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Annual Financial Statements for the year ended 31 December 2014
Dolomite Capital Limited (Incorporated with limited liability in the Cayman Islands)
(Registration No. 131853)
Company code: DLMC (“Dolomite” or the “Issuer”)
DOL003 – ZAG000109570
DOL004 – ZAG000114422
DOL007 - ZAG000118985
DOL009 - ZAG000124405
DOLOMITE CAPITAL LIMITED
Financial Statements
For the year ended December 31, 2014
DOLOMITE CAPITAL LIMITED
Table of Contents Page(s)
Independent Auditors’ Report to the Directors 1
Statement of Financial Position 2
Statement of Comprehensive Loss 3
Statement of Changes in Shareholders’ and Noteholders’ Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-30
ABCD
KPMG
PO Box 493 Telephone: +1 345 949-4800
Century Yard Fax: +1 345 949-7164
Grand Cayman KY1-1106 Internet: www.kpmg.ky
CAYMAN ISLANDS
Independent Auditors’ Report to the Directors
We have audited the accompanying financial statements of Dolomite Capital Limited (the “Company”),
which comprise the statement of financial position as at December 31, 2014, the statements of
comprehensive loss, changes in shareholders’ and noteholders’ equity and cash flows for the year then
ended, and notes, comprising a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with International Financial Reporting Standards and for such internal control as
management determines necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards require that
we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on our judgement, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, we consider internal control relevant to the Company’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as at December 31, 2014, and of its financial performance, changes in shareholders’ and
noteholders’ equity and its cash flows for the year then ended, in accordance with International Financial
Reporting Standards.
June 5, 2015
KPMG, a Cayman Islands partnership and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
DOLOMITE CAPITAL LIMITED
Statement of Financial Position
December 31, 2014
(stated in United States dollars)
Note 2014 2013
Assets
Financial assets at fair value through profit or loss
Designated at fair value through profit or loss
at initial recognition
Charged Assets 3,4,5 23,052,653 10,462,859
Derivative financial assets 3,4,7 13,632,579 535,478
Loans and receivables
Receivable from repurchase agreement 4,6 43,971,506 -
Cash and cash equivalents 4 7,248 5,457
Total assets US$ 80,663,986 11,003,794
Liabilities, noteholders' equity and shareholders' equity
Liabilities
Financial liabilities at fair value through profit or loss
Designated at fair value through profit or loss
at initial recognition
Derivative financial liabilities 3,4,7 17,840,090 2,598,453
Total liabilities 17,840,090 2,598,453
Noteholders' equity
Notes 4,10 62,819,899 8,403,094
Total noteholders' equity 62,819,899 8,403,094
Shareholders' equity
Ordinary share capital 9 1,000 1,000
Retained earnings 2,997 1,247
Total shareholders' equity 3,997 2,247
Total liabilities, noteholders' equity and
shareholders' equity US$ 80,663,986 11,003,794
Approved on behalf of the Directors and authorised for issue on June 5, 2015.
ALEX MCCOY
____________________ Authorised signatory
DAVID DYER
____________________ Authorised signatory
See accompanying notes to the financial statements
2
DOLOMITE CAPITAL LIMITED
Statement of Comprehensive Loss
For the year ended December 31, 2014
(stated in United States dollars)
2014 2013
Investment income
Financial assets at fair value through profit or loss
Designated at fair value through profit or loss
Net change in unrealised (loss)/gain on Charged Assets (443,258) 1,525,859
Net change in unrealised loss on derivative instruments (2,144,536) (2,062,975)
Net change in unrealised loss on foreign currency (282) (174)
Interest income 706,780 163,085
Net swap income 961,157 75,394
Loans and receivables
Interest income on fully funded total return swap - 128,906
Interest income 484 3,041
Other income 3,729 883
Net investment loss (915,926) (165,981)
Expenses
Bank charges 416 141
Interest expense 231 32
647 173
Net decrease in net assets resulting from operations US$ (916,573) (166,154)
See accompanying notes to the financial statements
3
DOLOMITE CAPITAL LIMITED
Statement of Changes in Shareholders’ and Noteholders’ Equity
For the year ended December 31, 2014
(stated in United States dollars)
Ordinary
share Retained Noteholders'
capital earnings equity Total
Balance as at December 31, 2012 1,000 1,247 42,016,449 42,018,696
Proceeds from issue of notes - - 9,038,000 9,038,000
Redemption of notes - - (42,000,000) (42,000,000)
Interest on notes - - (384,201) (384,201)
Write-down of notes due to credit event - - (101,000) (101,000)
Net decrease in net assets resulting
from operations - - (166,154) (166,154)
Balance as at December 31, 2013 US$ 1,000 1,247 8,403,094 8,405,341
Proceeds from issue of notes - - 57,004,558 57,004,558
Interest on notes - - (1,669,430) (1,669,430)
Net decrease in net assets resulting
from operations - 1,750 (918,323) (916,573)
Balance as at December 31, 2014 US$ 1,000 2,997 62,819,899 62,823,896
See accompanying notes to the financial statements
4
DOLOMITE CAPITAL LIMITED
Statement of Cash Flows
For the year ended December 31, 2014
(stated in United States dollars)
2014 2013
Cash provided by/(applied in):
Operating activities
Net decrease in net assets resulting from operations (916,573) (166,154)
Purchase of Charged Assets (13,033,052) (8,937,000)
Net change in unrealised loss/(gain) on Charged Assets 443,258 (1,525,859)
Net change in unrealised loss on derivative instruments 2,144,536 2,062,975
Adjustments to reconcile net decrease in net assets from
operations to net cash (used in)/provided by operating activities:
Increase in receivable from repurchase agreement (43,971,506) -
Decrease in fully funded total return swap - 42,000,000
Decrease in interest receivable on fully funded total return swap
total return swap - 16,449
(55,333,337) 33,450,411
Financing activities
Proceeds from issue of notes 57,004,558 9,038,000
Redemption of notes - (42,000,000)
Interest on notes (1,669,430) (384,201)
Write-down of notes due to credit event - (101,000)
55,335,128 (33,447,201)
Increase in cash and cash equivalents for the year 1,791 3,210
Cash and cash equivalents, at beginning of year 5,457 2,247
Cash and cash equivalents, at end of year US$ 7,248 5,457
See accompanying notes to the financial statements
5
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements
December 31, 2014
(stated in United States dollars)
1. Incorporation and background information
Dolomite Capital Limited (the “Company”) was incorporated in the Cayman Islands on January 6,
2004 as an exempted limited liability company. The Company was formed as a special purpose
vehicle for the purpose of establishing a US$50,000,000,000 Limited Recourse Secured Debt
Issuance Programme (the “Programme”) arranged by Merrill Lynch International (“MLI”) (the
“Arranger”). Under the Programme, the Company will, from time to time, issue Series of Notes and
will enter into Alternative Investments denominated in any currency as may be agreed by the
Company with any relevant dealer. Each of the Notes issued would be secured on separate
identifiable assets of the Company such that any recourse to investors will only be limited to the
proceeds of such secured assets.
Within the Programme, the Company established a ZAR1,000,000,000 Limited Recourse Secured
Debt Issuance Programme (the “South African Programme”) pursuant to which the Company may,
from time to time, issue Series of Notes and enter into Alternative Investments. The South African
Programme is listed on the Interest Rate Market of the Johannesburg Stock Exchange ("JSE"),
pursuant to which the Company may, from time to time, issue South African Rand (“ZAR”)
denominated Notes.
Each Series of Notes issued are respectively secured by principal amounts of certain specified assets
of the Company (the “Charged Assets”).
