International Investment Bank: Condensed Consolidated Interim Financial Information - 30 June 2017

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1. INTERNATIONAL INVESTMENT BANK B .S.C. (c) CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 30 JUNE 2017
2. INTERNATIONAL INVESTMENT BANK B .S.C. (c) Condensed consolidated interim financial information for the six months ended 30 June 2017 CONTENTS Independent auditors’ report on review of condensed consolidated interim financial Information Page 1 Condensed consolidated interim financial information Condensed consolidated statement of financial position Condensed consolidated income statement Condensed consolidated statement of changes in owners’ equity Condensed consolidated statement of cash flows Notes to the condensed consolidated interim financial information 2 3 4 5 6-12
6. INTERNATIONAL INVESTMENT BANK B .S.C. (c) 4 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY for the six months ended 30 June 2017 US$ 000’s Attributable to shareholders of Bank Treasury shares Share premium Accumulated losses Statutory reserve Investment fair value reserve Noncontrolling interests Noncontrolling Interests held-for-sale Total owners’ equity 30 June 2017 (reviewed) Share capital Balance at 1 January 2017 109,996 (6,798) 19,645 (27,485) 6,980 864 103,202 5,935 2,341 111,478 Loss for the period Total recognised income and expense for the period - - - (30,387) - - (30,387) (1,652) - (32,039) - - - (30,387) - - (30,387) (1,652) - (32,029) Fair value changes during the period Distribution to non-controlling interests Changes in non-controlling interests - - - - - (681) - (681) - (44) (161) - (681) (44) (161) 109,996 (6,798) 19,645 (57,872) 6,980 183 72,134 4,078 2,341 78,553 Balance at 30 June 2017 Total Attributable to shareholders of Bank 30 June 2016 (reviewed) (restated) Share capital Balance at 1 January 2016 as previously reported Effect of restatement (note 13) Treasury shares 109,996 (6,798) Share premium Accumulated losses Statutory reserve Investment fair value reserve Property fair value reserve 51,240 (31,595) 6,980 2,693 262 Total 132,778 Noncontrolling interests 4,944 Total owners’ equity 137,722 - - - (5,774) - - - (5,774) - (5,774) 109,996 - (6,798) - 51,240 - (37,369) (577) 6,980 - 2,693 - 262 - 127,004 (577) 4,944 46 131,948 (531) Total recognised income and expense for the period - - - (577) - - - (577) 46 (531) Adjustment of accumulated losses Transfer to income statement on disposal Fair value changes during the period Distribution to non-controlling interests - - (31,595) - 31,595 - - (55) (300) - - (55) (300) - (66) (55) (300) (66) 109,996 (6,798) 19,645 (6,351) 6,980 2,338 262 126,072 4,924 130,996 As restated (Loss) / profit for the period (note 13) Balance at 30 June 2016 The accompanying notes 1 to 13 form an integral part of these condensed consolidated interim financial information.
7. INTERNATIONAL INVESTMENT BANK B .S.C. (c) 5 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS for the six months ended 30 June 2017 OPERATING ACTIVITIES Loss for the period Adjustments for: Depreciation and amortization Impairment allowances Fair value changes on investment securities Gain on sale of investments, net Finance expenses US$ 000’s Six months ended 30 June 30 June 2017 2016 (reviewed) (reviewed) (restated note 13) (32,039) (531) 1,837 27,176 2,335 300 1,780 (655) (451) (907) - Operating loss before changes in operating assets and liabilities Changes in operating assets and liabilities: Other assets Other liabilities (391) (764) (301) (2,015) 177 (1,077) Net cash used in operating activities (2,707) (1,664) (5,570) 4,979 (2) (15,663) 7,454 (27) (593) (8,236) Financing (150) (1,833) Net cash used in financing activities (150) (1,833) NET DECREASE IN CASH AND CASH EQUIVALENTS (3,450) (11,733) Cash and cash equivalents at beginning of the period 10,970 39,407 7,520 27,674 2,147 2,734 5,373 24,940 7,520 27,674 INVESTING ACTIVITIES Purchase of sukuk Proceeds on maturity of sukuk Purchase of equipment Net cash used in investing activities FINANCING ACTIVITIES CASH AND CASH EQUIVALENTS AT END OF THE PERIOD Cash and cash equivalents comprise: Cash and balances with banks Placements with financial institutions (with original maturities of 3 months or less) The accompanying notes 1 to 13 form an integral part of these condensed consolidated interim financial information.
