Africa OpportunityFd - Half Year Report
29/09/2022 07:00
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RNS Number : 0595B Africa Opportunity Fund Limited 29 September 2022
29 September, 2022
Africa Opportunity Fund Limited
("AOF" or the "Company", or the "Fund")
Half Yearly Report for the Six Months ended 30 June 2022
The Board of Directors of Africa Opportunity Fund Limited is pleased to
announce its unaudited results for the 6 month period to 30 June 2022. The
full half yearly report for the period ended 30 June 2022 will be sent to
shareholders and will be available soon on the Company's website: www.
(http://www.africaopportunityfund.com/) a
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(http://www.africaopportunityfund.com/) y
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(http://www.africaopportunityfund.com/) nd.com
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Highlights:
· AOF's Ordinary share net asset value per share of US$1.003 as at
30 June 2022, generating a total return of -4.7% from the 31 December 2021 net
asset value per share of US$1.052.
· As at 30 June 2022, AOF's investment allocation for its Ordinary
Shares was all equities.
· AOF's shareholders voted on 29 June 2022 to extend the
realisation period of its portfolio from 30 June 2022 to 30 June 2024.
· AOF's Ordinary Shares net asset value per share on 31 July 2022
was US$0.96.
· AOF mandatorily redeemed 4.57 million shares for an aggregate
consideration of $4.5 million in July 2022.
Manager's Commentary:
Market Conditions
AOF's total return in H1 2022 was -4.7%. As a reference, during this period
in USD the S&P fell 20%, Brazil rose 1%, Russia fell 19%, India fell 13%,
and China fell 8%. In Africa, South Africa fell 8%, Egypt fell 34%, Kenya fell
25%, and Nigeria rose 26%. Three Africa-focused exchange traded funds - the
Lyxor Pan Africa ETF (LGQM GY), the DBX MSCI Africa Top 50 (XMAF LN), and Van
Eck Africa Index (AFK US), fell, respectively, 15%, 17%, and 16%.
Ordinary Shares Portfolio Highlights
AOF made progress realising and distributing the proceeds from its less liquid
portfolio holdings during H1 2022. The Russian invasion of Ukraine, rising
global inflation, an appreciating US Dollar, and the spate of China Covid-19
lockdowns casting a pall on commodity demand were the proximate global causes
for the sharp market declines of H1 and the depreciation of African currencies
like the CFA Franc and the Egyptian Pound. The Ghanaian Cedi's 23%
depreciation against the US Dollar, however, was primarily driven by internal
factors such as sharp rises in Cedi-denominated debt yields and the Ghana
government's loss of access to the Eurobond markets as the spread on its
Eurobonds soared comfortably above 1,000 basis points over US government bonds
to place them in the distressed debt category. The Fund sold its entire
holding of Societe de Caoutchous de Grand-Bereby, sold most of its Letshego
shares, and a modest amount of its Copperbelt holdings. All the disposals were
made in the market.
The remaining holdings of the Fund are, as a generalisation, very illiquid.
Three of them accounted for 68% of the Fund's H1 losses. Some commentary on
them is in order. We intend to pursue a combination of block trades plus the
occasional corporate transaction to effect an orderly realisation of the
remaining portfolio.
Enterprise Group's shares, in H1, gained 18% in Cedis but fell 8% in US
Dollars. It released its annual report and its Q1 and Q2 2022 results.
Enterprise Group faces the deep uncertainties of a Ghana negotiating its
17(th) program with the International Monetary Fund. Enterprise's H1 2022
net profits belonging to its shareholders, year-on-year, rose by 29% in Cedis
and 5% in US Dollars. Operating expenses, H1-on-H1, rose 19% versus a 29%
increase in net insurance premia in the same period. However, investment
income was stagnant and benefits and claims rose by 42%, year-on-year. It is
displaying resilience in US Dollars. Enterprise's shares trade on a P/E
ratio of 6.5x and a P/B ratio of 0.82x, with a return on average equity of
13%. Enterprise's US Dollar track record of book value per share change
and dividends paid between 2001 and 2021, despite an 88% depreciation of the
Cedi, was a 39x multiple. Over time, against this macroeconomic stress, it
should continue to grow its revenues and profits.
Copperbelt Energy executed a new 13-year Bulk Supply Agreement with ZESCO in
H1. Its execution (two years in the making since the 2020 expiry of the old
Bulk Supply Agreement) allows Copperbelt and ZESCO to plan their capital
expenditure programs over a long period, as befits the capital-intensive
electricity sector. At Copperbelt's current share price of ZMW 3.5/share
(corresponding to $369 million market capitalization and an enterprise value
of $295 million), Copperbelt trades on a P/E ratio of 5.6x, a gross dividend
yield of 14.27%, and a P/B ratio of 1.05x. Its annualised return on assets
is 8.8% and its annualised return on equity is 17.5%. Copperbelt's H1 2022
results were strong: total energy transmitted through its networks rose 7% to
3461 GWh; revenues rose 12%, EBITDA rose 11%, cash generated from operations
rose 16%, net profits rose 18% to $30 million, and its net cash balance rose
27% to $106 million. In sum, Copperbelt is a net cash electric utility of
improving fortunes.
Zimbabwean inflation continues to rise rapidly. It is now over 200%. Its
currency dropped sharply in the parallel market. The proximate causes were,
in all likelihood, the rocketing costs of fuel and grain imports.
Consequently, the valuations of First Mutual Properties and Mashonaland
Holdings fell sharply in US Dollars. The Fund's property holdings preserve
purchasing power in the long run in an economy suffering from foreign currency
shortages and hyperinflation.
Extraordinary general meeting of the Fund's shareholders
The Fund held an extraordinary general meeting in June 2022 to determine
whether to extend the realisation period of the Fund. Consistent with the
Fund's investment policy, the Investment Manager sought to maximise sales
proceeds from the Fund's portfolio. However, the pace of disposal was slower
than anticipated because of the negative impacts on valuation and liquidity of
some of the Fund's holdings arising from unexpected developments like the
covid pandemic and the Ukraine war and, in some cases, company-idiosyncratic
events. The Investment Manager's response was to delay disposals until its
estimates of intrinsic value were approached in market valuations. The
Fund's NAV performance benefited substantially from this response. A
majority of the Fund's shareholders voted to extend the Fund's realisation
period to June 2024.
Strategy
The Fund is in the process of realising its holdings. The Investment Manager's
approach is to combine a steadfast quest to realise the approximate appraisal
or intrinsic value of each security together with opportunistic sales. A
distribution was made in July 2022 in the form of a compulsory share
redemption worth $4.5 million. The portfolio is now comprised of illiquid
holdings and we are looking to the extension period to effectuate a realising
of the remaining portfolio.
On Behalf of the Investment Manager, Africa Opportunity Partners LLC.
Responsibility Statements:
The Board of Directors confirm that, to the best of their knowledge:
a. The financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company.
b. The Interim Investment Manager Report, and
Condensed Notes to the Financial Statements include:
i. a fair review of the information required by DTR 4.2.7R
(indication of important events that have occurred during the first six months
and their impact on the financial statements, and a description of principal
risks and uncertainties for the remaining six months of the year); and
ii. a fair review of the information required by DTR
4.2.8R (confirmation that no related party transactions have taken place in
the first six months of the year that have materially affected the financial
position or performance of the Company during that period).