Each Series of Notes are credit linked to the following reference assets:
Series Notes Reference Entities
Series 2 Notes iTraxx® Europe Crossover Series 19, Version 1 index of Reference Entities
Series 3 Notes AngloGold Ashanti Limited
Series 4 Notes iTraxx® Europe Crossover Index Series 20 Version 1
Series 6 Notes Russian Federation and any Successors and Ukraine and any Successors
Series 7 Notes iTraxx® Europe Index Series 21
Series 8 Notes Republic of South Africa and any Successors
The Company entered into derivative contracts for each of the South African Notes issued with the
Bank of America, National Association and Merrill Lynch International (the “swap counterparty”) to
reduce the mismatch between the amount payable in respect of the South African Notes issued and
the return from the Charged Assets held as collateral.
Details of the Notes issued for each Series under the Programme are outlined in note 10 to the
financial statements including the key terms. The related financial assets held under each Series are
described in note 5 and note 6 while description of the swaps entered into has been detailed under
note 7 of the financial statements.
Series Notes 2, 3, 4, 6, 7 are listed on JSE and Series Notes 8 are listed on the main securities
market of the Cayman Islands Stock Exchange (“CSX”).
Deutsche Bank (Cayman) Limited (the “Company Administrator”) acts as the Company Administrator
to the Company pursuant to the terms of an Administration Agreement dated February 10, 2004. The
registered office of the Company is located at Intertrust Cayman, 87 Mary Street, George Town,
Grand Cayman, KY1-9002, Cayman Islands.
Capitalised terms not defined herein are defined in the Trust Instrument and Supplemental
Information Memorandum which should be read in conjunction with these financial statements.
6
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
2. Significant accounting policies
(a) Statement of compliance
These financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”).
(b) Basis of measurement
The financial statements have been presented in United States dollars which is the Company’s
functional currency. The financial statements are prepared on a fair value basis for financial
assets at fair value through profit or loss. All other financial assets and liabilities are stated at
amortised cost.
(c) Use of estimates
The preparation of these financial statements in accordance with IFRS requires management to
make certain estimates and assumptions that affect the application of accounting policies,
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses during the
year.
Changes in the economic environment, financial markets and any other parameters in
determining these estimates could cause actual results to differ from those estimates materially.
(d) Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies are translated
to United States dollars at the foreign exchange rate ruling at the statement of financial position
date. Foreign currency exchange differences arising on translation of realised gains and losses
on disposal or settlement of monetary assets and liabilities denominated in foreign currencies are
recognised in the statement of comprehensive loss. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are translated to United States
dollars at the foreign currency exchange rates ruling at the date that the values were determined.
Foreign currency exchange differences relating to derivative financial instruments are included in
gains and losses on derivatives in the statement of comprehensive loss. All other foreign currency
exchange differences relating to monetary items are presented separately in the statement of
comprehensive loss.
(e) Financial instruments
(i) Classification
The Company has designated the Charged Assets into the financial assets at fair value
through profit or loss category as designated at fair value through profit or loss at initial
recognition and its derivative financial instruments into the financial assets as well as
financial liabilities at fair value through profit or loss category as designated at fair value
through profit or loss at initial recognition.
The Company has designated the receivable from repurchase agreement and cash and
cash equivalents into financial assets that are classified as loans and receivables.
7
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
2. Significant accounting policies (continued)
(e) Financial instruments (continued)
(ii) Recognition
The Company recognised financial assets or liabilities on the date it becomes a party to the
contractual provisions of the instrument. From this date, any gains and losses arising from
changes in fair value of the instruments are recognised in the statement of comprehensive
loss. A regular way purchase of financial assets is recognised using trade date accounting.
Financial liabilities are not recognised unless one of the parties has performed its obligations
or the contact is a derivative contract not exempted from the scope of International
Accounting Standard 39 (“IAS 39”).
(iii) Measurement
Financial instruments are measured initially at cost. For financial assets acquired, cost is the
fair value of the consideration given, while for financial liabilities cost is the fair value of
consideration received. Subsequent to initial recognition, all instruments classified at fair
value through profit or loss, are measured at fair value with changes in their fair value
recognised in the statement of comprehensive loss.
Financial assets classified as loans and receivables and financial liabilities that are not at fair
value through profit or loss are carried at amortised cost using the effective interest rate
method less impairment losses, if any.
(iv) Amortised cost measurement principles
The amortised cost of a financial asset or liability is the amount at which the financial asset
or liability is measured at initial recognition, minus principal repayments, plus or minus the
cumulative amortisation using the effective interest method of any difference between the
initial amount recognised and the maturity amount, minus any reduction for impairment.
(v) Impairment
Financial assets that are stated at amortised cost are reviewed at each statement of financial
position date to determine whether there is objective evidence of impairment. If any such
indication exists, an impairment loss is recognised in the statement of comprehensive loss
as the difference between the asset’s carrying amount and the present value of estimated
future cash flows discounted at the financial asset’s original effective interest rate.
If in a subsequent period the amount of an impairment loss recognised on a financial asset
carried at amortised cost decreases and the decrease can be linked objectively to an event
occurring after the write-down, the write-down is reversed through the statement of
comprehensive loss.
(vi) Derecognition
The Company derecognises a financial asset when the contractual rights to the cash flows
from the financial asset expire or it transfers the financial asset and the transfer qualifies for
derecognition in accordance with IAS 39. The Company uses the first in first out basis to
determine realised gains and losses on derecognition.
A financial liability is derecognised when the obligation specified in the contract is discharged
or expired.
8
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
2. Significant accounting policies (continued)
(f) Fair value disclosures
IFRS 7 outlines disclosures to be made with respect to fair value measurements within the
financial statements. All financial instruments designated at fair value are categorised within a
three-level hierarchy that reflects the significance of inputs used in measuring the fair values. The
fair value hierarchy is as follows:
? Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
? Level 2: Inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices);
and
? Level 3: Inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
Specific disclosures are required when fair value measurements are categorised as Level 3 in the
fair value hierarchy. Furthermore, changes in valuation techniques from one period to another,
including the reasons therefore, are required to be disclosed for each class of financial
instruments.
(g) Charged Assets
Charged Assets represent fixed income investments. Fixed income investments may include
bank debt, corporate bonds, convertible bonds, government bonds and mortgage backed
securities. These investments are stated at fair value based on quoted market prices whenever
available. For the securities for which no quoted market prices are available, fair value is
determined based on bid/ask quotes received by brokers specializing in specific investments and
multiple broker quotes are used where possible to determine the end market value. The broker's
pricing methodology is assessed when determining the fair value hierarchy. The fair value level
for broker quotes is Level 2 only if the prices are derived from market observable inputs,
otherwise the Level 3 fair value category is applied.
(h) Receivable from repurchase agreement
When a fund purchases a financial asset and simultaneously enters into an agreement to resell
the asset at a fixed price on a future date (“repurchase agreement”), the arrangement is
accounted for as loans and receivables (“receivable from repurchase agreement”), and the
underlying asset is not recognised on the Company’s financial statements.
Receivable from repurchase agreement are initially measured at fair value plus incremental direct
transaction costs, and subsequently measured at amortised cost using the effective interest
method. Interest on the receivable from repurchase agreement is recognised in the statement of
comprehensive loss as interest expense.
(i) Cash and cash equivalents
Cash and cash equivalents represent amounts held with the Company’s banks. Cash comprises
current deposits with banks. Cash equivalents are short-term highly liquid investments that are
readily convertible to known amount of cash, are subject to an insignificant risk of changes in
value, and are held for the purpose of meeting short-term cash commitments rather than for
investment or other purposes.
9
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
2. Significant accounting policies (continued)
(j) Derivative financial instruments
Swap contracts are carried at fair value based upon the fair value of the underlying assets, the
risk associated with the underlying assets, and any additional provisions of the derivative
contract. The methodology applied to fair value the swaps is obtained from the swap counterparty
who may use a variety of different valuation techniques.