8. INTERNATIONAL INVESTMENT BANK B .S.C. (c) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION for the six months ended 30 June 2017 1 6 US$ 000’s REPORTING ENTITY International Investment Bank B.S.C. (c) (the “Bank”) was incorporated on 6 October 2003, under commercial registration number 51867 as a Bahrain Joint Stock Company (closed). The Bank’s registered office is at 37th floor, Al Moayyed Tower, PO Box 11616, Manama, Kingdom of Bahrain. The Bank operates under a wholesale islamic banking license issued by the Central Bank of Bahrain (the “CBB"). The primary business activities of the Bank include investing on its own account and investment, underwriting and placement in real estate and private equity and corporate finance in conformity with Islamic Shari'a. The condensed consolidated interim financial information for the six months ended 30 June 2017 comprise the financial information of the Bank and its subsidiaries together ("the Group"). 2 BASIS OF PREPARATION The condensed consolidated interim financial information has been prepared in accordance with Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). In line with the requirement of AAOIFI and the CBB Rule Book, for matters that are not covered by FAS, the Group uses guidance from the relevant International Financial Reporting Standards. Accordingly, the condensed consolidated interim financial information has been presented in condensed form in accordance with the guidance provided by International Accounting Standard 34 – ‘Interim Financial Reporting’. The condensed consolidated interim financial information does not include all of the information required for full annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements of the Group for the year ended 31_December 2016. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2016. Accounting polices The accounting policies and methods of computation applied by the Group in the preparation of the condensed consolidated interim financial information are the same as those used in the preparation of the audited consolidated financial statements for the year ended 31 December 2016. There are no new standards or amendments issued and effective from 1 January 2017 that had an impact on the condensed consolidated interim financial information of the Group. Judgements and estimates The preparation of condensed consolidated interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial information, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainties were the same as those applied to the audited consolidated financial statements for the year ended 31 December 2016. Financial risk management The Group’s financial risk management objectives and policies are consistent with that disclosed in the audited consolidated financial statements for the year ended 31 December 2016. 3 The condensed consolidated interim financial information is reviewed, not audited. The comparatives for the condensed consolidated statement of financial position has been extracted from the audited consolidated financial statements for the year ended 31 December 2016 and comparatives for the condensed consolidated statements of income, changes in owners’ equity and cash flows have been extracted from the condensed consolidated interim financial information for the six months ended 30 June 2016.
