5 >5
2013: 6 months months years years years years years Total
GBP GBP GBP GBP GBP GBP GBP
GBP '000 '000 '000 '000 '000 '000 '000 '000
Investments 1,608 - 11,647 5,307 3,654 9,097 1,147 32,460
Other assets
and
liabilities 2,270 - - - - - - 2,270
Total 3,878 - 11,647 5,307 3,654 9,097 1,147 34,730
14. Financial risk management objectives and policies (continued)
Liquidity risk (continued)
As at 30 September 2012:
6 to 1 to
< than 12 2 2 to 3 3 to 4 4 to 5 >5
6 months months years years years years years Total
GBP GBP GBP GBP GBP GBP GBP
GBP '000 '000 '000 '000 '000 '000 '000 '000
Investments (209) 384 4,970 9,041 11,120 5,757 1,201 32,264
Other assets
and
liabilities 1,554 - - - - - - 1,554
Total 1,345 384 4,970 9,041 11,120 5,757 1,201 33,818
Counterparty credit risk
Counterparty credit risk is the risk that the counterparty to a
financial instrument will cause a financial loss for the Company by
failing to discharge an obligation.
The Company is exposed to the risk of credit-related losses that can
occur as a result of a counterparty or issuer being unable or unwilling
to honour its contractual obligations. These credit exposures exist
within financing relationships, derivatives and other transactions.
It is the Company's policy to enter into over the counter financial
derivatives and execute trades in securities with reputable
counterparties. It is the Company's policy to purchase and sell
securities with counterparties on a delivery versus payment basis in
order to limit the settlement risk given the failure of the market
counterparty to the movement in the market price of the security being
purchased or sold between the time of the trade and the time at which
the exposure is notified to the counterparty as an outstanding
obligation following any failed settlement. Transactions that are
executed on a delivery versus payment basis require that payments on
securities acquired are only made after the broker has received the
securities while securities sold are only delivered after the broker has
received the payment.
The Investment Adviser closely monitors the creditworthiness of the
Company's counterparties (e.g., brokers, custodian, banks, etc.) by
reviewing their credit ratings, financial statements and press releases
on a regular basis. The Investment Adviser provides the Directors with
an update on the counterparty credit profile of the portfolio at the
quarterly board meetings.
The Company has restricted the exposure to credit losses on derivative
instruments it holds through the ISDA Master Agreement that is in place
with its sole trading counterparty, Credit Suisse Securities (Europe)
Limited. This arrangement provides for a single net settlement of all
financial instruments covered by the agreement in the event of default
on any one contract. Master-netting arrangements do not result in an
offset of assets and liabilities in the Statement of Financial Position
unless certain conditions for offsetting under IAS 32 apply.
Although master-netting arrangements may significantly reduce credit
risk, it should be noted that:
-- Counterparty credit risk is eliminated only to the extent that amounts
due to the same counterparty will be settled after the assets are
realised.
-- The extent to which overall counterparty credit risk is reduced may
change substantially within a short period because the exposure is
affected by each transaction subject to the arrangement.
14. Financial risk management objectives and policies (continued)
Risk concentrations of the maximum exposure to counterparty credit risk
The Company's net assets are held by its Prime Broker, Credit Suisse
Securities (Europe) Limited, an entity within the Credit Suisse Group
AG. Credit Suisse Group AG is rated A- by Standard & Poors (2012: A).
Credit Suisse Securities Europe Limited is a brokerage domiciled in the
United Kingdom and regulated by the Financial Conduct Authority.
If Credit Suisse Securities (Europe) Limited were to default and achieve
no recovery for creditors then the Company would lose the entire Net
Asset Value, GBP35 million as at 30 September 2013 (30 September 2012:
GBP34 million).
15. Dividend policy and proposed dividends
On 19 June 2013, the Company announced an interim dividend of 0.87 pence
per ordinary share in respect of the financial year ended 30 September
2013. The interim dividend was paid on 7 August 2013 to shareholders on
the register on 12 July 2013.
