Venture Capital Bank: Financial Statements - 31 December 2020

Transcription

5. Venture Capital Bank B .S.C. (c) INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS Six month period ended 31 December 2020 (Reviewed) 2020 USD '000 Restated 2019 USD '000 (10,451) (44,527) 16 (387) 4,036 11,957 (94) 681 11,060 14,431 - (9,727) 21 194 8 (525) 18,622 (733) (163) (1,214) - (4,858) (1,937) (6,070) (9,219) 764 736 4,499 106 2,182 382 96 23 353 382 (1,221) (22,933) (7,095) (2,259) (41,551) Dividends paid Dividends received Proceeds from sale of investment 2,113 1,214 2,854 326 Net cash from investing activities 2,113 4,394 Note OPERATING ACTIVITIES Net loss for the period Adjustments for: Share of loss (profit) of associates and a joint venture accounted under the equity method Impairment of property and equipment (Reversal) provision for credit losses Impairment of investments Other provisions Fair value (gains) losses on investments carried at fair value through profit or loss Loss (gain) on sale of investment Depreciation Finance cost on right-of-use asset Dividend income 5 Operating losses before changes in operating assets and liabilities Changes in operating assets and liabilities: Investments Investments in associates and a joint venture accounted under the equity method Receivables Funding to project companies Other assets Employee accruals Islamic financing payables Other liabilities Net cash used in operating activities INVESTING ACTIVITIES FINANCING ACTIVITIES Murabaha financing to investee company Rent paid towards right-of-use asset 346 (22) 29,425 - Net cash from financing activities 324 29,425 Foreign currency translation adjustments 167 (96) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 345 (7,828) Cash and cash equivalents at beginning of the period ECL (charged) reversed on balances and placements with banks 505 (1) 10,175 20 849 2,367 849 2,367 5 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD Cash and cash equivalents per the consolidated statement of financial position Balances with banks 8 The ____________________________________________________________________________________ attached notes 1 to 17 form part of these interim condensed consolidated financial statements. 5
6. Venture Capital Bank B .S.C. (c) INTERIM CONSOLIDATED STATEMENT OF CHANGES IN OFF-BALANCE SHEET EQUITY OF INVESTMENT ACCOUNT HOLDERS Six month period ended 31 December 2020 (Reviewed) 31 December 2020 GCC Pre IPO Fund Movements during the period Balance at 1 July Investment/ Fair value Net 2020 (repayment) movement income USD '000 USD '000 USD '000 USD '000 1,118 - - 96 Dividends paid USD '000 Bank's fees as an agent USD '000 Balance at 31 December 2020 USD '000 - - 1,214 Investment in equities Other receivables Balances with banks 965 247 2 Total 1,214 31 December 2019 GCC Pre IPO Fund Movements during the period Balance at 1 July 2019 USD '000 Investment/ (repayment) USD '000 Fair value movement USD '000 Net Income USD '000 Dividends paid USD '000 Bank's fees as an agent USD '000 Balance at 31 December 2019 USD '000 1,887 - (51) - - - 1,836 Investment in equities Other receivables Balances with banks 1,770 64 2 Total 1,836 The GCC Pre-lPO Fund targets investments in selected GCC equities in the pre-lPO stage with the primary objective of benefiting from the potential market gains expected to arise from their IPOs. The investments are legally owned by the Group for the beneficial interest of RIA. Investors nominate the specific equities they wish to participate in from a pool of GCC Pre-IPO equities, specifying the amounts in each, and receive all returns less the Bank's fee of 20% over a 10% simple return. The attached notes 1 to 17 form part of these interim condensed consolidated financial statements. 6
7. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 1 INCORPORATION AND ACTIVITIES Incorporation Venture Capital Bank B.S.C. (c) (“the Bank”) was incorporated in the Kingdom of Bahrain on 26 September 2005 as a closed shareholding company under commercial registration (CR) number 58222 issued by the Ministry of Industry, Commerce and Tourism ("MOICT"). The Bank is licensed as a wholesale Islamic bank by the Central Bank of Bahrain (“CBB”) and is subject to the regulations and supervision of the CBB. The Bank's registered office is Building 247, Road 1704, Block 31, Diplomatic Area, Manama, Kingdom of Bahrain. Activities The principal activities of the Bank comprise venture capital, real estate and private equity investment transactions and related investment advisory services. The Bank conducts all its activities in compliance with Islamic Shari’ah under the guidance and supervision of the Bank’s Shari’ah Supervisory Board, and in compliance with applicable laws and regulations. The interim condensed consolidated financial statements comprise the financial statements of the Bank and its subsidiary companies (collectively, “the Group”). These interim condensed consolidated financial statements were approved by the Bank's Board of Directors on …........................... 