(i) Credit default swaps
Credit default swap contracts (“CDS”) are valued in accordance with the terms of each
contract based on the current interest rate spreads and credit risk of the referenced obligation
of the underlying Company and interest accrual through the valuation date.
CDS are valued based on valuations provided by the swap counterparty who may use a
variety of techniques including use of arm’s length market transactions, reference to the
current fair value of another instrument that is substantially the same, discounted cash flow
techniques propriety valuation models, credit spreads, recovery rates or any other valuation
technique that provides a reliable estimate of prices obtainable should the instrument be
traded. The Company may be required to deposit collateral with the swap counterparty if the
market values of the contracts fall below a stipulated amount in the contract. Changes in the
fair value of the CDS are recorded in the statement of comprehensive loss. Periodic receipts
received at the end of each measurement period, but prior to termination, are recorded as
swap income in the statement of comprehensive loss.
Depending on the available observable inputs, credit default swaps are generally categorised
in level 2 of the fair value hierarchy.
(ii) Cross currency swaps
Cross currency swaps contracts are valued based on valuations provided by the swap
counterparty. Changes in the fair value of the cross currency swaps are recorded in the
statement of comprehensive loss.
Depending on the available observable inputs, cross currency swaps are generally
categorized in level 2 of the fair value hierarchy.
(iii) Interest rate swaps
The Company records interest rate swaps on a trade date basis. Interest rate swaps are
measured at fair value using observable inputs that may include interest rates or broker
quotes on similar products. Changes in the associated unrealized gains or losses are
recorded in the statement of comprehensive loss.
Depending on the available observable inputs, interest rate swaps are generally categorized
in level 2 of the fair value hierarchy.
10
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
2. Significant accounting policies (continued)
(k) Notes
Notes issued are classified as equity instruments in accordance with the substance of the
contractual terms of the instruments.
During the year ended December 31, 2013, the Company had Notes in US dollars which were
redeemed in full on May 22, 2013. During the year ended December 31, 2014, under the South
African Programme, the Company issued additional Notes in ZAR (refer to Note 10) subject to the
Notes’ Term Sheets. The Notes are recognised on the trade date on which the Company
becomes a party to the contractual provisions of the instrument.
The Notes are the most subordinated class of financial instruments issued by the Company and
are subject to the risk of the swap counterparty insolvency or default as the ability of the
Company to meet its obligations under the Notes will be entirely dependent upon the payment of
all sums due from the swap counterparty pursuant to the Swap Agreement. The ability of the
Company to meet its obligations under the Notes will also be dependent on the Principal Paying
Agent and the Custodian making the relevant payments when received and upon all parties
performing their respective obligations.
The value of notes issued by the Company and outstanding at December 31, 2014 is determined
by reference to the fair value of associated financial assets designated at fair value through profit
or loss and the fair value of derivative financial instruments. Any future change in the fair value of
financial assets and derivatives will have an equal but opposite impact on the value of Notes.
A puttable financial instrument that includes a contractual obligation for the Company to redeem
that instrument for cash or another financial asset is classified as equity if it meets all of the
following conditions:
? It entitles the holder to a pro rata share of the Company's net assets in the event of the
Company's liquidation;
? It is in the class of instruments that is subordinate to all other classes of instruments;
? All financial instruments in the class of instruments that is subordinate to all other classes of
instruments have identical features;
? Apart from the contractual obligation for the Company to redeem the instrument for cash or
another financial asset, the instrument does not include any other features that would require
classification as a liability; and
? The total expected cash flows attributable to the instrument over its life are 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 over the life of
the instrument.
The Notes issued by the Company meet these conditions and are classified as equity on the
statement of financial position.
11
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
2. Significant accounting policies (continued)
(l) Offsetting
Financial assets and liabilities are offset and the net amount presented in the statement of
financial position when, and only when, the Company has the legal right to offset the recognised
amounts and it intends to either settle on a net basis or to realise the asset and settle the liability
simultaneously.
(m) Expenses
The Arranger has agreed to settle, on behalf of the Company, all fees and expenses of the
Company incurred in connection with its entry into and the performance of its obligations under
any of the agreements relating to the business.
The Company retained MLI to provide certain administrative services for a period until no Debt
Investments remains outstanding or until MLI retires.
(n) Taxation
There are no taxes on income or gains in the Cayman Islands and the Company has received
undertakings from the Governor in Cabinet of the Cayman Islands exempting it from all local
income, profits and capital taxes until February 17, 2024 should such taxes be enacted.
Accordingly, no provision for income taxes is included in these financial statements.
Foreign Account Tax Compliance Act ("FATCA")
On 18 March 2010, the Hiring Incentives to Restore Employment Act of 2010 added chapter 4 to
Subtitle A ("Chapter 4") of the US Internal Revenue Code (the "Code"). The provisions in Chapter
4 are commonly referred to as the Foreign Account Tax Compliance Act ("US FATCA"). US
Treasury regulations providing guidance on the due diligence, reporting, and withholding
obligations under US FATCA were passed and came into effect in January 2013 (the
"Regulations").
All the Cayman Islands domiciled "financial institutions" are subject to domestic legislation and
regulations that implement both the US FATCA and its UK equivalent ("UK FATCA" and together,
"FATCA").
The due diligence and reporting regimes introduced by the domestic legislation and regulations
apply to all such financial institutions irrespective of whether they have US or UK based account
holders and/or have US or UK assets or source income.
(o) New standards and interpretations
Effective for annual period beginning on or after January 1, 2014
• Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32). The
amendments to IAS 32 clarify the offsetting criteria in IAS 32 by explaining when an entity
currently has a legal enforceable right to set-off and when gross settlement is considered to
be equivalent to net settlement;
• Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36); and
• Novation of Derivatives and Continuing of Hedge Accounting (Amendments to IAS 39).
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
2. Significant accounting policies (continued)
(p) New standards and interpretations not yet adopted
IFRS 9, ‘Financial instruments’ – the full and final version of IFRS 9 was issued in July 2014 and
is presented into a three phase standard. This new standard is effective for annual periods
beginning on or after January 1, 2018.
• Phase 1: Classification and measurement
IFRS 9 introduces a logical approach for the classification of financial assets driven by cash
flow characteristics and the business model in which an asset is held. This single, principle-
based approach replaces existing rule-based requirements and results in a single
impairment model being applied to all financial instruments.
• Phase 2: Impairment
IFRS 9 introduces a new, expected loss impairment model that, require more timely
recognition of expected credit losses. Specifically, the new Standard requires entities to
account for expected credit losses from when financial instruments are first recognised and it
lowers the threshold for recognition of full lifetime expected losses.
• Phase 3: Hedge accounting
IFRS 9 introduces a substantially-reformed model for hedge accounting with enhanced
disclosures about risk management activity. The new model represents a substantial
overhaul of hedge accounting that aligns the accounting treatment with risk management
activities, enabling entities to better reflect these activities in their financial statements.