Per Order of the Board
28 September, 2022
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
For the period For the period
ended 30 June ended 30 June
Notes 2022 2021
USD USD
Income
Net gains on investment in subsidiaries at fair value
through profit or loss 6(a) - 9,437,363
9,437,363
-
Expenses
Net losses on investment in subsidiaries at fair value
through profit or loss 6(a) 1,022,622 -
25,000 149,395
Realisation fee
56,576 44,590
Other operating expenses
35,000 35,000
Directors' fees
66,670 67,228
Audit and professional fees
1,205,868 296,213
(1,205,868) 9,141,150
(Loss)/income for the period attributable to equity holders
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE
2022
Notes 30 June 2022 30 June 2021
USD USD
ASSETS
Cash and cash equivalents 8 50,103 39,604
Investment in subsidiaries at fair value through profit or loss* 6(a) 24,823,222 24,557,221
Receivable from related party 7 186,985 116,675
Other receivables 7 1,123 1,257
Total assets 25,061,433 24,714,757
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 10 190,108 221,833
Total liabilities 190,108 221,833
Net assets attributable to shareholders 24,871,325 24,492,924
Ordinary share capital 247,878 247,878
Share premium 6,451,469 6,440,920
Retained earnings 18,171,978 17,804,126
Total equity 24,871,325 24,492,924
Net assets value per share:
- Ordinary shares 1.003 0.988
*The investment in subsidiares at fair value through profit or loss include
the investment in the Master Fund -
Africa Opportunity Fund L.P.
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
Share Share Retained
Capital Premium Earnings Total
USD USD USD USD
247,878 6,451,469 19,377,846 26,077,193
At 1 January 2022
OPERATIONS:
- - (1,205,868) (1,205,868)
Total comprehensive income for the period
247,878 6,451,469 18,171,978 24,871,325
At 30 June 2022
AFRICA OPPORTUNITY FUND LIMITED
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE
2022
For the period ended For the period ended
30 June 2022 30 June 2021
USD USD
Operating activities
(Loss)/income for the period (1,205,868) 9,141,150
Adjustment for non-cash items:
Net losses/(gains) on investment in subsidiaries at
fair value through profit or loss 1,022,622 (9,437,363)
Cash used in operating activities (183,246) (296,213)
Net changes in operating assets and liabilities
Reduction in investments in subsidiaries at fair value
through profit or loss 249,500 7,453,896
Increase in loan receivable from related party (37,433) (33,346)
Increase in other receivables 6,739 6,259
(Decrease)/increase in trade and other payables (6,926) 74,016
Net cash generated from operating activities 211,880 7,500,825
Financing activities
Redemption of ordinary shares - (7,203,973)
Cash used in financing activities - (7,203,973)
Net increase in cash and cash equivalents 28,634 639
Cash and cash equivalents at 1 January 21,469 38,965
Cash and cash equivalents at 30 June 50,103 39,604
AFRICA OPPORTUNITY FUND LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE
2022
1. GENERAL INFORMATION
Africa Opportunity Fund Limited (the "Company") was launched with an
Alternative Market Listing "AIM" in July 2007 and moved to the Specialist Fund
Segment ("SFS") in April 2014.
Africa Opportunity Fund Limited is a closed-ended fund incorporated with
limited liability and registered in Cayman Islands under the Companies Law on
21 June 2007, with registered number MC-188243. The Company is exempted from
registering with CIMA under the Private Funds Act of the Cayman Islands given
that it is listed on the SFS of the London Stock Exchange which is approved by
CIMA.
The Company aims to achieve capital growth and income through investment in
value, arbitrage, and special situations investments in the continent of
Africa. The Company may therefore invest in securities issued by companies
domiciled outside Africa which conduct significant business activities within
Africa. The Company has the ability to invest in a wide range of asset classes
including real estate interests, equity, quasi-equity or debt instruments and
debt issued by African sovereign states and government entities.
The Company's investment activities are managed by Africa Opportunity Partners
LLC, a limited liability company incorporated in the Delaware, United States
and acting as the investment manager pursuant to an Amended and Restated
Investment Management Agreement dated 13 June 2022.
To ensure that investments to be made by the Company and the returns generated
on the realisation of investments are both effected in the most tax efficient
manner, the Company has established Africa Opportunity Fund L.P. (the "Master
Fund") as an exempted limited partnership in the Cayman Islands. All
investments made by the Company are made through the limited partnership. The
limited partners of the limited partnership are the Company and AOF CarryCo
Limited. The general partner of the limited partnership is Africa Opportunity
Fund (GP) Limited. Africa Opportunity Fund Limited includes 100% of Africa
Opportunity Fund (GP) Limited.
The financial statements for the Company for the half year ended 30 June 2022
were authorised for issue in accordance with a resolution of the Board of
Directors on 28 September 2022.
Presentation currency
The financial statements are presented in United States Dollars ("USD"). All
figures are presented to the nearest dollar.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies have been consistently
applied from the prior year to the current year for items which are considered
material in relation to the financial statements.
Statement of compliance
The financial statements are prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
Basis of preparation
The Company satisfied the criteria of an investment entity under IFRS 10:
Consolidated Financial Statements. As such, the Company no longer consolidates
the entities it controls. Instead, its interest in the subsidiaries has been
classified as fair value through profit or loss, and measured at fair value.
This consolidation exemption has been applied prospectively and more details
of this assessment are provided in Note 4 "significant accounting judgements,
estimates and assumptions." The financial statements are prepared in
accordance with International Financial Reporting Standards ("IFRS") as issued
by the International Accounting Standards Board (IASB). The financial
statements have been prepared under the historical cost convention except for
financial assets and financial liabilities measured at fair value through
profit or loss. The preparation of financial statements in accordance with
IFRS requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.
Although these estimates are based on management's knowledge of current events
and actions, actual results ultimately may differ from those estimates. In
additional to the following: All assets have been assessed for impairment
regardless of whether any indicators for impairment were identified; and all
possible liabilities that might arise from the winding up of the Company have
been accrued for. The preparation of financial statements in conformity with
IFRS requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgment in the process of
applying the Company's accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in Note 4.
As the entity is not a going concern due to the limited life, the directors
have considered an alternative basis of preparation but believe that IFRS as a
basis for preparation best reflects the financial position and performance of
the entity. The carrying value of the assets, which were determined in
accordance with the accounting policies, have been reviewed for possible
impairment and changes which have occurred since the year end and
consideration has been given to whether any additional provisions are
necessary as a result of the decision to deregister. It is expected that all
assets will realise at least at the amounts at which they are included in the
statement of financial position and there will be no material additional
liabilities.
The Company presents its statement of financial position in order of
liquidity.
The Company's financial statements include disclosure notes on the Master
Fund, Africa Opportunity Fund L.P. given that the net asset value of the
Master Fund is a significant component of the Investment in subsidiaries of
the Company. These additional disclosures are made in order to provide the
users of the financial statements within an overview of the Master Fund
performance.
Foreign currency translation
(i) Functional and presentation currency
The Company's financial statements are presented in USD which is the
functional currency, being the currency of the primary economic environment in
which both the Company operates. The Company determines its own functional
currency and items included in the financial statements of each entity are
measured using that functional currency. The functional currency of the
Company is USD. The Company chooses USD as the presentation currency.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded at the functional
currency rate prevailing at the date of transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the
functional currency spot rate of the exchange ruling at the reporting date.
All differences are taken to profit or loss. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are translated
using the exchange rates at the date when the fair value is determined.
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of
one entity and a financial liability or equity instrument of another entity.
(a) Classification
The Company classifies its financial assets and liabilities in accordance with
IFRS 9 into the following categories:
(i) Financial assets and liabilities at fair value through profit or loss
For the Company, financial assets classified at fair value through profit or
loss upon initial recognition include investment in subsidiaries.