2021. 2 FUNDAMENTAL ACCOUNTING ASSUMPTION The Group incurred a net loss of USD 10,451 thousand (31 December 2019: net loss of USD 44,527 thousand) during the period ended 31 December 2020, and as of that date, the Group's total liabilities with maturity up to 12 months exceeded its total assets with the same maturity representing a net liquidity gap of USD 70,853 thousand (30 June 2020: USD 65,706 thousand). These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. As at 31 December 2020, the Group's accumulated losses exceeded 50% of its share capital. The Bahrain Commercial Companies Law ("BCCL") requires that where accumulated losses exceed 50% of paid-up capital, the directors should call for an Extraordinary General Meeting (EGM) at which the shareholders are required to resolve whether to continue with the operations of the Group or to dissolve it before the expiry of its term. An EGM was held on 30 November 2020, where the shareholders resolved to restructure the Group’s capital to bring it back into compliance with the BCCL requirements. The impact of the capital restructure will be reflected in the Group’s consolidated financial statements once it receives final confirmation from the MOICT regarding recording of the Group's new capital structure in its commercial register. The Bank expects to settle an Islamic financing payable amounting to USD 77,842 thousand in exchange for ownership in various investment assets of equivalent value currently held by the Bank as of 31 December 2020. Based on management’s assessment, the impact of the final settlement agreement, once signed, will be, but not limited to, the following: • decrease in liabilities related to Islamic financing payable by USD 77,842 thousand; • decrease in total assets by USD 77,842 thousand; and • Improvement in capital adequacy ratio from 1.29% to 2.62%. This will enable the Group to continue as a going concern and to settle its obligations to third parties as and when they fall due. Additionally, the shareholders do not have any intention to liquidate the Bank, and these interim condensed consolidated financial statements have been prepared on a going concern basis. In the event of a distress sale of the Group's assets, their net realisable value might not approximate their fair value as at 31 December 2020. _______________________________________________________________________________________ 7
8. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 3 REGULATORY NON-COMPLIANCE The Bank did not comply with the following CBB requirements during the period ended 31 December 2020: 4 • Total shareholders' equity amounted USD 10,756 thousand, which is below the minimum of USD 100 million required for Bahraini Islamic Wholesale bank licensees as prescribed under LR-2.5.2B of Volume 2 of the CBB rule book. • Total CAR of 1.29%, which is in breach of the minimum requirement of 12.5% as prescribed under CA-2.2.1 of Volume 2 of the CBB rule book. • Tier 1 and CET1 CAR of 0.95%, which is in breach of the minimum requirement of 10.5% as prescribed under CA-2.2.1 of Volume 2 of the CBB rule book. • NSFR of 8%, which is in breach of the minimum requirement of 100% as prescribed under LM12.3.1 of Volume 2 of the CBB rule book. • LCR of 0.00%, which is in breach of the minimum requirement of 100% as prescribed under LM11.1.4 of Volume 2 of the CBB rule book. BASIS OF PREPARATION AND ACCOUNTING POLICIES 4.1 Basis of preparation The interim condensed consolidated financial statements for the six month period ended 31 December 2020 have been prepared in accordance with the guidance given by International Accounting Standard 34 "Interim Financial Reporting ". The interim condensed consolidated financial statements do not contain all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as at 30 June 2020. In addition, results for the six-months ended 31 December 2020 are not necessarily indicative of the results that may be expected for the financial year ending 30 June 2021. The annual consolidated financial statements for the year ended 30 June 2020 were prepared in accordance with Financial Accounting Standards ("FAS") issued by the Accounting and Auditing Organisation for Islamic Financial Institutions ("AAOIFI") and the Shari'ah rules and principles as determined by the Shari'ah Supervisory Board of the Group, and in conformity with the Bahrain Commercial Companies Law, Central Bank of Bahrain and Financial Institutions Law, the CBB Rule Book (Volume 2 and applicable provisions of Volume 6) and CBB directives and the terms of the Bank's articles of association. For matters which are not covered by AAOIFI standards, including "Interim Financial Reporting", the Group uses International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board. 