The Company proposed, on 6 December 2013, a final dividend of 0.87 pence
per ordinary share in respect of the financial year ended 30 September
2013. The proposed dividend, assuming approval by the shareholders at
the annual general meeting on 5 March 2014, will be paid on 9 April 2014
to shareholders of record at 14 March 2014.
16. Other reserve
The other reserve relates to the share premium arising on the value of
shares and the dividends paid thereon since the inception of the
Company. This is broken down as follows:
Year ended 30 September 2013
Transfer from Share
Premium Account Dividends paid Total
GBP GBP GBP
Balance at beginning of
year 97,743,538 (9,527,598) 88,215,940
Dividends to
shareholders during the
year - (1,519,596) (1,519,596)
Balance at end of year 97,743,538 (11,047,194) 86,696,344
The other reserve relates to the share premium arising on the value of
shares and the dividends paid thereon since the inception of the
Company. This is broken down as follows:
Year ended 30 September 2012
Transfer from Share
Premium Account Dividends paid Total
GBP GBP GBP
Balance at beginning of
year 97,743,538 (8,271,009) 89,472,529
Dividends to
shareholders during the
year - (1,256,589) (1,256,589)
Balance at end of year 97,743,538 (9,527,598) 88,215,940
17. Exchange rates
The following foreign exchange rates were used against GBP:
Currency 30 Sept 2013 30 Sept 2012
Norwegian Krone 9.7395 9.2444
Swedish Krone 10.3716 10.5876
United States Dollar 1.6194 1.6148
Euro 1.1963 1.2552
18. Comparatives
The comparatives are for the year ended 30 September 2012.
19. Taxation
The Company applied and was granted exempt status for Guernsey tax
purposes. A company that has exempt status for Guernsey tax purposes is
exempt from Guernsey income tax under the provisions of the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 and is charged an annual
exemption fee of GBP600.
20. Significant events during the year
On 19 October 2012, CQS Cayman Limited Partnership, acting as the
Investment Manager on behalf of CQS Directional Opportunities Master
Fund Limited, announced the acquisition of 22,424,600 ordinary shares of
the Company at a price of 31.5 pence per ordinary share from Ironsides
Partners Opportunity Master Fund LP representing approximately 23.02% of
the issued share capital of CQS Rig Finance Fund.
Accordingly, CQS Cayman Limited Partnership, together with the other
members of the CQS Group, were thus interested in 47,848,652 ordinary
shares representing approximately 49.12% of the issued share capital of
CQS Rig Finance Fund Limited and, as a result, CQS Cayman Limited
Partnership was required to make a mandatory takeover offer for the
remaining ordinary shares in CQS Rig Finance Fund Limited in which it
was not interested in accordance with Rule 9 of the Takeover Code. As
announced on 28 November 2012 by CQS Cayman Limited Partnership,
acceptances had been received in respect of 16,179,133 shares
(representing approximately 16.61% of the voting rights and issued
ordinary share capital of the Company).
As announced on 28 November 2012, CQS Cayman Limited Partnership,
together with the other members of the CQS Group which are considered to
be acting in concert by the Panel* for the purposes of the Code, held
64,027,785 ordinary shares (representing approximately 65.73% of the
existing voting rights and issued ordinary share capital of the
Company). On 23 July 2013, CQS Directional Opportunities Master Fund
Limited acquired 2,896,400 shares at a price of 33.0 pence per ordinary
share. In aggregate, therefore, CQS Cayman Limited Partnership, together
with the other members of the CQS Group Entities, hold 66,924,185
ordinary shares, representing approximately 68.70% of the voting rights
and issued ordinary share capital of the Company.
There were no other significant events affecting the Company during the
year end that require disclosure within these financial statements.