Investment in subsidiaries
In accordance with the exception under IFRS 10 Consolidated Financial
Statements, the Company does not consolidate subsidiaries in the financial
statements. Investments in subsidiaries are accounted for as financial
instruments at fair value through profit or loss in accordance with IRFS 9 -
Financial Instruments.
Management concluded that the Company meets the definition of an investment
entity as it invests solely for returns from capital appreciations, investment
income or both, and measures and evaluates the performance of its investments
on a fair value basis. Accordingly, consolidated financial statements have not
been prepared.
(ii) Financial assets at amortised cost
The Company measures financial assets at amortised cost if both of the
following conditions are met:
· The financial asset is held within a business model with the objective to
hold financial assets in order to collect contractual cash flows
· The contractual terms of the financial asset give rise on specified dates
to cash flows that are solely payments of principal and interest on the
principal amount outstanding
Financial assets at amortised cost are subsequently measured using the
effective interest (EIR) method and are subject to impairment. Gains and
losses are recognised in profit or loss when the asset is derecognised,
modified or impaired. The Company's financial assets at amortised cost
comprise 'other receivables, receivables from related party' and 'cash and
cash equivalents' in the statement of financial position.
(iii) Other financial liabilities
This category includes all financial liabilities, other than those classified
as fair value through profit or loss. The Company includes in this category
amounts relating to trade and other payables and dividend payable.
(b) Initial 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 market
place are recognised directly on the trade date, i.e., the date that the
Master Fund commits to purchase or sell the asset.
(c) Initial measurement
Financial assets and liabilities 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 profit or loss.
Derivatives embedded in other financial instruments are treated as separate
derivatives and recorded at fair value if their economic characteristics and
risks are not closely related to those of the host contract, and the host
contract is not itself classified as held for trading or designated at fair
value though profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Financial assets at amortised cost and financial liabilities (other than those
classified as held for trading) are measured initially at their fair value
plus any directly attributable incremental costs of acquisition or issue.
(d) Subsequent measurement
The Company measures financial instruments which are classified at fair value
through profit or loss at fair value. Subsequent changes in the fair value of
those financial instruments are recorded in 'Net gain or loss on financial
assets and liabilities at fair value through profit or loss. Interest earned
elements of such instruments are recorded separately in 'Interest revenue'.
Financial assets at amortised costs are subsequently measured using the
effective interest method and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is derecognised, modified or
impaired.
Financial liabilities, other than those classified as at fair value through
profit or loss, are measured at amortised cost using the effective interest
method. Gains and losses are recognised in profit or loss when the liabilities
are derecognised, as well as through the amortisation process.
The effective interest method is a method of calculating the amortised cost of
a financial asset or a financial liability and of allocating the interest
income or interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the financial
asset or financial liability. When calculating the effective interest rate,
the Company estimates cash flows considering all contractual terms of the
financial instruments, but does not consider future credit losses. The
calculation includes all fees paid or received between parties to the contract
that are an integral part of the effective interest rate, transaction costs
and all other premiums or discounts.
(e) 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; or
· The Company has transferred its rights to
receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a
'pass-through' arrangement; 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. When the Company has transferred its rights to receive
cash flows from an asset (or has entered into a pass-through arrangement), and
has neither transferred nor retained substantially all the risks and rewards
of the asset nor transferred control of the asset, the asset is recognised to
the extent of the Company's continuing involvement in the asset.
The Company derecognises a financial liability when the obligation under the
liability is discharged, cancelled or expires. When an existing financial
liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as the derecognition of
the original liability and the recognition of a new liability. The difference
in the respective carrying amounts is recognised in profit or loss.
Determination of fair value
The Company measures it investments in subsidiaries at fair value through
profit or loss at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measured is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either
in the principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the
Company. The fair value for financial instruments traded in active markets
at the reporting date is based on their quoted price without any deduction for
transaction costs.
For all other financial instruments not traded in an active market, the fair
value is determined by using appropriate valuation techniques. Valuation
techniques include: using recent arm's length market transactions; reference
to the current market value of another instrument that is substantially the
same; discounted cash flow analysis and option pricing models making as much
use of available and supportable market data as possible. An analysis of fair
values of financial instruments and further details as to how they are
measured is provided in Note 6.
The Company uses the following hierarchy for determining and disclosing the
fair value of the financial instruments by valuation technique:
· Level 1: quoted (unadjusted) market prices in
active markets for identical assets and liabilities.
· Level 2: valuation techniques for which the lowest
level input that is significant to the fair value measurement is directly or
indirectly observable.
· Level 3: valuation techniques for which the lowest
level input that is significant to the fair value measurement is unobservable.
Impairment of financial assets
The Company recognises an allowance for expected credit
losses (ECLs) for all financial assets measured at amortised cost. When
measuring ECL, the Company uses reasonable and supportable forward-looking
information, which is based on assumptions for the future movement of
different economic drivers and how these drivers will affect each other. Loss
given default is an estimate of the loss arising on default. It is based on
the difference between the contractual cash flows due and those that the
entity would expect to receive, taking into account cash flows from credit
enhancements. The Company considers a financial asset in default when
contractual payments are 90 days past due. However, in certain cases, the
Company may also consider a financial asset to be in default when internal or
external information indicates that the Company is unlikely to receive the
outstanding contractual amounts in full before taking into account any credit
enhancements held by the Company. A financial asset is written off when there
is no reasonable expectation of recovering the contractual cash flows.
At the reporting date, other receivables, loan
receivables from related party and cash and cash equivalents are de minimis.
As a result, no ECL has been recognised as any amount would have been
insignificant.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the statement of financial position if, and only if, there is a
currently legally enforceable right to offset the recognised amounts and there
is an intention to settle on a net basis, or to realise the asset and settle
the liability simultaneously.
Net gain or loss on financial assets and liabilities at fair value through
profit or loss
This item includes changes in the fair value of financial assets and
liabilities held for trading or designated upon initial recognition as 'at
fair value through profit or loss' and excludes interest and expenses.
Unrealised gains and losses comprise changes in the fair value of financial
instruments for the year and from reversal of prior year's unrealised gains
and losses for financial instruments which were realised in the reporting
period.
Shares that impose on the Company, an obligation to deliver to shareholders a
pro-rata share of the net asset of the Company on liquidation classified as
financial liabilities
The shares are classified as equity if those shares have all the following
features:
(a) It entitles the holder to a pro rata share of the Company's net
assets in the event of the Company's liquidation.
The Company's net assets are those assets that remain after deducting all
other claims on its assets. A pro rata share is determined by:
(i) dividing the net assets of the Company on liquidation into units
of equal amount; and
(ii) multiplying that amount by the number of the shares held
by the shareholder.
(b) The shares are in the class of instruments that is subordinate
to all other classes of instruments. To be in such a class the instrument:
(i) has no priority over other claims to the assets of the
Company on liquidation, and
(ii) does not need to be converted into another instrument
before it is in the class of instruments that is subordinate to all other
classes of instruments.
(c) All shares in the class of instruments that is subordinate to all
other classes of instruments must have an identical contractual obligation for
the issuing Company to deliver a pro rata share of its net assets on
liquidation.
In addition to the above, the Company must have no other financial instrument
or contract that has:
(a) total cash flows based substantially on the profit or loss, the change
in the recognised net assets or the change in the fair value of the recognised
and unrecognised net assets of the Company (excluding any effects of such
instrument or contract) and
(b) the effect of substantially restricting or fixing the residual return
to the shareholders.
The shares that meet the requirements to be classified as a financial
liability have been designated as at fair value through profit or loss on
initial recognition.