9. INTERNATIONAL INVESTMENT BANK B .S.C. (c) 7 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION for the six months ended 30 June 2017 4 US$ 000’s CYCLICALITY Due to nature of the Bank’s business, the six months’ results reported in this condensed consolidated interim financial information may not represent a proportionate share of the overall annual results. 5 INVESTMENT SECURITIES 30 June 2016 Debt type instruments At amortised cost - Quoted sukuk Equity type instruments At fair value through income statement Unquoted equity securities At fair value through equity Quoted equity securities Unquoted equity securities 31 December 2016 10,557 9,966 38,584 40,781 3,958 9,555 4,724 11,134 62,654 66,605 Quoted and unquoted investments of US$ 3,645 thousand (2016: 4,516 thousand) are held in the name of related parties for the benefit of the Bank and the risk and rewards are borne by the Bank. 6 MUSHARAKA FINANCING Musharaka financing represents equity participation by the Bank through a debt and equity structure for acquisition of properties in United States of America (USA) through structured vehicles. The Bank has 95% economic interest in Atlas Multifamily Three LLC (“Atlas”), a company incorporated in USA for holding the underlying properties. The properties were acquired through a combination of debt of US$ 215.7 million and Musharaka financing of US$ 25 million. Total debt comprises of US$ 144.7 million of senior debt and US$ 71 million of mezzanine financing. During the period, the mezzanine financing lender called a default and auctioned the properties to settle its dues. The Bank is contesting the validity of the auction process in court to safeguard its interest, the outcome of which cannot be ascertained on the date of the approval of this condensed consolidated interim financial information. Accordingly, the Group has fully impaired it’s Musharaka financing of US$ 25.144 million (2016: Nil). 7 ASSETS HELD-FOR-SALE AND RELATED LIABILITIEIS Assets held-for-sale and related liabilities represents commercial properties and related financing of IIB France BSC (c), a subsidiary that is being actively marketed by the Group for sale and accordingly, the asset and liabilities were classified as held-for-sale in the condensed consolidated statement of financial position. Equity stake held by external parties amounting to US$ 2,341 thousand are classified as “non-controlling interests related to assets held-for-sale” in the condensed consolidated statement of financial position 8 FINANCING LIABILITIES Financing liabilities represents wakala financing obtained in 2014 from a Ministry in the Kingdom of Bahrain on an unsecured basis, which bears a profit rate of 6% and matures in December 2018. The wakala financing has been recalled early and the Bank is making arrangements to repay the outstanding balance by 30 September 2017.
10. INTERNATIONAL INVESTMENT BANK B .S.C. (c) 8 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION for the six months ended 30 June 2017 9 US$ 000’s INCOME FROM INVESTMENT SECURITIES Six months ended 30 June 30 June 2017 2016 Sukuk profit Fair value changes on investment securities Gain on sale of investment securities (equity type) 184 (2,335) - 145 451 907 (2,151) 1,503 10 SEGMENT INFORMATION The Group is organized into business units based on the nature of their operations and services which are all conducted from the Bank’s head office in the Kingdom of Bahrain. The three business units comprise investment banking, investment management and treasury & equity management. However, expenses and results are reviewed at the Group level and therefore no operating segment disclosure is provided in these condensed consolidated interim financial information.
11. INTERNATIONAL INVESTMENT BANK B .S.C. (c) 9 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY for the six months ended 30 June 2017 US$ 000’s 11 RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has the ability to control the other party or exercise significant influence or joint control over the other party in making financial and operating decisions. Related parties comprise major shareholders, directors, shari'a supervisory board and executive management of the Group and/or entities over which they exercise control and/or significant influence. The related party balances and transactions included in these condensed consolidated interim financial information are as follows: 30 June 2017 (reviewed) Directors / Major key shareholders management / entities in Assets personnel Which Under Shari'a board directors are management members interested Associates Assets Investment securities Musharaka financing Equity-accounted investees Income Expenses Board sitting fees and other expenses Staff costs Impairment allowance 33,461 830 Associates (1,642) - - 3,645 - 14,991 - Six months ended 30 June 2017 (reviewed) Directors / Major key shareholders management / entities in Assets personnel Which under Shari'a board directors are management members interested - 32 1,160 - - (25,144) Total 52,097 830 Associates 34,442 830 Total (1,642) Associates - 32 1,160 (25,144) - 31 December 2016 (audited) Major Directors/ key shareholders management / entities in Assets personnel Which under Shari'a board directors are management members interested - 4,516 - 17,681 25,144 - Six months ended 30 June 2016 (reviewed) Major Directors/ key shareholders management / entities in Assets personnel Which under Shari'a board directors are management members interested Total 56,639 25,144 830 Total - - - - 79 1,213 - - - 79 1,213 -