IFRS 15, ‘Revenue recognition’ – the core principle of IFRS 15 is for companies to recognise
revenue to depict the transfer of goods or services to customers in amounts that reflect the
consideration (that is, payment) to which the company expects to be entitled in exchange for
those goods or services. IFRS 15 will also result in enhanced disclosures about revenue, provide
guidance for transactions that were not previously addressed comprehensively (for example,
service revenue and contract modifications) and improve guidance for multiple-element
arrangements. IFRS 15 is effective for annual periods starting on or after 1 January 2017.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
3. Fair value information
Fair value hierarchy analysis
The tables below provide an analysis of the basis of measurement used by the Company to fair value
its financial instruments carried at fair value, categorised by the fair value hierarchy:
December 31, 2014 Level 1 Level 2 Level 3 Total
Financial assets at fair value
through profit or loss
Designated at fair value through
profit or loss at initial recognition
Charged Assets 23,052,653 - - 23,052,653
Derivative financial assets - 13,632,579 - 13,632,579
US$ 23,052,653 13,632,579 - 36,685,232
December 31, 2014 Level 1 Level 2 Level 3 Total
Financial liabilities at fair value
through profit or loss
Designated at fair value through
profit or loss at initial recognition
Derivative financial liabilities - 17,840,090 - 17,840,090
US$ - 17,840,090 - 17,840,090
December 31, 2013 Level 1 Level 2 Level 3 Total
Financial assets at fair value
through profit or loss
Designated at fair value through
profit or loss at initial recognition
Charged Assets 10,462,859 - - 10,462,859
Derivative financial assets - 535,478 - 535,478
US$ 10,462,859 535,478 - 10,998,337
December 31, 2013 Level 1 Level 2 Level 3 Total
Financial liabilities at fair value
through profit or loss
Designated at fair value through
profit or loss at initial recognition
Derivative financial liabilities - 2,598,453 - 2,598,453
US$ - 2,598,453 - 2,598,453
The level in the fair value hierarchy within which the fair value measurement is categorised in its
entirety is determined based on the lowest level input that is significant to the fair value measurement
in its entirety.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
3. Fair value information (continued)
All of the Company’s Charged Assets and derivative financial instruments are carried at fair value on
the statement of financial position. Charged Assets are valued using the last traded prices and are
classified in Level 1 of the fair value hierarchy. The derivative financial instruments are privately
negotiated over-the-counter (“OTC”). OTC derivatives are classified within Level 2 of the fair value
hierarchy.
For other financial instruments, including receivable from repurchase agreement and cash and cash
equivalents, the carrying amount approximates fair value due to their immediate or short-term nature.
4. Financial instruments and associated risks
The Company is exposed to a variety of financial risks as a result of its activities. These risks include
market risk (including interest rate risk, currency risk and other price risk), liquidity risk, credit risk,
operational risk and capital management risk. The Company operates within a risk management
framework agreed at the time of issuance of the Notes and included in the Trust Instruments and
Supplemental Information Memorandum of each Series of Notes.
The Trust Instruments and Supplemental Information Memorandum provide detailed information to
the noteholders regarding their exposure to different risks as well as how such risks are managed
until the maturity of the Notes. The Board of Directors has responsibility to ensure compliance with
the Trust Instruments and Supplemental Information Memorandum and execute different legal
documents as the need arises. The Company manages these financial risks on an aggregate basis
along with other risks associated with its investing activities.
(a) Market risk
The Company’s strategy on management of market risk is driven by the Company’s investment
objective. The nature and extent of financial instruments outstanding at the statement of financial
position date and the risk management policies employed by the Company are discussed below.
Market risk embodies the potential for both gains and losses and includes interest rate risk,
currency risk and other price risk. Market risk is the risk that changes in interest rates, foreign
exchange rates and market volatility will affect the positions held by the Company making them
less valuable or more onerous.
The Company attempts to manage its exposure to market risk through the use of risk
management strategies and various analytical monitoring techniques that evaluate the effect of
cash instruments and derivatives.
The Company provides protection to the swap counterparty under the credit default swaps. The
Company receives premium payments in exchange for assuming the credit risk of the specified
reference entity and reference obligations. Generally the swap counterparty pays a specified
premium upfront and continues to pay periodic payments while the Company agrees to make a
payment to compensate the counterparty for losses upon the occurrence of a specified credit
event. Although contract-specific, credit events generally include bankruptcy, failure to pay,
restructuring, obligation acceleration, obligation default, or repudiation/moratorium.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(a) Market risk (continued)
Series 2 Notes are linked to the iTraxx® Europe Crossover Series 19, Version 1 index of
Reference Entities (the Index) as it exists on the trade date (being 12 June 2013), Series 3 Notes
are linked to AngloGold Ashanti Limited, Series 4 Notes are linked to iTraxx® Europe Crossover
Index Series 20 Version 1, Series 6 Notes are credit-linked to Ukraine (the Long Reference
Entity) and the Russian Federation (the Short Reference Entity), Series 7 Notes are linked to the
iTraxx® Europe Series 21 Index and Series 8 Notes are credit-linked to the Republic of South
Africa and any Successors. The noteholders are essentially exposed to the credit risk with
respect to the Reference Entities via the credit protection sold to the swap counterparty via the
credit default swaps. The noteholders may lose part or in whole, amounts invested in the Notes
as the result of a credit event occurring with respect to the aforementioned Reference
Entities/obligations.
(i) Interest rate risk
The Company is exposed to the risk that the fair value or future cash flows of its financial
instruments will fluctuate as a result of changes in market interest rates.
The Company does not bear any interest rate risk as the interest rate risk associated with the
Notes issued by the Company is neutralised by entering into interest rate swap agreements
whereby the swap counterparty pays the Company equivalent amounts equal to the interest
payable to the noteholders in return for the fixed interest earned by the Company on its Charged
Assets.
There may be a timing mismatch between payments of interest on the Notes and payments of
interest on the financial assets and, in the case of floating rate financial assets, the rates at which
they bear interest may adjust more or less frequently, and on different dates and based on
different indices than the interest rate of the Notes.
At the reporting date, the interest rate risk profile of the Company's interest bearing financial
instruments was:
December 31, 2014 Floating rate Fixed Total
Charged Assets 4,343,325 18,709,328 23,052,653
Derivative financial assets 2,322,014 11,310,565 13,632,579
Receivable from repurchase agreement 43,971,506 - 43,971,506
Cash and cash equivalents 7,248 - 7,248
Total assets 50,644,093 30,019,893 80,663,986
Derivative financial liabilities 10,416,981 7,423,109 17,840,090
Notes 62,819,899 - 62,819,899
Total liabilities 73,236,880 7,423,109 80,659,989
Net exposure US$ (22,592,787) 22,596,784 3,997
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(a) Market risk (continued)
(i) Interest rate risk (continued)
December 31, 2013 Floating rate Fixed Total
Charged Assets - 10,462,859 10,462,859
Derivative financial assets 535,478 - 535,478
Cash and cash equivalents 5,457 - 5,457
Total assets 540,935 10,462,859 11,003,794
Derivative financial liabilities 1,768,555 829,898 2,598,453
Notes 8,403,094 - 8,403,094
Total liabilities 10,171,649 829,898 11,001,547
Net exposure US$ (9,630,714) 9,632,961 2,247
Any change in interest rates would affect the fair value of the floating rate financial assets and
liabilities which would impact on the noteholders’ equity of the Company.
An increase of 100 basis points in interest rates as at the reporting date would have increased the
total noteholders’ equity by US$225,928 (2013: US$96,307). A decrease of 100 basis points
would have an equal but opposite effect.
(ii) Currency risk
The Company invested in financial instruments and entered into transactions denominated in
currencies other than its functional currency. Consequently, the Company was exposed to risk
that the exchange rate of its functional currency relative to other foreign currencies could have
changed in a manner that has an adverse effect on the net asset value of the Company. The
Company’s currency risk was managed by the Company in accordance with the policies and
procedures in place.
South African Notes are denominated in ZAR and the Charged Assets are denominated in
USD/EUR and all payments due under the credit default swap transactions are denominated in
EUR/USD. The Company has entered into cross currency swap arrangements with the swap
counterparty to ensure that amounts received in relation to the Charged Assets and the credit
default swap transactions are converted into ZAR at the Initial FX Rate in order to make
payments of interest and principal on the Notes in ZAR. Therefore, the amount of interest and
principal received in respect of the Notes will be subject to the foreign exchange rate risk between
ZAR and EUR; ZAR and USD; and EUR and USD.