4.2 Basis of consolidation The interim condensed consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at and for the six month period ended 31 December 2020. The audited financial statements of the subsidiaries are prepared using the same annual reporting period ending on 30 June, using consistent accounting policies. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved where the Group has the power, directly or indirectly, to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed off during the period are included in the interim consolidated statement of income from the date of acquisition or up to the date of disposal as appropriate. All intra-group balances, transactions, income and expenses and profits and losses resulting from intragroup transactions are eliminated in full. _______________________________________________________________________________________ 8
9. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 4 BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued) 4.2 Basis of consolidation (continued) Non-controlling interests, if any, represents the portion of net income and net assets not held, directly or indirectly by the Group and are presented separately in the interim consolidated statement of income and within owners' equity in the interim consolidated statement of financial position, separately from the equity attributable to shareholders of the parent. There is no change in the percentage holding of these subsidiaries during the period. Key subsidiaries of the Group which are consolidated are as follows: Name of subsidiary Year of incorporation Country of % holding incorporation Principal activities Gulf Projects Company W.L.L. 1998 100% Kingdom of Bahrain To own an interest in and operate the VC Bank Building. The Lounge Serviced Offices Company W.L.L. 2007 100% Kingdom of Bahrain To own, operate and manage serviced offices in Bahrain and regionally. GMCB Co. W.L.L. * 2008 50.59% Kingdom of Bahrain To invest in a medical facility in the Kingdom of Bahrain. The Group achieved control of the entity in June 2018. Food Vest Holding W.L.L. (through Venture Foods S.P.C.) ** 2016 50.77% Kingdom of Bahrain To own a wholesale and/or retail of food and beverages in the Kingdom of Bahrain. The Group achieved control in October 2018. * The Group's investment in GMCB Co. W.L.L. is not consolidated on a line by line basis as control is deemed to be temporary in nature and the Group's intention is to dispose of the entity in the near future. Management is actively seeking a buyer in accordance with FAS 23. ** The Group's investment in Food Vest Holding W.L.L. is not consolidated on a line by line basis as the Group is undergoing regulatory formalities to dispose of this entity. The carrying value of these unconsolidated subsidiaries currently classified under Investments as held for sale amounted to USD 10,101 thousand as at 31 December 2020 (30 June 2020: USD 10,411 thousand). 4.3 Accounting convention The interim condensed consolidated financial statements have been prepared under the historical cost convention as modified for the remeasurement at fair value of investment securities, and are presented in United States Dollars (USD) which is the functional currency of the Group. All values are rounded off to the nearest thousand (USD '000) unless otherwise indicated. 4.4 Adoption of new accounting standards The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those used in the preparation of the Group's annual audited consolidated financial statements for the year ended 30 June 2020, except for the adoption of new standards and interpretations effective for periods starting on or after 1 January 2020. The following new standards were issued by AAOIFI initially effective from 1 January 2020. However, in the wake of the COVID-19 pandemic, the Accounting and Auditing Board (AAB) of AAOIFI in its meeting held on 18 March 2020 decided to provide a one year extension of the effective date to 1 January 2021, with early adoption permitted, of the recently issued AAOIFI FASs as mentioned below: FAS 31 Investment Agency (Al-Wakala Bi Al-Istithmar) This standard intends to define the accounting principles and reporting requirements for investment agency (Al-Wakala Bi Al-Istithmar) transactions and instruments, in the hands of both the principal and the agent. This standard is effective for accounting periods beginning on or after 1 January 2021. _______________________________________________________________________________________ 9
10. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 4 BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued) 4.4 Adoption of new accounting standards (continued) FAS 33 Investment in sukuk, shares and similar instruments This standard aims at setting out principles for the classification, recognition, measurement, presentation, and disclosure of investment in Sukuk, shares and other similar instruments of investments made by Islamic financial institutions. The standard defines the key types of instruments of Shari’ah compliant investments and the primary accounting treatments commensurate to the characteristics and business model of institutions under which the investments are made, managed and held. This standard supersedes FAS 25 “Investment in Sukuk” and is effective for accounting periods beginning or after 1 January 2021. The Group's management is currently assessing the impact of the above standard on the Group's interim condensed consolidated financial statements. FAS 34 Financial Reporting for Sukuk -holders This standard prescribes the accounting principles and reporting requirements for underlying assets of a sukuk instrument. It requires the originator to prepare or cause to prepare financing reports as needed under this standard. This standard is effective for accounting periods beginning on or after 1 January 2021. 4.5 Going concern assessment As of 31 December 2020, the Group's bank balances amounted to USD 849 thousand and there was a short-term maturity mismatch (current liabilities in excess of current assets) of USD 70,853 thousand principally due to the inclusion of a USD 77,842 thousand Wakala financing payable to a creditor that became past due in the last financial year and remained unsettled at the period end. However, management has undertaken various initiatives to improve its liquidity and strengthen its financial position. The Group is in advanced stages of restructuring and settling its USD 77,842 thousand of Wakala financing with its creditor and expects the settlement agreement to be signed in the fourth quarter of the Bank’s financial year. Management expects to settle this obligation in exchange for ownership in various investment assets of equivalent value currently held by the Bank as of 31 December 2020. A letter of intent has been signed on 21 June 2020 agreeing to the settlement terms in principle with the creditor. The Bank plans to exit most of its legacy investment assets, some of which are in advanced stages of negotiation and execution with potential buyers. Management expects these exits to generate sufficient liquidity in the short term to cover ongoing operating costs and provide funding to support its restructuring plan and meet its near-term obligations. Additionally, management is in advanced stages of discussions with the regulator on the Bank’s restructuring plan in order to address existing regulatory concerns and better position itself for recovery and stability. As part of its restructuring efforts, management is in the process of formulating a strategic business plan which will provide a clear path for the business’ long term growth and sustainability. Management is satisfied that the Group has the resources to continue in business for the foreseeable future and, therefore, the interim condensed consolidated financial statements continue to be prepared on a going concern basis. In the event of a distress sale of the Group's assets, their net realisable value might not approximate their fair value as at 31 December 2020. 5 IMPAIRMENT OF FINANCIAL ASSETS Financial contracts consist of balances and placements with banks, Murabaha financing to investee companies, wakala contract receivable, receivables, funding to project companies, certain other assets and contingencies and commitments. Balances relating to these contracts are stated net of allowance for credit losses. The Group applies a three-stage approach to measure ECL on financial assets carried at amortised cost. _______________________________________________________________________________________ 10
11. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 5 IMPAIRMENT OF FINANCIAL ASSETS (continued) Stage 1: Twelve months ECL For exposures where there has not been a Significant Increase in Credit Risk ("SICR"), since initial recognition, a portion of the lifetime ECL’s that represent the ECL that result from default events on a financial contract that is possible within 12 months after the reporting date (or a shorter period if the expected life of the financial instrument is less than 12 months) of the lifetime ECL associated with the probability of default events occurring within next twelve months after the reporting date is recognised. Stage 2: Lifetime ECL – not credit impaired For credit exposures where there has been a SICR since initial recognition but that are not credit impaired, a lifetime ECL is recognised. Lifetime ECL is the loss that results from all possible default events over the expected life of the financial contract. The parameters in the loss ratios matrix are generally derived from internally developed models and other historical data and range from 0.25% for balances with banks of good standing to 15% for fundings to investees which are assessed to fall under stage 2. Stage 3: Lifetime ECL – credit impaired Financial contracts are assessed as credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred. For Stage 3 financial contracts, the provisions for credit-impairment are determined based on the difference between the net carrying amount and the recoverable amount of the financial contract. The table below shows the credit quality and the maximum exposure to credit risk based on the Group's internal credit rating system and stage classification and are gross of credit losses allowances: Stage 1 USD '000 Exposures subject to ECL Balances and placement with banks Murabaha financing to investee companies Wakala contract receivable Receivables Funding to project companies Other assets Guarantees and commitments Guarantees and commitments Total USD '000 851 - 158 1,009 591 131 436 140 3,443 5,705 914 13,341 9,740 1,099 9,122 1,350 13,341 10,471 4,542 14,958 1,573 9,724 34,374 45,671 4,147 29,473 - 33,620 5,720 39,197 34,374 79,291 1 July 2020 (Audited) Stage 2 Stage 3 USD '000 USD '000 Total USD '000 Stage 1 USD '000 Exposures subject to ECL Balances and placement with banks Murabaha financing to investee companies Wakala contract receivable Receivables Funding to project companies Other assets* 31 December 2020 (Reviewed) Stage 2 Stage 3 USD '000 USD '000 506 591 218 4,414 1,042 140 3,961 5,956 158 654 13,341 9,740 1,099 9,117 664 1,696 13,341 10,471 5,278 19,487 5,729 11,099 34,109 50,937 4,147 41,689 - 45,836 9,876 52,788 34,109 96,773 *Other assets subject to ECL excludes advances to invest in projects (refer note 11). _______________________________________________________________________________________ 11
12. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 5 IMPAIRMENT OF FINANCIAL ASSETS (continued) The table below shows the changes in ECL allowances during the period as follows: (Reviewed) Stage 1: 12month ECL Stage 2: Lifetime ECL not creditimpaired Stage 3: Lifetime ECL creditimpaired Total USD '000 USD '000 USD '000 USD '000 (1) (59) (203) (10) (570) (4) (1,166) (1,310) (940) (158) (654) (6,671) (8,388) (931) (9,065) - (159) (1,224) (6,671) (8,451) (2,097) (10,578) (950) (273) (3,990) (25,867) (30,130) Balance at 1 July 2020 Balances and placement with banks Murabaha financing to investee companies Wakala contract receivable Receivables Funding to project companies Other assets Guarantees and commitments Reversal / (charge) during the period Balances and placement with banks Murabaha financing to investee companies Wakala contract receivable Receivables Funding to project companies Other assets Guarantees and commitments (1) 203 - 221 154 40 30 (260) - (1) (39) 154 243 30 202 445 (260) 387 Balance at 31 December 2020 Balances and placement with banks Murabaha financing to investee companies Wakala contract receivable Receivables Funding to project companies Other assets Guarantees and commitments (2) (59) (10) (349) (4) (1,012) (1,270) (910) (158) (914) (6,671) (8,388) (931) (9,065) - (160) (1,263) (6,671) (8,451) (1,943) (10,335) (920) As at 31 December 2020 (71) (3,545) (26,127) (29,743) 6 FIDUCIARY ASSETS UNDER MANAGEMENT The Group provides corporate administration, investment management and advisory services to its project companies, which involve the Group acting as the custodian of the assets and or making decisions on behalf of such entities in a fiduciary capacity. Assets that are held in such capacity are not included in these interim condensed consolidated financial statements. _______________________________________________________________________________________ 12
13. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 7 RELATED PARTY TRANSACTIONS AND BALANCES Related parties represent associated companies, shareholders, directors and key management personnel of the Group, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Group's management. Transactions with related parties during the period were as follows: Reviewed Six-months ended 31 December 31 December 2020 2019 USD '000 USD '000 Finance income Other expenses Share of loss of associates and a joint venture - net - 521 200 (16) 573 94 Reviewed 31 December 2020 USD '000 Audited 30 June 2020 USD '000 11,467 11,532 13,914 378 14,656 490 581 12,083 547 159 Balances with related parties are as follows: Assets: Investments Investments in associates and joint venture accounted under the equity method Other assets Liabilities: Employee accruals Other liabilities Compensation for key management, including executive officers, comprises the following: Reviewed Six-months ended 31 December 31 December 2020 2019 USD '000 USD '000 Salaries and other short term benefits Post-employment benefits 267 17 432 28 284 460 _______________________________________________________________________________________ 13
14. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 8 BALANCES AND PLACEMENTS WITH BANKS Balances in current and call accounts Less: ECL provision Net cash and cash equivalents 9 Reviewed 31 December 2020 USD '000 Audited 30 June 2020 USD '000 1,009 (160) 664 (159) 849 505 MURABAHA FINANCING TO INVESTEE COMPANIES These represent financing support extended by the Group to facilitate the debt restructuring and repayments of investees with external lenders in the form of commodity murabaha contracts. The Group did not recognise any profit during the period on these financing contracts. 10 WAKALA CONTRACT RECEIVABLE Wakala contract receivable represents USD 13,341 thousand of short-term trade finance deals placed with Trade Finance Corporation ("TFC") through a locally incorporated bank ("Wakil") at an expected profit rate of 6.5% per annum with maturities ranging between 90 to 150 days. The Group has recognised an ECL of 50% under stage 3 amounting to USD 6,671 thousand (2020: USD 6,671 thousand). The Group suspended accruing profit on its wakala contract receivable as the Wakil has failed to redeem the Group's wakala upon their request. The Group has a corresponding short-term borrowing from the Wakil under an unrestricted wakala agreement amounting USD 13,241 thousand. 11 OTHER ASSETS During the period advances to invest in projects amounting to USD 4,251 thousand has been reclassified to investments. 12 ISLAMIC FINANCING PAYABLES Short-term Islamic Wakala payables: Note Reviewed 31 December 2020 USD '000 Audited 30 June 2020 USD '000 Non-bank Financial institutions 12.1 12.2 77,842 13,241 75,660 13,241 91,083 88,901 12.1 This represents a medium term Wakala financing at an annual profit rate of 6% with bullet repayment in January 2020. This facility is currently payable on demand. However, management is in advanced stages of restructuring and settling its USD 77,842 thousand (including profit expense accrued) of Wakala financing principal amount with its creditor and expects the settlement agreement to be signed during 2021. The Bank expects to settle this obligation in exchange for ownership in various investment assets of equivalent value currently held by the Bank on its balance sheet as of 31 December 2020. A letter of intent has been signed on 21 June 2020 agreeing to the settlement terms in principle between the creditor and the Bank. 12.2 This consists of short-term Wakala Islamic financing from local banks with maturities of not more than one month. These Islamic financing payables carry annual profit rates ranging between 2.75% and 0.0% (30 June 2020: 2.75% and 0.0%). The Group is undergoing a legal case to net off the payable amount against the Wakala contract receivable. Due to the ongoing litigation process, this Wakala balance does not accrue any profit. _______________________________________________________________________________________ 14
15. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 13 OTHER LIABILITIES Reviewed 31 December 2020 USD '000 Accounts payable Provisions and accruals Deferred income Guarantees Other Restated 30 June 1 July 2020 2019 USD '000 USD '000 11,203 698 1,241 11,957 799 10,922 602 1,303 762 17,303 1,567 1,274 741 25,898 13,589 20,885 Guarantees relate to corporate guarantees provided by the Group to various creditors to support financing to one of its project companies. During the period, certain legal claims were received from creditors which the Group is currently in the process of assessing its legal position and a defence strategy. While no legal proceedings have taken place nor a court judgment issued, management has found it prudent to recognise provisions against such claims on its interim consolidated statement of financial position along with appropriate provisions. The amount reported in the Group’s interim consolidated statement of financial position sheet related to such claims under other liabilities was USD 11,957 thousand (2019: Nil) which have been charged by the Group during the period in the interim consolidated statement of income. 14 RENTAL AND OTHER INCOME Reviewed Six-months ended 31 December 31 December 2020 2019 USD '000 USD '000 Rental income Recoveries of impaired receivables Other 15 646 801 7 272 1,815 695 1,454 2,782 COMMITMENTS AND CONTINGENCIES The Group has outstanding letters of guarantee in respect of projects on which no losses are expected, and commitments to finance and invest as follows: Letters of guarantee Commitments to invest Reviewed 31 December 2020 USD '000 Audited 30 June 2020 USD '000 30,864 14,972 30,864 14,972 45,836 45,836 ____________________________________________________________________________________ 15
16. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 16 FINANCIAL INSTRUMENTS Set out below is an overview of financial instruments held by the Group as at 31 December 2020 and 30 June 2020: 31 December 2020 (Reviewed) Fair value through profit or loss USD '000 Equity-type at fair value through equity USD '000 Amortised cost USD '000 Total USD '000 ASSETS Balances and placements with banks Investments Murabaha financing to investee companies Wakala contract receivable Receivables Funding to project companies Other assets 56,418 - 36,725 - 849 87 6,670 2,020 2,599 4,490 849 93,143 87 6,670 2,020 2,599 4,490 TOTAL FINANCIAL ASSETS 56,418 36,725 16,715 109,858 - 965 249 1,214 Fair value through profit or loss USD '000 Equity-type at fair value through equity USD '000 Amortised cost USD '000 Total USD '000 ASSETS Balances and placements with banks Investments Murabaha financing to investee companies Wakala contract receivable Receivables Funding to project companies Other assets 43,563 - 39,466 - 505 472 6,670 2,020 3,181 8,831 505 83,029 472 6,670 2,020 3,181 8,831 TOTAL FINANCIAL ASSETS 43,563 39,466 21,679 104,708 - 1,052 66 1,118 Off-balance sheet Equity of investment account holders 30 June 2020 (Restated) Off-balance sheet Equity of investment account holders At 31 December 2020 and 30 June 2020, all the financial liabilities of the Group are classified under 'amortised cost'. ____________________________________________________________________________________ 16
17. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 16 FINANCIAL INSTRUMENTS (continued) Fair value hierarchy Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable and willing parties in an arm’s length transaction. Consequently, differences can arise between carrying values and fair value estimates. Fair values of quoted securities are derived from quoted market prices in active markets, if available. For unquoted securities, fair value is estimated using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. This hierarchy requires the use of observable market data when available. There have been no transfers between the levels of valuation during the period. Fair value hierarchy of investments 31 December 2020 Investments: Held for trading Fair value through profit or loss 30 June 2020 (restated) Investments: Held for trading Fair value through profit or loss 1 July 2019 (restated) Investments: Held for trading Fair value through profit or loss Level 1 USD '000 Level 2 USD '000 Level 3 USD '000 Total USD '000 35 - - 56,383 35 56,383 35 - 56,383 56,418 Level 1 USD '000 Level 2 USD '000 Level 3 USD '000 Total USD '000 1,178 - - 42,385 1,178 42,385 1,178 - 42,385 43,563 Level 1 USD '000 Level 2 USD '000 Level 3 USD '000 Total USD '000 4,090 - - 79,210 4,090 79,210 4,090 - 79,210 83,300 ____________________________________________________________________________________ 17
18. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 16 FINANCIAL INSTRUMENTS (continued) Fair value hierarchy (continued) Determining fair value under Level 3 includes use of valuation techniques such as the discounted cash flow model. The future cash flows have been estimated by management, based on information and discussion with representatives of management of the investee companies, and based on the latest available audited and un-audited financial statements. Cash flows have been projected for an initial period of three years and then a terminal value has been estimated using a combination of forward multiples and capitalization of cash flows of the last year of the estimate. The discount rates used for computing the present value of future cash flows range from 10.4% to 20.85%. The discount rates have been arrived at after considering the risk free rate, expected market premium, country risk and systematic risk underlying each investee company. The Group has also made use of illiquidity and marketability discounts where considered appropriate. The potential income effect of a 10% increase in the discount rates, which is a key variable used in the valuation technique, would decrease the fair values by approximately USD 2,125 thousand, whereas a 10% decrease in the discount rate would increase the fair values by approximately USD 3,852 thousand. The potential income effect of a 10% change, on either side, in the market multiples, which is a key variable used in the valuation technique, would increase the fair values by approximately USD 8,128 thousand or reduce the fair values by approximately USD 7,887 thousand respectively. Investments amounting to USD 36,725 thousand (30 June 2020: USD 39,466 thousand) are carried at cost less impairment provision in the absence of a reliable measure of fair value. However in the opinion of management and based on best estimates, the fair value is not considered to be materially different from above carrying values. The fair values of the Group's other financial instruments are not significantly different from their carrying values as at 31 December 2020 and 30 June 2020. There were no transfers of financial assets between Level 1, Level 2 and Level 3. 17 RESTATEMENT OF COMPARATIVES On 30 June 2016, the Bank entered into an agreement with Saudi VC investment Company ("SVCIC"), an associate of the Bank, to purchase certain shares of Goknur (a project managed by the Bank) in order to assist SVCIC in disposing these shares to third party investors. At the time, the Bank’s intention was to broker the shares to third-party investors on behalf of SVCIC without assuming any direct exposure to the project. While the Bank was able to sell most of these shares to third party investors, certain shares remained unsold as the initial buyer interest did not fully materialise. Based on a review performed by management and several discussions with SVCIC management and its Board, the Bank's management has assessed that an obligation remained on the Bank towards SVCIC for the unsold shares which needs to be reflected in the Bank's consolidated financial statements along with the recognition of the unsold shares as an investment in Goknur. Prior to 31 December 2020 these shares were not recognised as an investment by the Bank and accordingly the Bank’s investment in Goknur, including the corresponding changes in the fair value of the investment and its liabilities to SVCIC, were not reflected within the consolidated financial statements of the Bank for the years ended from 30 June 2016 to 30 June 2020. Management has corrected the errors in these interim condensed consolidated financial statements by restating comparatives for each of the affected financial statement line items as presented below: ____________________________________________________________________________________ 18
19. Venture Capital Bank B .S.C. (c) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As at 31 December 2020 (Reviewed) 17 RESTATEMENT OF COMPARATIVES (continued) 1 July 2019 Previously reported USD '000 Adjustment Restated USD '000 USD '000 71,073 26,678 8,137 (625) 79,210 26,053 13,145 7,740 20,885 (93,302) (228) (93,530) STATEMENT OF FINANCIAL POSITION ASSETS Investments at fair value through profit or loss Other assets LIABILITIES Other liabilities EQUITY Accumulated losses 30 June 2020 Previously reported USD '000 Adjustment Restated USD '000 USD '000 35,734 6,651 42,385 5,849 7,740 13,589 (1,089) (174,652) STATEMENT OF FINANCIAL POSITION ASSETS Investments at fair value through profit or loss LIABILITIES Other liabilities EQUITY Accumulated losses (173,563) Six-months ended 31 December 2019 Previously Adjustment Restated reported USD '000 USD '000 USD '000 STATEMENT OF INCOME Fair value losses on investments carried at fair value through profit or loss - net (13,859) (4,763) (18,622) ____________________________________________________________________________________ 19