12. INTERNATIONAL INVESTMENT BANK B .S.C. (c) 10 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION for the six months ended 30 June 2017 US$ 000’s 12 FAIR VALUE OF FINANCIAL INSTRUMENTS The Group’s financial instruments are accounted for under the historical cost method with the exception of investment securities. By contrast, the fair value represents 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. Differences therefore can arise between book values under the historical cost method and fair value estimates. Underlying the definition of fair value is the presumption that the Group is a going concern without any intention or requirement to curtail materially the scale of its operation or to undertake a transaction on adverse terms. Generally accepted methods of determining fair value include reference to quoted prices and the use of valuation techniques such as discounted cash flow analysis. Set out below is a comparison of the carrying amounts and fair values of financial instruments: 30 June 2017 Financial assets: Balances with banks Placements with financial institutions Investment securities Other assets Financial liabilities: Liabilities related to assets acquired for leasing Financing liabilities Other liabilities 31 December 2016 Financial assets: Balances with banks Placements with financial institutions Musharaka receivables Investment securities Other assets Financial liabilities: Liabilities related to assets acquired for leasing Financing liabilities Other liabilities Carrying amount Fair value 2,145 5,373 62,654 1,984 2,145 5,373 62,654 1,984 72,156 72,156 58,826 10,187 2,423 58,826 10,187 2,423 71,436 71,436 Carrying amount Fair value 2,562 8,406 25,144 66,605 2,630 2,562 8,406 25,144 66,605 2,630 105,347 105,347 60,760 10,187 2,504 60,760 10,187 2,504 73,451 73,451
13. INTERNATIONAL INVESTMENT BANK B .S.C. (c) 11 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION for the six months ended 30 June 2017 US$ 000’s 12 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) Valuation techniques 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 on the measurement date. Investment securities The Group measures the fair value of quoted investments using the market bid-prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis. If a market for a financial instrument is not active or the instrument is not quoted, the Group establishes fair value using a valuation technique. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), discounted cash flow analyses and other valuation models with accepted economic methodologies for pricing financial instruments. Sensitivity analysis Unquoted securities - Investment securities carried at fair value through income statement: The effect on profit as a result of a change in the fair value of equity instruments due to a reasonable possible change (i.e. +/-5%) in the value of individual investments, with all other variables held constant, is US$ 1.9 milliion. The effect of decrease in the value of individual investments is expected to be equal and opposite to the effect of an increase. Islamic financing contracts The fair values of Islamic financing contracts are principally estimated their carrying amount less impairment provisions. The present value of expected future cash flows is not expected to be different from their carrying values. Other financial instruments Other financial instruments are for short term tenure hence their carrying value is not different from the fair value. Fair value of other financial assets and liabilities are not significantly different from their carrying values due to their short term nature, carrying fixed profit rate equivalent to market benchmark rates and not subject to little fluctuations. Fair value hierarchy The table below analyses the financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: • • • Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e.as prices) or indirectly (i.e. derived from prices) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). 30 June 2017 Investment securities carried at: - fair value through income statement - fair value through equity Level 1 Level 2 Level 3 Total 3,958 - 38,584 9,555 38,584 13,513 3,958 - 48,139 52,097
14. INTERNATIONAL INVESTMENT BANK B .S.C. (c) 12 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION for the six months ended 30 June 2017 US$ 000’s 12 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) 31 December 2016 Investment securities carried at: - fair value through income statement - fair value through equity Level 1 Level 2 Level 3 Total 4,724 - 40,781 11,134 40,781 15,858 4,724 - 51,915 56,639 The following table analyses the movement in Level 3 financial assets during the period: 30 June 2017 31 December 2016 At 1 January Fair value changes Purchases during the period Disposals during the period Sales and transfers into (out) of Level 3 51,915 (3,776) - 48,071 (7,655) 2,252 (2,258) 11,505 At 30 June / 31 December 48,139 51,915 13 COMPARATIVES The comparative figures have been restated to reflect the restatement of 31 December 2015, in the audited financial statements of 31 December 2016. This restatement has resulted in an increase in previously reported accumulated losses as at 1 January 2016 by US$ 5,774 thousand, a decrease in the previously reported loss attributable to shareholder of the Bank by US$ 428 thousand and an increase in profit attributable to non-controlling interests by US$ 23 thousand.