The Company mitigates currency risk by entering into cross currency swap transactions and the
impact of any fluctuation in the foreign exchange rates is passed on to the swap counterparty.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(a) Market risk (continued)
(ii) Currency risk (continued)
The Company's exposure to foreign currency risk before and after the impact of derivatives is as
follows:
December 31, 2014 EUR ZAR USD Total
Charged Assets 6,474,023 - 16,578,630 23,052,653
Derivative financial assets 3,392,466 3,552,371 6,687,742 13,632,579
Receivable from
repurchase agreement - - 43,971,506 43,971,506
Cash and cash equivalents - 2,616 4,632 7,248
Total assets 9,866,489 3,554,987 67,242,510 80,663,986
Derivative financial liabilities 5,446,546 2,019,160 10,374,384 17,840,090
Notes - 62,819,899 - 62,819,899
Total liabilities 5,446,546 64,839,059 10,374,384 80,659,989
Net exposure US$ 4,419,943 (61,284,072) 56,868,126 3,997
December 31, 2013 EUR ZAR USD Total
Charged Assets - - 10,462,859 10,462,859
Derivative financial assets 535,478 - - 535,478
Cash and cash equivalents - 2,515 2,942 5,457
Total assets 535,478 2,515 10,465,801 11,003,794
Derivative financial liabilities - 1,862,906 735,547 2,598,453
Notes - 8,403,094 - 8,403,094
Total liabilities - 10,266,000 735,547 11,001,547
Net exposure US$ 535,478 (10,263,485) 9,730,254 2,247
The impact of any change in the foreign exchange rates on the assets relating to any Series of
Notes is offset by the foreign exchange rate changes on the Notes issued. Any difference is
borne by the swap counterparty and thus the exchange rate changes have no impact on the profit
or loss of the Company.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(a) Market risk (continued)
(iii) Other price risk
Other price risk is the risk that the value of an instrument will fluctuate as a result of changes in
market prices (other than those arising from interest rate risk or currency risk), whether caused by
factors specific to an individual investment, its Company or all factors affecting all investments
traded in the market.
The Company is indirectly exposed to other price risk through the reference entities. The
Company’s exposure to other price risk is managed in accordance with policies and procedures
in place set by the swap counterparty.
(b) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations
associated with its financial liabilities.
Since the Arranger has agreed to settle, on behalf of the Company, all fees and expenses of the
Company incurred in connection of the performance of its obligations, the Company has no
liquidity risk in relation to the payment of its fees and expenses.
With respect to the South African Notes and pursuant to the Term Sheets, the swap counterparty
has no obligation to provide liquidity for the investment made by the noteholders, and in case the
swap counterparty elects to provide the liquidity, it will only do so at the then current market price
the swap counterparty determines in light of its hedging costs. The swap counterparty may have
the right to pre-approve any transfer of an investment. The Company does not expect a trading
market for the Notes to develop and the Notes are structured and are not liquid.
The value of the South African Notes, which are credit-linked, depends on movements in credit
swap spreads during the life of Notes. Credit swap spreads may widen over short or even
extended periods. Historically, the credit swap market tends to move in cycles, with periods of
rising prices (or falling spreads) and periods of falling prices (or rising spreads). Any such
fluctuations will directly affect the value of the South African Notes. Similarly, interest rate levels
and implied correlation may fluctuate over time which may also affect the value of the South
African Notes.
Any claims against the Company by the noteholders of the Series and by the swap counterparty
will be limited to the Charged Asset relating to such Series. The proceeds of realisation of such
Charged Assets may be less than the sums due to the noteholders and the swap counterparty.
Any shortfall will be borne by the noteholders and by the swap counterparty in accordance with
the Security Ranking Basis. The claims of the swap counterparty in respect of amounts owing to
them under the Swap Agreement rank in priority to the claims of noteholders under the Notes.
(c) Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an
obligation or commitment that it has entered into with the Company. The carrying amounts of the
financial assets are the best estimate of the maximum exposure on the statement of financial
position date.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(c) Credit risk (continued)
The ability of the Company to meet its obligations under the South African Notes will be
dependent upon the payment of all sums due from the swap counterparty under the different
swap agreements. In the event that the swap counterparty defaults in its payment obligations
under the swap agreements, or the swap agreements otherwise terminate early, the Notes will be
subject to early redemption.
The ability of the Company to meet its obligations under the South African Notes will also be
dependent on the payment of interest and principal due on the Charged Assets and upon the
Principal Paying Agent and the Custodian making the relevant payments when received and
upon all parties, other than the Company, performing their respective obligations. Accordingly,
noteholders are exposed, inter alia, to the creditworthiness of the obligors in respect of the
Charged Assets, the swap counterparty, the Principal Paying Agent and the Custodian, in
addition to the creditworthiness of the Reference Entities.
The current liquidity shortage and volatility in the credit markets has introduced a variety of
increased risks relating to several aspects of the Company's operations. Such additional risks
include the inability of the Company to sell its assets which, among other things, may render it
unable to dispose of underperforming or defaulted assets and therefore unable to satisfy its
obligations in relation to the redemption of the South African Notes. As a result of market
conditions, it is possible that the Reference Obligations of each Reference Entity and/or the
Charged Assets will experience higher default rates than anticipated and that performance will
suffer. Such market conditions may also lead to the inability of the Company to determine a
reliable valuation of its assets.
All of such factors could materially adversely affect the interests of noteholders. Some leading
global financial institutions have been forced into mergers with other financial institutions, partially
or fully nationalised or have gone bankrupt or insolvent. The bankruptcy or insolvency of a major
financial institution may have an adverse effect on the Company, the Reference Entities and the
obligors in respect of the Charged Assets, particularly if such financial institution is the
administrative agent of a Charged Asset. The bankruptcy or insolvency of another financial
institution may result in the disruption of payments to the Company. In addition, the bankruptcy or
insolvency of one or more additional financial institutions or one or more sovereigns may trigger
additional crises in the global credit markets and overall economy which would have a significant
adverse effect on the Company, the Reference Entities, the Charged Assets and the South
African Notes.
Cash balances are held with HSBC Bank, Standard Bank and Deutsche Bank. Credit risk is
considered to be low due to the liquidity of these financial assets and the credit quality of each
counterparty. The Company monitors the credit rating and financial position of the financial
institutions to further mitigate this risk. As at December 31, 2014, HSBC Bank had a Moody’s
credit rating of Aa3. Deutsche Bank and Standard Bank had both a Moody’s credit rating of A3
and Baa3 respectively.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(d) Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes
associated with the processes, technology and infrastructure supporting the Company’s
operations either internally within the Company or externally at the Company’s service providers,
and from external factors other than credit, market and liquidity risks such as those arising from
legal and regulatory requirements and generally accepted standards of investment management
behaviour. Operational risks arise from all of the Company’s activities.
The Company’s objective is to manage operational risk so as to balance limiting of financial
losses and damage to its reputation with achieving its investment objective of generating returns
to its noteholders.
(e) Capital management risk
The Company’s objectives in managing the Notes are to ensure a stable base to maximise
returns to all noteholders.
There were no changes in the policies and procedures during the year with respect to the
Company’s approach to its capital management. The Company is not exposed to any externally
imposed capital requirements.