Dividend expense
Dividend expense relating to equity securities sold short is recognised when
the shareholders' right to receive the payment is established.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank. Cash equivalents are short
term, highly liquid investments that are readily convertible to known amounts
of cash and which are subject to an insignificant risk of change in value.
3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Company applied for the first-time certain standards and amendments, which
are effective for annual periods beginning on or after 1 January 2022. The
Company has not early adopted any other standard, interpretation or amendment
that has been issued but is not yet effective.
Although these new standards and amendments applied for the first time in
2020, they did not have a material impact on the financial statements of the
Company.
3.1. ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET
EFFECTIVE
The following standards, amendments to existing standards and interpretations
were in issue but not yet effective. The Company would adopt these standards,
if applicable, when they become effective. No early adoption of these
standards and interpretations is intended by the Board of Directors.
Effective for accounting period
beginning
on or after
Amendments to IAS 8 - Accounting policies, Changes in Accounting Estimates and 1 January 2023
Errors
Amendments to IAS 1: Classification of Liabilities as Current or 1 January 2023
Non-current
The Company does not expect that the adoption of these standards will have any
material impact on the financial statements.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Company's financial statements requires management to
make judgements, estimates and assumptions that affect the reported amounts
recognised in the financial statements and disclosure of contingent
liabilities. 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 future periods.
Judgements
In the process of applying the Company's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the financial statements:
Going concern
At the Extraordinary General Meeting ("EGM") of the Company held on 29 June
2022, the shareholders voted in favor of a Continuation Resolution which
extended the life of the Company, with the current Investment Policy remaining
in place, to 30 June 2024. If the assets of the Company are not realised
over the period of the extension, the Directors will formulate and revert to
Shareholders in 2024 further proposals to continue, reorganise or reconstruct
the Company or to wind up the Company.
The Company will continue to return sums to Shareholders by way of compulsory
redemption, repurchase of Ordinary Shares in the market or such other method
as determined by the Directors.
Below is a brief synopsis of the "New Investing Policy" as approved with the
passage of the Continuation Resolution and consistent with the Company's
Circular dated 5 June 2019, updated to reflect the two-year continuance:
For a period of up to two additional years following the 29 June 2022
Extraordinary General Meeting (the "Extended Return Period"), the Company will
make no new investments (save that it may invest in, or advance additional
funds to, existing investments within the Company's portfolio to maximise
value and assist in their eventual realisation). The Company will continue to
adopt the New Investment Policy whereby the Company's existing portfolio of
investments will be divested in a controlled, orderly and timely manner to
facilitate a staged return of capital. It should be appreciated that there is
no time horizon in terms of the implementation of the New Investment Policy.
Although the Company's portfolio is comprised of some liquid equity holdings,
the Company's portfolio is weighted to somewhat illiquid investments and it
may take the Investment Manager some time to realise these. Shareholders will
be provided with an opportunity to reassess the investment policy and
distribution policy if investments remain unrealised at the end of the
Extended Return Period. Subsequent to the disposal of the investments, the
Company will be liquidated, which indicates that it will no longer be a going
concern. IAS 1 - Presentation of Financial Statements and IAS 10 - Events
after the reporting period require that the financial statements should not be
prepared on a going concern basis if management determines that it intends to
liquidate the entity. The directors have considered an alternative basis of
preparation but believe that International Financial Reporting Standards
("IFRS"), as a basis for preparation, best reflects the financial position and
performance of the Company. The extension of the Company through 30 June
2024 further supports this methodology.
The carrying value of the of the assets, which were determined in accordance
with the accounting policies, have been reviewed for possible impairment and
changes which have occurred since the half-year and consideration has been
given to whether any additional provisions are necessary as a result of the
decision to eventually deregister. It is expected that all assets are fairly
valued and will realise at, or near, the amounts at which they are included in
the statement of financial position and there will be no material additional
liabilities.
Determination of functional currency
The determination of the functional currency of the Company is critical since
recording of transactions and exchange differences arising thereon are
dependent on the functional currency selected. As described in Note 2, the
directors have considered those factors therein and have determined that the
functional currency of the Company is the United States Dollar.
Assessment for an investment entity
An investment entity is an entity that:
(a) Obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management services;
(b) Commits to its investor(s) that its business purpose is to invest
funds solely for returns from capital appreciation, investment income, or
both; and
(c) Measures and evaluates the performance of substantially all of its
investments on a fair value basis.
An investment entity must demonstrate that fair value is the primary
measurement attribute used. The fair value information must be used internally
by key management personnel and must be provided to the entity's investors. In
order to meet this requirement, an investment entity would:
· Elect to account for investment property using the fair
value model in IAS 40 Investment Property
· Elect the exemption from applying the equity method in
IAS 28 for investments in associates and joint ventures, and
· Measure financial assets at fair value in accordance
with IFRS 9.
In addition an investment entity should consider whether it has the following
typical characteristics:
· It has more than one investment, to diversify the risk
portfolio and maximise returns;
· It has multiple investors, who pool their funds to
maximise investment opportunities;
· It has investors that are not related parties of the
entity; and
· It has ownership interests in the form of equity or
similar interests.
The Board considers that the Company meets the definition of an investment
entity as it invests solely for returns from capital appreciations, investment
income or both, and measures and evaluates the performance of its investments
in subsidiaries on a fair value basis. In addition, the Company has more than
one investors and the major investors are not related parties of the Company.
The Company also has an exit strategy given that it is a limited life entity,
realising its investments at the end of the Return Period of 3 years as per
the 'New Investment Policy'. Accordingly, consolidated financial statements
have not been prepared. IFRS 10 Consolidated Financial Statements provides
"investment entities' an exemption from the consolidation of particular
subsidiaries and instead require that an investment entity measures the
investment in each eligible subsidiary at fair value through profit or loss in
accordance with IFRS 9 Financial Instruments.
Assumptions and Estimates
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are discussed below. The Company based its
assumptions and estimates on parameters available when the financial
statements were prepared. However, existing circumstances and assumptions
about future developments may change due to market changes or circumstances
arising beyond the control of the Company. Such changes are reflected in the
assumptions when they occur. When the fair value of financial assets and
financial liabilities recorded in the statement of financial position cannot
be derived from active markets, their fair value is determined using a variety
of valuation techniques that include the use of mathematical models.
Fair value of financial instruments
The inputs to these models are taken from observable markets where possible,
but where this is not feasible, estimation is required in establishing fair
values. The estimates include considerations of liquidity and model inputs
such as credit risk (both own and counterparty's), correlation and volatility.
Changes in assumptions about these factors could affect the reported fair
value of financial instruments in the statement of financial position and the
level where the instruments are disclosed in the fair value hierarchy.
The models are calibrated regularly and tested for validity using prices from
any observable current market transactions in the same instrument (without
modification or repackaging) or based on any available observable market data.
An analysis of fair values of financial instruments and further details as to
how they are measured is provided in Note 6.
IFRS 13 requires disclosures relating to fair value measurements using a
three-level fair value hierarchy. The level within which the fair value
measurement is categorised in its entirety is determined on the basis of the
lowest level input that is significant to the fair value measurement in its
entirety as provided in Note 6. Assessing the significance of a particular
input requires judgement, considering factors specific to the asset or
liability. To assess the significance of a particular input to the entire
measurement, the Company performs sensitivity analysis or stress testing
techniques.