21. Significant events after the year end
The Company does not have a fixed life, but under the Articles of
Association, Shareholders will be given the opportunity to vote on the
continuation of the Company at the annual general meeting to be held on
5 March 2014 proposing that the Company should continue its investment
activities for a further 5 year period. If such resolution is not
passed, the Directors are required to arrange for the Company's assets
to be realised and for the Company subsequently to be wound up.
22. Approval of the audited financial statements
The audited financial statements were approved by the Board of Directors
on 6 December 2013.
The Directors have requested that the Notice of the Annual General
Meeting be attached to this annual report and audited financial
statements.
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to the action you should take, you are
recommended to seek your own independent financial advice from a
stockbroker, bank manager, solicitor, accountant or other authorised
professional or financial advisor.
CQS RIG FINANCE FUND LIMITED
(the "Company")
(incorporated in Guernsey as a closed-ended investment scheme with
registration number 45805)
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting (the "Meeting")
of the Company will be held at Dorey Court, Admiral Park, St. Peter Port,
Guernsey, GY1 2HT on Wednesday 5 March 2014 at 9.30 am to consider and,
if thought fit, pass the following resolutions of the Company:
Ordinary Resolutions - Ordinary Business
1. To re-elect Mr Bruce Appelbaum, who retires by rotation and, being
eligible, offers himself for re-election as a director of the Company.
1. To re-elect Mr Gavin Strachan, who retires by rotation and, being
eligible, offers himself for re-election as a director of the Company.
1. That Ernst & Young LLP be re-appointed as the Company's auditor and that
the directors be authorised to agree the auditor's remuneration.
1. That, subject to satisfaction by the Company of the solvency test
contained in The Companies (Guernsey) Law 2008, as amended (the "Law"), a
final dividend of 0.87 pence per Ordinary Share of no par value
("Ordinary Shares") be paid on 9 April 2014 to the holders of Ordinary
Shares on the register of shareholders of the Company at the close of
business on 14 March 2014.
Ordinary Resolutions - Special Business
1. To renew the Company's authority under and in accordance with the
Articles of Incorporation of the Company and section 315 of the Law to
make market acquisitions (within the meaning of section 316 of the Law)
of Ordinary Shares and to cancel such Ordinary Shares or hold such
Ordinary Shares as treasury shares, provided that:
1. the maximum number of Ordinary Shares authorised to be acquired shall be
up to an aggregate of 14,601,759 Ordinary Shares or such number as shall
represent 14.99 per cent of the Ordinary Shares in issue as at the date
of the Meeting, whichever is less (in either case excluding Ordinary
Shares held in treasury);
ii the minimum price that may be paid for an Ordinary Share is
0.1p;
iii the maximum price which may be paid for any Ordinary Share shall
be the higher of 5 per cent. above: (a) the average Channel Islands
Stock Exchange traded value per Ordinary Share for the 5 business days
prior to the day the purchase is made; or (b) the price stipulated by
Article 5(i) of the Buyback and Stabilisation Regulation (namely the
higher of the price of the last independent trade in Ordinary Shares and
the highest then current independent bid for the Ordinary Shares on the
AIM Market of the London Stock Exchange), provided that the Company
shall not be authorised to acquire shares at a price above the estimated
prevailing net asset value per Ordinary Share on the date of purchase;
and
iv unless previously revoked, varied or renewed by an ordinary
resolution of the Company in general meeting, the authority hereby
conferred shall expire on the earlier of 30 June 2015 or the date of the
next annual general meeting of the Company, save that the Company may,
prior to such expiry, enter into a contract to purchase shares under
such authority and may make a purchase of shares pursuant to any such
contract.
6. That, in accordance with Article 129 of the Company's Articles,
the Company shall continue its investment activities for a further five
year period.
NOTICE IS ALSO HERBY GIVEN that the Company's Annual Report and
Financial Statements for the year ended 30 September 2013 shall, at the
commencement of the Meeting, be laid* before the Meeting.