5. Charged Assets
The Company used the proceeds from each of the South African Notes to purchase the following
Charged Assets:
December 31, 2014 Initial Outstanding
Interest Maturity Principal Principal
Series Description rate date CCY amount amount Fair value
Merrill Lynch Series USD
Series 2 700,000,000 Bonds 6.50% 15-Jul-18 USD 5,018,000 4,917,000 5,753,687
Merrill Lynch Series USD
Series 3 700,000,000 Bonds 6.50% 15-Jul-18 USD 4,020,000 4,020,000 4,704,051
Morgan Stanley Global
Medium-Term Notes,
Series 4 Series F 2.50% 24-Jan-19 USD 2,300,000 2,300,000 2,332,612
Series 4 Bank of America Corp 1.88% 10-Jan-19 EUR 1,650,000 1,650,000 2,130,698
Series 6 Bank of America Corp 2.65% 1-Apr-19 USD 3,726,000 3,726,000 3,788,280
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
5. Charged Assets (continued)
December 31, 2014 (continued) Initial Outstanding
Interest Maturity Principal Principal
Series Description rate date CCY amount amount Fair value
JP Morgan Chase & Co.
Series 78 Tranche 1
EUR1,000,000,000
Floating Rate Notes due
Series 7 2019 0.68% 7-May-19 EUR 1,775,000 1,775,000 2,169,298
Series 7 Bank of America Corp 0.88% 19-Jun-19 EUR 1,775,000 1,775,000 2,174,027
December 31, 2013 Initial Outstanding
Interest Maturity Principal Principal
Series Description rate date CCY amount amount Fair value
Merrill Lynch Series USD
Series 2 700,000,000 Bonds 6.50% 15-Jul-18 USD 5,018,000 4,917,000 5,756,504
Merrill Lynch Series USD
Series 3 700,000,000 Bonds 6.50% 15-Jul-18 USD 4,020,000 4,020,000 4,706,355
Interest on the Charged Assets are payable in arrears semi-annually, quarterly and annually. The
Charged Assets are not subject to redemption by the Issuer prior to maturity unless on the
occurrence of certain specific events listed in the Issuer’s Prospectus.
The Charged Assets are listed on several Stock Exchanges which include Berlin Stock Exchange;
Frankfurt Stock Exchange; Lusaka Stock Exchange; New York Stock Exchange; Düsseldorf Stock
Exchange; Munich Stock Exchange; Stuttgart Stock Exchange; and London Stock Exchange.
6. Receivable from repurchase agreement
The Company entered into repurchase agreements to invest excess cash with MLI. Each repurchase
transaction involves the counterparty transferring title to securities as collateral to the Company in
return for a cash payment. The securities are held in trust by BNY Mellon (the “Custodian”). The
Company will be under a contractual obligation to redeliver equivalent securities to the counterparty in
return for the repayment of the cash plus any interest.
At December 31, 2014, the total fair value of collateral received from the counterparty, including
accrued interest, is approximately US$43,971,506. If the counterparty defaults under agreements to
resell, and the fair value of the collateral declines, the realisation of the collateral by the Company
may be delayed or limited. Collateral accepted includes highly liquid investment securities and the
Company has not recognised these securities in the statement of financial position.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
7. Derivative financial instruments
The Company entered into derivative contracts for each of the South African Notes issued either to
reduce mismatch between the amounts payable in respect of the South African Notes and return from
the Charged Assets held as collateral, to create a risk profile appropriate for the investor or to mitigate
its exposure to market risk within the Company. The rationale behind entering into these instruments
is to provide an asset risk profile which is suited to the needs of the noteholders.
The derivatives entered into by the Company can be grouped into two categories, those that create a
risk profile appropriate to the investor and, those that mitigate exposure to market risk.
Under the South African Programme, the Company entered into (i) Credit Default Swap Agreements
with the swap counterparty whereby the Company sold protection on a number of reference entities,
(the "Reference Obligations") in exchange for the receipt of premium income for the relevant Series,
(ii) Cross Currency Swap transactions and Interest Rate Swap transactions.
Details of the derivative financial instruments as at December 31, 2014 are as follows:
Credit Default Swaps
Series Reference portfolio Maturity date Fair value CCY Notional
2 Pool of reference assets 20-Jun-2018 525,857 EUR 3,675,000
3 AngloGold Ashanti Limited 20-Sep-2018 (282,418) USD 4,020,000
4 Pool of reference assets 20-Dec-2018 992,518 EUR 6,600,000
6 Russian Federation and any
3,726,000
Successors (Short) 22-Mar-2019 (1,466,536) USD
6 Ukraine and any Successors
3,726,000
(Long) 22-Mar-2019 433,817 USD
7 Pool of reference assets 20-Jun-2019 355,674 EUR 14,200,000
8 Republic of South Africa and
19,787,178
any Successors 30-Oct-2015 14,148 USD
Cross Currency Swaps
Series Counterparty Maturity date Fair value CCY Notional
2 Bank of America, N.A. 15-Jul-2018 (845,616) USD /ZAR 4,917,640 /49,000,000
3 Bank of America, N.A. 15-Jul-2018 (939,753) USD /ZAR 4,020,000 /40,000,000
4 Bank of America, N.A. 24-Jan-2019 3,761,365 EUR /ZAR 6,600,000 /50,000,000
4 Bank of America, N.A. 24-Jan-2019 (4,171,204) EUR /ZAR 6,600,000 /50,000,000
6 Merrill Lynch International 22-Mar-2019 3,552,371 USD /ZAR 3,726,000 /40,000,000
7 Bank of America, N.A. 20-Jun-2019 3,066,853 EUR /ZAR 14,200,000 /50,000,000
7 Bank of America, N.A. 20-Jun-2019 929,976 EUR /ZAR 14,200,000 /50,000,000
8 Merrill Lynch International 31-Oct-2015 (233,791) ZAR /USD 500,000,000 /43,971,506
Interest Rate Swaps
Series Counterparty Maturity date Fair value CCY Notional
2 Bank of America, N.A. 20-Jun-2018 (788,814) EUR 3,675,000
3 Bank of America, N.A. 20-Sep-2018 (150,057) USD 4,020,000
4 Bank of America, N.A. 24-Jan-2019 (253,461) USD 2,300,000
4 Bank of America, N.A. 10-Jan-2019 (190,423) EUR 1,650,000
6 Merrill Lynch International 01-Apr-2019 (3,940,764) USD 3,726,000
7 Bank of America, N.A. 07-May-2019 (2,223,632) EUR 1,775,000
7 Bank of America, N.A. 19-Jun-2019 (2,243,677) EUR 1,775,000
8 Merrill Lynch International 30-Oct-2015 (109,944) USD 19,787,178
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
7. Derivative financial instruments (continued)
Details of the derivative financial instruments as at December 31, 2013 are as follows:
Credit Default Swaps
Series Reference portfolio Maturity date Fair value CCY Notional
2 Pool of reference assets 20-Jun-2018 535,478 EUR 3,750,000
3 AngloGold Ashanti Limited 20-Sep-2018 (435,294) USD 4,020,000
Cross Currency Swaps
Series Counterparty Maturity date Fair value CCY Notional
2 Bank of America, N.A. 15-Jul-2018 (284,373) USD /ZAR 4,917,640 /49,000,000
3 Bank of America, N.A. 15-Jul-2018 (545,525) USD /ZAR 4,020,000 /40,000,000
Interest Rate Swaps
Series Counterparty Maturity date Fair value CCY Notional
2 Bank of America, N.A. 20-Jun-2018 (1,143,239) EUR 3,750,000
3 Bank of America, N.A. 20-Sep-2018 (190,022) USD 4,020,000
By entering into the Credit Default Swap Agreements, the Company is exposed to the risk that the
Reference Portfolio underperforms resulting in the default of the Reference Entities.
The noteholders are exposed to the performance of the reference entities in the portfolio (the
"Reference Portfolio") that is, the ability of the Company to meet its obligations under the Notes will
depend on the receipt by it of payments of interest and principal under the Collateral Assets, as well
as payments owed to the Company by the swap counterparty under the terms of the swap.
In the event of an issuance of a credit event notice with respect to the Reference Portfolio, the
Company will pay an amount as defined in the Credit Default Swap Agreements from the assets of
that Series to which the Credit Default Swap Agreement relates. As a consequence of defaults in
reference obligations, the nominal is proportionally reduced by the relevant Notes.