5a. AGREEMENTS
Investment Management Agreement
Effective 1 July 2022, the Company and the Investment Manager have, upon the
approval of the Reorganisation Resolution at the EGM in June 2022, entered
into the Amended and Restated Investment Management Agreement which amends the
fees payable to the Investment Manager as follows:
Management fees
The management fee shall be reduced to 1 per cent of the Net Asset Value per
annum for the two years of the Extended Return Period (the period of up to two
years following the EGM held in June 2022).
The Investment Manager's entitlement to future performance fees (through
CarryCo) has been cancelled and CarryCo's limited partnership interest in the
Limited Partnership will be transferred to the Company for nominal value in
the last year of the Extended Return Period, that being 2024.
The revisions to the arrangements with the Investment Manager, constitute a
related party transaction under the Company's related party policy, and in
accordance with that policy, the Company was required to obtain: (i) the
approval of a majority of the Directors who are independent of the Investment
Manager; and (ii) a fairness opinion or third-party valuation in respect of
such related party transaction from an appropriately qualified independent
adviser.
The realisation fee for the financial period under review amounts to USD
25,000 (2021: USD 149,395) of which USD 25,000 (2021: USD 32,500) relates to
accrued realisation fees, management and performance fees for the financial
period under review were nil (2021: nil).
Administrative Agreement
SS&C Technologies is the Administrator for the Company. Administrative
fees are expensed at the Master Fund level and have been included in the NAV
of the subsidiary.
Custodian Agreement
A Custodian Agreement has been entered into by the Master Fund and Standard
Chartered Bank (Mauritius) Ltd, whereby Standard Chartered Bank (Mauritius)
Ltd would provide custodian services to the Master Fund and would be entitled
to a custody fee of between 18 and 25 basis points per annum of the value of
the assets held by the custodian and a tariff of between 10 and 45 basis
points per annum of the value of assets held by the custodian. The custodian
fees are expensed at the Master Fund level and have been included in the NAV
of the subsidiary.
Prime Brokerage Agreement
Under the Prime Brokerage Agreement, the Master Fund appointed Credit Suisse
Securities (USA) LLC as its prime broker for the purpose of carrying out the
Master Fund's instructions with respect to the purchase, sale and settlement
of securities. Custodian fees are expensed at the Master Fund level and have
been included in the NAV of the subsidiary.
5b. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AT THE MASTER FUND LEVEL
Africa Opportunity Fund LP (the "Master Fund") is incorporated in the Cayman
Islands and is not subject to regulatory review. Management has voluntarily
disclosed all the policies and notes to the accounts of the Master Fund to
provide shareholders of the Company with a better insight.
The primary accounting policies for interest revenue and expense, dividend
revenue and expense and cash and cash equivalents, are similar as in Note 2.
Those policies which only relate to the Master Fund's financial statements are
set out below. These policies have been consistently applied from the prior
year to the current year for items which are considered material in relation
to the financial statements.
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of
one entity and a financial liability or equity instrument of another entity.
(a) Classification
The Master Fund classifies its financial assets and liabilities in accordance
with IFRS 9 into the following categories:
(i) Financial assets and liabilities at fair value through profit or loss
The category of the financial assets and liabilities at fair value through the
profit or loss is subdivided into:
Financial assets and liabilities held for trading
Financial assets are classified as held for trading if they are acquired for
the purpose of selling and repurchasing in the near term. This category
includes equity securities, investments in managed funds and debts
instruments. These assets are acquired principally for the purpose of
generating a profit from short term fluctuation in price. All derivatives and
liabilities from the short sales of financial instruments are classified as
held for trading.
Financial assets at fair value through profit or loss upon initial recognition
These include equity securities and debt instruments that are not held for
trading. These financial assets are classified at FVTPL on the basis that they
are part of a group of financial assets 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 each of
their offering documents. The financial information about the financial assets
is provided internally on that basis to the Investment Manager and to the
Board of Directors.
Derivatives - Options
Derivatives are classified as held for trading (and hence measured at fair
value through profit or loss), unless they are designated as effective hedging
instruments (however the Company does not apply any hedge accounting). The
Master Fund's derivatives relate to option contracts.
Options are contractual agreements that convey the right, but not the
obligation, for the purchaser either to buy or sell a specific amount of a
financial instrument at a fixed price, either at a fixed future date or at any
time within a specified period.
The Master Fund purchases and sells put and call options through regulated
exchanges and OTC markets. Options purchased by the Master Fund provide the
Master Fund with the opportunity to purchase (call options) or sell (put
options) the underlying asset at an agreed-upon value either on or before the
expiration of the option. The Master Fund is exposed to credit risk on
purchased options only to the extent of their carrying amount, which is their
fair value.
Options written by the Master Fund provide the purchaser the opportunity to
purchase from or sell to the Master Fund the underlying asset at an
agreed-upon value either on or before the expiration of the option.
Options are generally settled on a net basis.
Derivatives relating to options are recorded at the level of the Master
Fund. The financial statements of the Company do not reflect the derivatives
as they form part of the net asset value (NAV.) of the Master Fund which is
fair valued.
(ii) Financial assets at amortised cost
The Master Fund measures financial assets at amortised cost if both of the
following conditions are met:
· The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual cash flows
· The contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding
Financial assets at amortised cost are subsequently measured using the
effective interest (EIR) method and are subject to impairment. Gains and
losses are recognised in profit or loss when the asset is derecognised,
modified or impaired. The Master Fund's financial assets at amortised cost
comprise 'trade and other receivables' and 'cash and cash equivalents in the
statement of financial position.
(iii) Other financial liabilities
This category includes all financial liabilities, other than those classified
as fair value through profit or loss. The Master Fund includes in this
category amounts relating to trade and other payables and dividend payable.
(a) Recognition
The Master Fund 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 market
place are recognised directly on the trade date, i.e., the date that the
Master Fund commits to purchase or sell the asset.
(b) Initial measurement
Financial assets and liabilities 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 profit or loss.
Derivatives embedded in other financial instruments are treated as separate
derivatives and recorded at fair value if their economic characteristics and
risks are not closely related to those of the host contract, and the host
contract is not itself classified as held for trading or designated at fair
value though profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Financial assets at amortised cost and financial liabilities (other than those
classified as held for trading) are measured initially at their fair value
plus any directly attributable incremental costs of acquisition or issue.
(c) Subsequent measurement
The Master Fund measures financial instruments which are classified at fair
value through profit or loss at fair value. Subsequent changes in the fair
value of those financial instruments are recorded in 'Net gain or loss on
financial assets and liabilities at fair value through profit or loss.
Interest earned elements of such instruments are recorded separately in
'Interest revenue'. Dividend expenses related to short positions are
recognised in 'Dividends on securities sold not yet purchased'. Dividend
income/distributions received on investments at FVTPL is recorded in "Net gain
or loss on financial assets at fair value through profit or loss".
Financial assets at amortised costs are subsequently measured using the
effective interest method and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is derecognised, modified or
impaired.
(iii) Other financial liabilities
(d) Subsequent measurement
Financial liabilities, other than those classified as at fair value through
profit or loss, are measured at amortised cost using the effective interest
method. Gains and losses are recognised in profit or loss when the liabilities
are derecognised, as well as through the amortisation process.
The effective interest method is a method of calculating the amortised cost of
a financial asset or a financial liability and of allocating the interest
income or interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the financial
asset or financial liability. When calculating the effective interest rate,
the Master Fund estimates cash flows considering all contractual terms of the
financial instruments, but does not consider future credit losses. The
calculation includes all fees paid or received between parties to the contract
that are an integral part of the effective interest rate, transaction costs
and all other premiums or discounts.