(* see Note (1) below)
By order of the Board
Registered Office
Dorey Court
Admiral Park
Yours faithfully
St Peter Port
For and on behalf of
Guernsey
Kleinwort Benson (Channel Islands) Fund Services Limited
GY1 2HT
as Secretary of
CQS Rig Finance Fund Limited
6 December 2013
Notes:
1. The requirement for a Company to lay copies of its most recent Accounts,
Directors' Report and Auditor's Report before an annual general meeting
is in terms of section 252 of The Companies (Guernsey) Law, 2008.
1. This Notice sets out the Resolutions to be proposed at the Meeting. In
accordance with Article 52 of the Company's Memorandum and Articles of
Association, the Meeting will be chaired by Mr Michael Salter.
1. All persons recorded on the register of members as at 9.30 a.m. on Monday,
3 March 2014 or, if the Meeting is adjourned, as at 48 hours before the
time of the adjourned Meeting, shall be entitled to attend and vote
(either in person or by proxy) at the Meeting and shall be entitled on a
poll to one vote per Ordinary Share held.
1. A member who is entitled to attend, speak and vote at the Meeting is
entitled to appoint one or more proxies to attend, speak and vote instead
of him or her. A proxy need not be a member of the Company.
1. More than one proxy may be appointed provided each proxy is appointed to
exercise the rights attached to different shares.
1. A form of proxy is enclosed for use at the Meeting. The form of proxy
should be completed and sent, together with the power of attorney or
other authority (if any) under which it is signed, or a notarially
certified copy of such power or authority, so as to reach the Company c/o
Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU
not later than 48 hours before the time of the meeting.
1. Completing and returning a form of proxy will not prevent a member from
attending in person at the Meeting and voting should he or she so wish.
1. If, within half an hour from the appointed time for the Meeting, a quorum
is not present, then the Meeting will be adjourned to Wednesday, 12 March
2014 at the same time and place. This Notice shall be deemed to
constitute due notice of any such adjourned meeting.
1. Resolution 4. (Dividend): A final dividend for the year ended 30
September 2013 of 0.87 pence per Ordinary Share is recommended by the
directors and is put to shareholders for their approval. If this
resolution is approved, the dividend will be paid on 9 April 2014,
subject to the Company satisfying the solvency test contained in The
Companies (Guernsey) Law 2008, as amended (the "Law"), to holders of such
shares on the register as at the close of business on 14 March 2014. In
accordance with the Articles of Incorporation of the Company, the
shareholders cannot resolve to pay an amount greater than that
recommended by the directors.
1. Resolution 5. (Repurchases of own shares): At the forthcoming annual
general meeting, the Company's current authority to repurchase up to
14.99 per cent of the Ordinary Shares in issue expires and the directors
intend to seek renewal of this authority at this meeting. The directors
are seeking such renewal so that, in the event that the directors
consider the discount to their net asset value at which the Company's
Ordinary Shares are trading to be too wide and prejudicial to the
interests of the Company and its shareholders, the Company will be able
to repurchase its own Ordinary shares, thereby reducing selling pressure.
Repurchases by the Company of its own shares will only be made if such
will be accretive to net asset value.
1. Resolution 6. (Continuation Vote): If this proposed resolution is not
passed, the directors will arrange for the Company's assets to be
realised and for the Company subsequently to be wound up. The Board
considers that the continuation of the Company is in the best interests
of shareholders as a whole. Accordingly, the Board recommends that
shareholders vote in favour of the proposed resolution at the Meeting, as
the directors intend to do in respect of their own beneficial holdings of
Ordinary Shares which, in aggregate, amount to 213,446 Ordinary Shares,
representing approximately 0.2 per cent. of the Company's issued share
capital as at the date of this notice.
1. None of the directors has a contract of service with the Company.
1. Holders of shares with the ISIN number of GG00B1GVK032 have the right to
attend, speak and vote at the AGM.
This announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: CQS Rig Finance Fund Ltd via Globenewswire
HUG#1748581
http://www.cqsrigfinance.com/
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