During the year ended December 31, 2013, a credit event occurred affecting the reference entity
portfolio under Series 2. As a consequence, the Company was required to pay a settlement amount
of US$101,000 (EUR75,000) to the swap counterparty. No credit events took place during the year
ended December 31, 2014 which would require disclosure in the financial statement.
The Company entered into cross currency swap and interest rate swap transactions with the swap
counterparty to ensure that payments due by it in relation to the Charged Assets and the credit
default swap transactions are converted into ZAR at the Initial FX Rate in order to make payments of
interest and principal on the South African Notes.
If the South African Notes are subject to partial early redemption (following a credit event) or early
redemption (other than following a credit event), the cross currency swap and interest rate swap
transactions will be terminated in whole or in part, as applicable. If the termination value of the cross
currency swap transaction is in favour of the swap counterparty, such amount will be paid from the
proceeds of the Charged Assets, which will reduce the Outstanding Principal Amount of the South
African Notes. In addition, upon an early redemption in full of the South African Notes, the cross
currency swap and interest rate swap transactions will be terminated and any proceeds of the
Charged Assets that are not required to be paid to the swap counterparty shall be converted into ZAR
at the prevailing spot rate.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
8. Offsetting assets and liabilities
The Company is required to disclose the impact of offsetting assets and liabilities represented in the
statement of financial position to enable users of the financial statements to evaluate the effect or
potential effect of netting arrangements on its financial position for recognized assets and liabilities.
These recognized assets and liabilities are financial instruments and derivative instruments that are
either subject to an enforceable master netting arrangement or similar agreement or meet the
following right of set off criteria: the amounts owed by the Company to another party are
determinable, the Company has the right to set off the amounts owed with the amounts owed by the
other party, the Company intends to set off, and the Company’s right of set off is enforceable at law.
The Company has elected not to offset assets and liabilities in the statement of financial position. The
following table provides disclosure regarding the potential effect of offsetting of recognized assets
presented in the statement of financial position had the Company elected to offset:
December 31, 2014
Gross Gross amounts Net amounts
amounts of offset in the presented in
recognized Statement of the Statement Gross amounts not offset in
assets and Financial of Financial the Statement of Financial
Description liabilities Position Position Position Net Amount
Cash collateral
Financial received /
Instruments pledged
Assets:
Derivative financial assets
Bank of America, N.A.
Cross Currency swaps 7,758,194 - 7,758,194 (5,956,573) - 1,801,621
Credit default swaps 1,874,049 - 1,874,049 (282,418) - 1,591,631
Merrill Lynch International
Cross Currency swaps 3,552,371 - 3,552,371 (233,791) - 3,318,580
Credit default swaps 447,965 - 447,965 (447,965) - -
13,632,579 - 13,632,579 (6,920,747) - 6,711,832
Liabilities:
Derivative financial liabilities
Bank of America, N.A.
Cross Currency swaps (5,956,573) - (5,956,573) 5,956,573 - -
Credit default swaps (282,418) - (282,418) 282,418 - -
Interest rate swaps (5,850,064) - (5,850,064) - 5,850,064 -
Merrill Lynch International
Cross Currency swaps (233,791) - (233,791) 233,791 - -
Credit default swaps (1,466,536) - (1,466,536) 447,965 1,018,571 -
Interest rate swaps (4,050,708) - (4,050,708) - 4,050,708 -
(17,840,090) - (17,840,090) 6,920,747 10,919,343 -
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
8. Offsetting assets and liabilities (continued)
December 31, 2013
Gross Gross amounts Net amounts
amounts of offset in the presented in
recognized Statement of the Statement Gross amounts not offset in
assets and Financial of Financial the Statement of Financial
Description liabilities Position Position Position Net Amount
Cash collateral
Financial received /
Instruments pledged
Assets:
Derivative financial assets
Bank of America, N.A.
Credit default swaps 535,478 - 535,478 (535,478) - -
535,478 - 535,478 (535,478) - -
Liabilities:
Derivative financial liabilities
Bank of America, N.A.
Cross Currency swaps (1,862,906) - (1,862,906) - 1,862,906 -
Credit default swaps (735,547) - (735,547) 535,478 200,069 -
(2,598,453) - (2,598,453) 535,478 2,062,975 -
9. Share capital
2014 2013
Authorised :
50,000 ordinary shares of US$1.00 par value each US$ 50,000 50,000
Issued and fully paid:
1,000 ordinary shares of US$1.00 each US$ 1,000 1,000
All of the issued ordinary shares are fully paid and held by the Share Trustee pursuant to a
Declaration of Trust dated February 6, 2004. Ordinary shares have full voting rights.
There are no other share classes which would dilute the rights of the ordinary members. Amongst
other rights as prescribed in the Articles of Association of the Company, the rights of the ordinary
members include:
(a) The right to attend meetings of members. On a show of hands every member present in
person or by proxy shall have one vote and on a poll every member shall have one vote for
each share of which the member is a shareholder; and
(b) The right to receive dividends recommended by the Directors and declared in a general
meeting.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
10. Notes
The Notes in issue at December 31, 2014 were as follows:
Principal
amount Fair value
Series 2: Limited Recourse Secured Variable Rate Notes due 2018 49,000,000 4,648,078
Series 3: Limited Recourse Secured Variable Rate Notes due 2018 40,000,000 3,331,771
Series 4: Limited Recourse Floating Rate Credit Linked Notes due 2019 50,000,000 4,602,073
Series 6: Limited Recourse Floating Rate Credit Linked Notes due 2019 40,000,000 2,367,136
Series 7: Limited Recourse Floating Rate Credit Linked Notes due 2019 50,000,000 4,228,933
Series 8: Limited Recourse Secured Floating Rate Notes Credit Linked
to South Africa due 2015 500,000,000 43,641,908
ZAR 729,000,000 US$ 62,819,899
The Notes in issue at December 31, 2013 were as follows:
Principal
amount Fair value
Series 2: Limited Recourse Secured Variable Rate Notes due 2018 49,000,000 4,867,600
Series 3: Limited Recourse Secured Variable Rate Notes due 2018 40,000,000 3,535,494
ZAR 89,000,000 US$ 8,403,094
Series 2 and Series 3 Notes
The Series 2 Notes and Series 3 Notes are issued under the Credit-Linked Securities Conditions
Module and are Auction Settled CLS credit-linked to the iTraxx® Europe Crossover Index Series 19
and to AngloGold Ashanti Limited respectively. Upon the occurrence of a credit event, the Series 2
Notes and Series 3 Notes will be partially redeemed either by auction settlement or by cash
settlement.
Series 4 and Series 6 Notes
The Series 4 Notes are issued under the Credit-Linked Securities Conditions Module and are Auction
Settled CLS credit-linked to the iTraxx® Europe Crossover Index Series 20 Version 1.
Series 6 Notes are Auction Settled CLS and are issued under the Credit-Linked Securities Conditions
Module. Series 6 noteholders are taking credit risk with respect to the Long Reference Entity and are
providing credit protection to the Company. The Company, in turn, is taking credit risk with respect to
the Long Reference Entity in the Long Credit Default Swap Transaction with the Counterparty and,
through the Long Credit Default Swap Transaction, is providing credit protection to the Counterparty.
Conversely, the Company is taking credit risk with respect to the Short Reference Entity and is
providing credit protection to the noteholders. The Company, in turn, is purchasing credit protection
from the Counterparty through the Short Credit Default Swap Transaction.