(e) 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; or
· The Company has transferred its rights to
receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a
'pass-through' arrangement; and
Either (a) the Master Fund has transferred substantially all the risks and
rewards of the asset, or (b) the Master Fund has neither transferred nor
retained substantially all the risks and rewards of the asset, but has
transferred control of the asset. When the Master Fund has transferred its
rights to receive cash flows from an asset (or has entered into a pass-through
arrangement), and has neither transferred nor retained substantially all the
risks and rewards of the asset nor transferred control of the asset, the asset
is recognised to the extent of the Master Fund's continuing involvement in the
asset.
The Master Fund derecognises a financial liability when the obligation under
the liability is discharged, cancelled or expires. When an existing financial
liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as the derecognition of
the original liability and the recognition of a new liability. The difference
in the respective carrying amounts is recognised in profit or loss.
Determination of fair value
The Master Fund measures its investments in financial instruments, such as
equities, debentures and other interest-bearing investments and derivatives,
at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measured is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either
in the principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the Master
Fund. The fair value for financial instruments traded in active markets at
the reporting date is based on their quoted price without any deduction for
transaction costs.
For all other financial instruments not traded in an active market, the fair
value is determined by using appropriate valuation techniques. Valuation
techniques include: using recent arm's length market transactions; reference
to the current market value of another instrument that is substantially the
same; discounted cash flow analysis and option pricing models making as much
use of available and supportable market data as possible. An analysis of fair
values of financial instruments and further details as to how they are
measured is provided in Note 6.
Impairment of financial assets
The Master Fund uses the following hierarchy for determining and disclosing
the fair value of the financial instruments by valuation technique:
· Level 1: quoted (unadjusted) market prices in
active markets for identical assets and liabilities.
· Level 2: valuation techniques for which the lowest
level input that is significant to the fair value measurement is directly or
indirectly observable.
· Level 3: valuation techniques for which the lowest
level input that is significant to the fair value measurement is unobservable.
The Master Fund recognises an allowance for expected
credit losses (ECLs) for all financial assets measured at amortised cost. ECLs
are based on the difference between the contractual cash flows due in
accordance with the contract and all the cash flows that the Master Fund
expects to receive, discounted at an approximation of the original effective
interest rate. The expected cash flows will include cash flows from the sale
of collateral held or other credit enhancements that are integral to the
contractual terms.
ECLs are recognised either on a 12-month or lifetime basis. For credit
exposures for which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses that result
from default events that are possible within the next 12-months (a 12-month
ECL). For those credit exposures for which there has been a significant
increase in credit risk since initial recognition, a loss allowance is
required for credit losses expected over the remaining life of the exposure,
irrespective of the timing of the default (a lifetime ECL).
The Master Fund considers a financial asset in default when contractual
payments are 90 days past due. However, in certain cases, the Master fund may
also consider a financial asset to be in default when internal or external
information indicates that the Master fund is unlikely to receive the
outstanding contractual amounts in full before taking into account any credit
enhancements held by the Master fund. A financial asset is written off when
there is no reasonable expectation of recovering the contractual cash flows.
For trade receivables, the Master Fund applies a simplified approach in
calculating ECLs. Therefore, the Master Fund does not track changes in credit
risk, but instead recognises a loss allowance based on lifetime ECLs at each
reporting date. At the reporting date, the assessment of the Master Fund's
debt instruments which include trade and other receivables and cash and cash
equivalents were considered as de minimis. As a result, no ECL has been
recognised as any amount would have been insignificant.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the statement of financial position if, and only if, there is a
currently legally enforceable right to offset the recognised amounts and there
is an intention to settle on a net basis, or to realise the asset and settle
the liability simultaneously.
Net gain or loss on financial assets and liabilities at fair value through
profit or loss
This item includes changes in the fair value of financial assets and
liabilities held for trading or designated upon initial recognition as 'at
fair value through profit or loss' and excludes interest and expenses. At
the Master Fund Level, the fair value gains and losses exclude interest and
dividend income.
Unrealised gains and losses comprise changes in the fair value of financial
instruments for the year and from reversal of prior year's unrealised gains
and losses for financial instruments which were realised in the reporting
period.
Realised gains and losses on disposals of financial instruments classified as
'at fair value through profit or loss' are calculated using the Average Cost
(AVCO) method. They represent the difference between an instrument's initial
carrying amount and disposal amount, or cash payments or receipts made on
derivative contracts (excluding payments or receipts on collateral margin
accounts for such instruments).
Due to and due from brokers
Amounts due to brokers are payables for securities purchased (in a regular way
transaction) that have been contracted for but not yet delivered on the
reporting date at the Master Fund level. Refer to the accounting policy for
financial liabilities, other than those classified at fair value through
profit or loss for recognition and measurement.
Amounts due from brokers include margin accounts and receivables for
securities sold (in a regular way transaction) that have been contracted for
but not yet delivered on the reporting date. Refer to accounting policy for
financial assets at amortised cost for recognition and measurement.
Interest revenue and expense
Interest revenue and expense are recognised in profit or loss for all
interest-bearing financial instruments using the effective interest method.
Dividend revenue
Dividend revenue is recognised when the Master Fund's right to receive the
payment is established. Dividend revenue is presented gross of any
non-recoverable withholding taxes, which are disclosed separately in profit or
loss of the Master Fund.
6. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH
PROFIT OR LOSS
6(a). Investment in subsidiaries at fair value
The Company has established Africa Opportunity Fund L.P., an exempted limited
partnership in the Cayman Islands to ensure that the investments made and
returns generated on the realisation of the investments made and returns
generated on the realisation of the investments are both effected in the most
tax efficient manner. All investments made by the Company are made through the
limited partner which acts as the master fund. The limited partners of the
limited partnership are the Company and AOF CarryCo Limited. The general
partner of the limited partnership is Africa Opportunity Fund (GP) Limited.
Africa Opportunity Fund Limited hold 100% of the Africa Opportunity Fund (GP)
Limited.
2022
USD
Investment in Africa Opportunity Fund L.P. 24,819,574
Investment in Africa Opportunity Fund (GP) Limited 3,648
Total investment in subsidiaries at fair value 24,823,222
Fair value at 01 January 26,095,345
Reduction in investment in subsidiaries* (249,501)
Net loss on investment in subsidiaries at fair value (1,022,622)
Fair value at 30 June 2022 24,823,222
* The reduction in investment in subsidiaries relates to capital withdrawn
from the Master Fund by the Company.
6(b). Fair value hierarchy
The Company uses the following hierarchy for determining and disclosing the
fair value of the financial instruments by valuation technique:
Level 1: quoted (unadjusted) market prices in active markets for identical
assets and liabilities.
Level 2: valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
Level 3: valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
Note: The assets and liabilities of the Master Fund have been presented but do
not represent the assets and liabilities of the Company as the Master Fund has
not been consolidated.
· Fair value hierarchy of the Company
30 June
2022 Level 1 Level 2 Level 3
COMPANY USD USD USD
Investment in subsidiaries 24,823,222 - 24,823,222 -
· Fair value hierarchy of the Master Fund.
The Company has investment in Africa Opportunity Fund L.P., the Master Fund,
amounting to USD 24,823,222. The underlying investments of the Master Fund
amounts to USD 20,917,390. Details on the financial assets and liabilities of
the Master Fund and fair value hierarchy are as follows:
30 June
2022 Level 1 Level 2 Level 3
USD USD USD
MASTER FUND
Financial assets at fair value through profit or loss
Equities 20,793,464 14,958,151 5,835,313 -
Debt securities 123,926 123,926 - -
20,917,390 15,082,077 5,835,313 -
6(c). The valuation technique of the investment in subsidiaries at
Company level is as follow:
The Company's investment manager considers the valuation techniques and inputs
used in valuing these funds as part of its due diligence, to ensure they are
reasonable and appropriate and therefore the NAV of these funds may be used as
an input into measuring their fair value. In measuring this fair value, the
NAV of the funds is adjusted, as necessary, to reflect restrictions on
redemptions, future commitments, and other specific factors of the fund and
fund manager. In measuring fair value, consideration is also paid to any
transactions in the shares of the fund. Given that there has been no such
adjustments made to the NAV of the underlying subsidiaries and given the
simple structure of the subsidiaries investing over 85% in quoted funds, the
Company classifies these investment in subsidiaries as Level 2.
6(d). The valuation technique of the investments at Master Fund level
are as follows:
Equity and debt securities
These pertain to equity and debt instruments which are quoted for which there
is a market price. As a result, they are classified within level 1 of the
hierarchy except for the valuation of listed on the Zimbabwe Stock Exchange
which have been classified as level 2 given that their quoted share price has
been discounted as at 30 June 2022 as follows:
Valuation of investments listed on the Zimbabwe Stock Exchange
Beginning in June 2020, the Zimbabwe authorities suspended Old Mutual shares
from the Zimbabwe Stock Exchange, necessitating the Company to devise an
alternative transparent discount factor. The new discount factor is based on
the official Zimbabwe Dollar exchange rate at the end of June 2019, when the
Zimbabwe Dollar, became the sole legal tender in Zimbabwe, modified by the
inflation differential between Zimbabwe and the United States captured in
their respective monthly Consumer Price Indices (the US Consumer Price Index
is that for urban consumers), then adjusted by the proportion of export
proceeds that must be surrendered by Zimbabwean exporters to the Zimbabwe
Reserve Bank. The initial surrender requirement was 20% of export proceeds,
but the Company after previously utilising a 5% surrender requirement to
reflect subsequent exemptions from this surrender requirement granted to some
export industries has re-established the 20% requirement to adjust for
Zimbabwean modifications to the official exchange rate. This discount factor
changes every month. The consequence of applying this discount factor is that
the Zimbabwe Dollar prices of the Company's investments listed on the Zimbabwe
Stock Exchange were converted into US Dollars, as at 30 June 2022 at a
discount rate of 36.8% (the discount rate was 45.5% as at 30 June 2021). The
value of the Zimbabwe investments recorded in the books of the Company, after
applying this discount factor, was USD 2,709,513 (2021 USD 9,963,667).
Written put options
These are traded on an active market and have a quoted market price. They have
therefore been classified in level 1 of the hierarchy. As of 30 June 2022, the
Company had no options outstanding.
Unquoted debt and equity investments
African Leadership University ("ALU") is a network of tertiary institutions,
currently with operations in both Mauritius and Rwanda. The Investment
Manager valued ALU on the basis of an observable arms-length transaction
between existing shareholders selling a portion of their shares and an
unaffiliated third party. The transactions were ratified at a Board meeting
in June 2021, and thus were utilised as the basis of the valuation as at 31
December 2021. At 30 June 2022, the investment in ALU has been classified
under level 2 because the value of the investment utilises the recent
transaction.
6(e). Statement of profit or loss and other comprehensive Income of the
Master Fund for the period from 1 January to 30 June 2022
The net losses on investments in subsidiaries at fair value through profit or
loss for the period from 1 January 2022 to 30 June 2022 amounted to USD
1,022,622, and net gains on investments in subsidiaries at fair value through
profit or loss for the period from 1 January 2021 to 30 June 2021 amounted to
USD 9,437,363 arising at the Master Fund and can be analysed as follows:
For the period
ended 30 June
2022
USD
Income
Interest revenue 5,630
Dividend revenue 212,234
Net gains on financial assets and liabilities at fair value
through profit or loss (1,116,210)
(898,346)
Expenses
Net foreign exchange loss 52,175
Custodian fees, brokerage fees and commission 87,309
Other operating expenses 2,473
141,957
Operating gain before tax (1,040,303)
Less withholding tax (1,570)
Total Comprehensive gain for the period (1,041,873)
Attributable to:
AOF Limited (direct interests) (1,022,472)
AOF Limited (indirect interests through AOF (GP) Ltd) (150)
(1,022,622)
AOF CarryCo Limited (NCI) (19,251)
(1,041,873)
The financial assets and liabilities of the Master Fund are analysed as
follows:
(i) Net (losses)/gains on financial assets and liabilities at
fair value through profit or loss held by Africa Opportunity Fund L.P.
For the period For the period
ended 30 June ended 30 June
2022 2021
USD USD
(1,116,210) 9,289,279
Net (losses)/gains on fair value of financial assets at fair value through
profit or loss
(1,116,210) 9,289,279
Net (losses)/gains
(ii) Financial asset and liabilities at fair value through profit
or loss held by Africa Opportunity Fund L.P.
For the period For the period
ended 30 June ended 30 June
2022 2021
USD USD
Held for trading assets:
At 1 January 24,015,367 19,480,476
Disposal (1,981,767) (4,248,156)
Net (losses)/gains on financial assets at fair value through profit or loss
(1,116,210) 9,289,279
At 30 June (at fair value) 20,917,390 24,521,599
Analysed as follows:
- Listed equity securities 17,667,664 20,734,697
- Listed debt securities 123,926 161,102
- Unlisted equity securities 3,125,800 3,625,800
20,917,390 24,521,599
(iii) Net changes on fair value of financial assets at fair value
through profit or loss
For the period For the period
ended 30 June ended 30 June
2022 2021
USD USD
Realised (406,986) (1,295,832)
Unrealised (709,224) 10,585,111
Total (losses)/gains (1,116,210) 9,289,279
7. RECEIVABLES
30 June 2022 30 June 2021
USD USD
Amounts due from Africa Opportunity Fund L.P. 186,985 116,675
Other receivables - 183
Prepayments 1,123 1,074
188,108 117,932
8. CASH AND CASH EQUIVALENTS
30 June 2022 30 June 2021
USD USD
50,103 39,604
Other bank accounts
9(a). ORDINARY SHARE CAPITAL
30 June 2022 30 June 2022 30 June 2021 30 June 2020
Number USD Number USD
Authorised share capital
Ordinary shares with a
par value of USD 0.01 1,000,000,000 10,000,000 1,000,000,000 10,000,000
Issued share capital
Ordinary shares with a
par value of USD 0.01 24,787,758 247,878 24,787,758 247,878
The directors have the general authority to repurchase the ordinary shares in
issue subject to the Company having funds lawfully available for the purpose.
However, if the market price of the ordinary shares falls below the Net Asset
Value, the directors will consult with the Investment Manager as to whether it
is appropriate to instigate a repurchase of the ordinary shares.
9(b). NET ASSETS ATTRIBUTABLE TO SHAREHOLDERS
Ordinary
Shares
USD
At 1 January 2022 26,077,193
Changes during the period:
Total comprehensive income for the period (1,205,868)
At 30 June 2022 24,871,325
Net asset value per share at 30 June 2022 1.003
10. TRADE AND OTHER PAYABLES
30 June 2022 30 June 2021
USD USD
Directors Fees Payable 17,500 17,500
Other Payables 172,608 204,333
190,108 221,833
Other payables are non-interest bearing and have an average term of six
months. The carrying amount of trade and other payables approximates their
fair value.
11. EARNING PER SHARE
The earnings per share (EPS) is calculated by dividing the decrease in net
assets attributable to shareholders by number of ordinary shares. The EPS
for the period ended 30 June 2022 and 2021 represent both the basic and
diluted EPS.