Upon the occurrence of a credit event, the Series 4 Notes and Series 6 Notes will be partially
redeemed either by auction settlement or by cash settlement.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
10. Notes (continued)
Series 7 and Series 8 Notes
Series 7 are issued under the Credit-Linked Securities Conditions Module and are Auction Settled
CLS credit-linked to the iTraxx® Europe Index Series 21, as determined pursuant to the Credit-
Linked Securities Modules. Upon the occurrence of a Credit Event, the Series 7 Notes will be partially
redeemed. Series 8 are Auction Settled CLS and are credit-linked to the Republic of South Africa and
any Successors. Upon the occurrence of a credit event, the Series 7 Notes and Series 8 Notes will be
partially redeemed either by auction settlement or by cash settlement.
The Series 2 Notes, Series 3 Notes, Series 4 Notes, Series 6 Notes, Series 7 Notes and Series 8
Notes are variable rate notes which pay interest quarterly, commencing July 15, 2013, December 20,
2013, April 24, 2014, September 22, 2014, September 22, 2014 and January 30, 2015 respectively
(“Coupon Payment date”).
In the event of a shortfall, the net proceeds of the Notes may be insufficient to pay all amounts due on
redemption to the noteholders. Any such shortfall will be distributed in accordance with the final terms
and conditions of the Notes. The Trustee, the shareholder of the Company, the swap counterparty,
neither the Dealer nor any obligor under any of the Reference Assets would have obligation to the
noteholders for payment of any amount owing by the Company in respect of the Notes. The value of
the Notes will depend on the value of the Swap Agreement and Charged Assets.
With respect to Series 8, the Company and MLI entered into a repurchase agreement, pursuant to
which the Company paid US$43,971,506 (the “Purchase Price”) to The Bank of New York Mellon (the
“Custodian” and “Banker” in respect of all Cash delivered) for benefit of MLI, against the transfer by
MLI of certain securities (“Charged Assets”) to the Company. The Company will be under a
contractual obligation to redeliver the Charged Assets to MLI in return for the repayment of the cash
plus any interest. At December 31, 2014, no Charged Assets were delivered to the Company. The
purchase price was still maintained by the Banker in favour of MLI and the transaction was recorded
as receivable from repurchase agreement.
The repurchase agreement provides for daily margining so as to ensure that the value of the Charged
Assets held by or on behalf of the Company at any time (adjusted by reference to specified haircuts)
is at least equal to 100 per cent. In order to facilitate such margining, the Company, MLI and The
Bank of New York Mellon, London Branch (the “Collateral Agent”) have entered into a tripartite
custodial undertaking agreement relating to the repurchase agreement pursuant to which the
Collateral Agent is appointed to provide custodial and other services to the Company and MLI. The
Collateral Agent is also responsible for ascertaining that all Charged Assets to be transferred by MLI
to the Company is eligible collateral for the purposes of the repurchase agreement.
To the extent that the haircut-adjusted value of the Charged Asset held by the Company at any time
is less than the amount of the Purchase Price (a Margin Deficit), then the Collateral Agent will transfer
such amount of additional Charged Asset from MLI’s account with the Collateral Agent to the
Company’s account with the Collateral Agent. Conversely, to the extent that the haircut-adjusted
value of the Charged Asset held by the Company at any time is greater than the amount of the
Purchase Price (a Margin Excess), then the Collateral Agent will transfer equivalent Charged Asset
from the Company’s account with the Collateral Agent to MLI’s account with the Collateral Agent with
a haircut-adjusted value equal to the relevant Margin Excess.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
10. Notes (continued)
If an Event of Default occurs under the repurchase agreement, with MLI as the defaulting party, the
repurchase agreement provides that MLI’s obligation to pay the Purchase Price will be set off against
the Company’s obligation to transfer to MLI the Charged Assets with a fair market value equal to the
Purchase Price.
If an Event of Default occurs with respect to the reference entity (“Event Determination Date”), as
defined in the Credit Default Swap Transaction, the repurchase agreement shall automatically be
deemed to convert into an overnight repurchase agreement, using the same Charged Asset but with
interest payable at the market overnight rate as determined by the Calculation Agent in its sole and
absolute discretion in accordance with the repurchase agreement.
In the event of the occurrence of an early redemption event under the Notes; or an event of default or
a termination event under the Swap Agreement, the South African Notes will be redeemed at an
amount in ZAR equal to the net proceeds of liquidation of the Charged Assets plus the aggregate
Termination Value of the credit default swap transaction and the cross currency swap transaction,
each as determined by the swap counterparty (where a positive amount represents an amount owing
to the Company by the swap counterparty and where a negative amount represents an amount owing
to the swap counterparty by the Company) after taking into account any unpaid credit event
Adjustment Amounts and deduction of any payments of taxes, company fees or payments due to the
Trustee, Selling Agent, Calculation Agent and Principal Paying Agent or any other payment that ranks
senior to the Securities in priority of payment. Interest on the South African Notes will cease to accrue
upon the occurrence of any of the events described above from the later of the previous Coupon
Payment Date (or the Issue Date in respect of the first Coupon Period).
In the event of the occurrence of a partial early redemption event as a result of a credit event, the
South African Notes will be reduced in an amount equal to the ZAR equivalent of the Reference
Amount of the Reference Entity affected by the credit event. The Bank of America, National
Association (the “Selling Agent”) will liquidate the Charged Assets in an amount equal to the USD
equivalent of the principal amount of such Reference Amount (less any amount standing to the credit
of the USD Cash Deposit Account at such time) in order to fund payment of amounts due to the
Secured Parties.
The proceeds of such liquidation and any amount standing to the credit of the USD Cash Deposit
Account at such time will be applied to pay to the following:
(a) The amount due under the Credit Derivative Transaction in respect of the relevant credit
event and;
(b) The Partial Termination Value of the portion of the cross currency swap transaction required
to be terminated as a consequence of the reduction of the South African Notes.
The interest amount payable to the noteholders on the next following Interest Payment Date will
either increase by any proceeds of the liquidation of the Charged Assets remaining after such
payments to the swap counterparty have been made or decrease by any shortfall in the event of such
liquidation proceeds are insufficient to make such payments to the swap counterparty in full.
DOLOMITE CAPITAL LIMITED
Notes to Financial Statements (continued)
December 31, 2014
(stated in United States dollars)
11. Fees
Transaction fees
In consideration for entering into the Programme, the Company received an initial transaction fee of
US$1,000 and has received a transaction fee of US$250 from MLI on each subsequent series of
Notes that will be issued.
12. Directors
The Directors of the Company are David Dyer, Alexandra Lucie McCoy and Helen Fowler. Effective
March 27, 2014, Helen Frances Allen resigned as Director and Helen Fowler was appointed on same
date. No Directors are executive officers of the Company or serve the Company in any other way.
The Directors are entitled to remuneration as approved by the Company for any reasonable expenses
properly incurred for attending meetings of the Directors or any meeting held in connection with the
business of the Company. As of December 31, 2014 and 2013, the Company had no amounts owing
to the Directors.
13. Commitments and contingencies
The Company does not have any commitments or contingencies as at December 31, 2014.
14. Subsequent events
The Company repurchased (“Repurchase”) Series 2 Limited Recourse Secured Variable Rate Notes
due 2018 and Series 6 Limited Recourse Floating Rate Credit Linked Notes due 2019 on February
19, 2015 and February 27, 2015 respectively. Following the repurchase, the Company cancelled the
Series 2 Notes and Series 6 Notes.
On March 19, 2015, the Company issued Series 9 ZAR 40,000,000 Limited Recourse Floating Rate
Credit Linked Secured Notes due 2019. Series 9 Notes is currently listed on JSE.
In preparing these financial statements, management has evaluated and disclosed all material
subsequent events up to June 5, 2015, which is the date that the financial statements were available
to be issued.
Debt Sponsor:
The Standard Bank of South Africa Limited
Date: 08/09/2015 05:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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