Period from 1 Period from 1
January 2022 January 2021
to 30 June 2022 to 30 June 2021
Ordinary shares Ordinary shares
Change in net assets attributable to shareholders USD (1,205,868) 9,141,150
Number of shares in issue 24,787,758 24,787,758
Change in net assets attributable to shareholders
per share USD (0.049) 0.369
12. ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES
30 June 2022 30 June 2021
ASSETS
Cash and cash equivalents 4,842,108 853,233
Trade and other receivables 185,473 225,154
Financial assets at fair value through profit or loss 20,917,390 24,521,599
Total assets 25,944,971 25,599,986
EQUITY AND LIABILITIES
Liabilities
Trade and other payables 469,208 474,296
Amount payable to related party - AOF Ltd 186,985 116,675
Total liabilities 656,193 590,971
Net assets attributable to members' account 25,288,778 25,009,015
13. TAXATION
Under the current laws of Cayman Islands, there is no income, estate, transfer
sales or other Cayman Islands taxes payable by the Company. As a result, no
provision for income taxes has been made in the financial statements.
Dividend revenue is presented gross of any non-recoverable withholding taxes,
which are disclosed separately in the statement of comprehensive income.
Withholding taxes are not separately disclosed in statement of cash flows as
they are deducted at the source of the income.
14. SEGMENT INFORMATION
For management purposes, the Çompany is organised in one main operating
segment, which invests in equity securities, debt instruments and relative
derivatives. All of the Company's activities are interrelated, and each
activity is dependent on the others. Accordingly, all significant operating
decisions are based upon analysis of the Company as one segment. The financial
results from this segment are equivalent to the financial statements of the
Company as a whole.
15. PERSONNEL
The Company did not employ any personnel during the period (2021: the same).
16. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting date.
17. SIGNIFICANT EVENTS
TERMINATION OF PRIME BROKER RELATIONSHIP
Credit Suisse (USA) LLC (the Prime Broker) made the determination it would
leave the Prime Brokerage business. As a result of this decision, the
Company began moving investments and cash from the Prime Broker to its
existing custodian, Standard Chartered Bank (Mauritius). As the Company is
undergoing the realisation investment strategy, the transfer of securities
does not adversely impact the Company as it may under an investment strategy
in which the use of margin is required for investment activities.
COVID-19 PANDEMIC
As Covid-19 continues to evolve new variants, the impacts, including a
potential global, regional or other economic recession, continue to be
uncertain and difficult to assess. Public health emergencies, including
outbreaks of Covid-19 or other existing or new epidemic diseases, or the
threat thereof, and the resulting financial and economic market uncertainty
could have a significant adverse impact on the Company, including the fair
value of its investments. The current investment strategy and distribution
policy, while mitigating some operational risks due to the enhanced levels of
cash and cash equivalents as a consequence of the realisation efforts, does
pose other challenges as the Investment Manager continues to attempt to
maximise value while realising investments during this volatile environment.
The Company and Africa Opportunity Fund, L.P. will continue to meet their
working capital requirements and other obligations through utilisation of
existing cash resources.
The Board and the Investment Manager are actively working towards assessing
and minimizing risks to the Fund's portfolio; however, given the degree of
uncertainty around the potential future course of Covid-19, it is not possible
to accurately quantify the future impact on the portfolio at this time.
UKRAINE GEOPOLITICAL SITUATION
The Investment Manager notes that market disruptions, which began in February
2022, associated with geopolitical events related to the conflict between
Russia and Ukraine may adversely affect the value of the Company's assets and
thus the Company's performance. Management continues to monitor these events
and to evaluate the related impacts, if any, to the Company.
18. SUBSEQUENT EVENTS
MANDATORY REDEMPTION
The Directors, at their sole discretion, can effect a compulsory redemption of
the Ordinary Shares on an ongoing basis and will therefore undertake a staged
return of capital to shareholders. On 28 June 2022, the Board of Directors of
Africa Opportunity Fund Limited announced the mandatory redemption of
4,573,168 Ordinary shares. On 6 July 2022, the mandatory redemption was
completed and AOF redeemed the 4,573,168 Ordinary Shares, on a pro rata basis,
at the prevailing NAV per Ordinary Share of $0.984 as at 31 May 2022. Such
shares were cancelled automatically following their redemption. Fractions of
shares produced by the applicable redemption ratios have not been redeemed and
so the number of shares redeemed in respect of each shareholder has been
rounded down to the nearest whole number of shares. Payments of redemption
proceeds were effected either through Euroclear or Clearstream (in the case of
shares held in uncertificated form) or by cheque (in the case of shares held
in certificated form) on or around 13 July 2022. Following the Mandatory
Redemption, the Company has 20,214,590 Ordinary Shares in issue. As a result
of the Mandatory Redemption described above, Robert Knapp and Myma
Belo-Osagie, Directors of the Company now hold 3,263,346 and 27,008 Ordinary
Shares, respectively. The redemption was funded through proceeds received from
realising the assets of the Company.
Except as stated above, there are no other events after the reporting date
which require amendments to and/or disclosure in these financial statements.
19. LIFE OF THE COMPANY
The Company does not have a fixed life but, as stated in the Company's
admission document published in 2007, the Directors consider it desirable that
Shareholders should have the opportunity to review the future of the Company
at appropriate intervals. Accordingly, Shareholders passed an ordinary
resolution at an extraordinary general meeting of the Company on 28 February
2014 that the Company continues in existence.
In June 2019, the Directors convened an Annual General Meeting and an
Extraordinary General Meeting where the following was passed:
Ordinary resolution that the requirement of the Company to propose the
realisation opportunity be and is hereby waived.
· Ordinary resolution that the continuation of the existence of the
Company be and is hereby approved.
· The text set out under "New Investing Policy" in paragraph 2 of
Part III of the Company's circular to Shareholders dated 5 June 2019 (the
"Circular") be and is hereby adopted as the new investment policy of the
Company;
· The terms of the Amended and Restated Investment Management
Agreement (as defined in the Circular) be and are hereby approved;
· The memorandum and the articles of association in the form
initialled by the Chair of the meeting be adopted as the memorandum and
articles of association of the Company in substitution for and to the
exclusion of the existing memorandum and articles of association; and
· Any variation to the rights attaching to the Ordinary Shares in
the Company pursuant to the adoption of the new memorandum and articles of
association, and in particular the right for the Company to redeem the
Ordinary Shares (including any redemptions made of 15 per cent. or more of the
Company's issued share capital), be and is hereby approved.
In June 2022, the Directors convened an Extraordinary General Meeting where a
two year Continuation Resolution was approved by the Shareholders, thus
extending the existence of the Company until 20 June 2024.
In summary, shareholders voted to give the Company two additional years during
which the Investment Manager will realise the portfolio in an orderly manner
and distribute the proceeds to the shareholders.
A brief synopsis of the "New Investing Policy" is below: (Please review the
Company's Circular dated 5 June 2019 for a detailed and comprehensive
description of the Policy):
The Company will make no new investments (save that it may invest in, or
advance additional funds to, existing investments within the Company's
portfolio to maximise value and assist in their eventual realisation). The
Company will adopt the New Investment Policy whereby the Company's existing
portfolio of investments will be divested in a controlled, orderly and timely
manner to facilitate a staged return of capital.
It should be appreciated that there is no time horizon in terms of the
implementation of the New Investment Policy. Although the Company's portfolio
consists of some liquid equity holdings, the Company has illiquid investments
and it may take the Investment Manager some time to realise these.
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