Wrap Text
Annual Financial Statments - DOL003/DOL004/DOL009
DOLOMITE CAPITAL LIMITED
Financial Statements
For the year ended December 31, 2016
DOLOMITE CAPITAL LIMITED
Table of Contents Page(s)
Independent auditors’ report to the Directors 1-3
Statement of financial position 4
Statement of comprehensive income 5
Statement of changes in shareholders’ and noteholders’ equity 6
Statement of cash flows 7
Notes to financial statements 8-34
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, 2016, and the statements of
comprehensive income, 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 entity’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 entity’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, 2016, 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.
___________________, 2017
DOLOMITE CAPITAL LIMITED
Statement of financial position
December 31, 2016
(stated in United States dollars)
Notes 2016 2015
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 10,456,037 16,092,839
Derivative financial assets 3,4,7 4,019,820 6,691,451
Loans and receivables
Receivables from repurchase agreements 4,6 100,000,000 36,062,027
Cash and cash equivalents 4 1,483,887 984,515
Total assets US$ 115,959,744 59,830,832
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 7,059,535 17,626,892
Financial liabilities measured at amortised cost
Bank overdraft 4 26,618 -
Other payables 1,476,300 977,895
Total liabilities 8,562,453 18,604,787
Noteholders' equity
Notes 4,10 107,392,544 41,221,798
Total noteholders' equity 107,392,544 41,221,798
Shareholders' equity
Ordinary share capital 9 1,000 1,000
Retained earnings 3,747 3,247
Total shareholders' equity 4,747 4,247
Total noteholders' and shareholders' equity 107,397,291 41,226,045
Total liabilities, noteholders' equity and
shareholders' equity US$ 115,959,744 59,830,832
Approved on behalf of the Directors and authorised for issue on __________, 2017.
____________________ Authorised signatory
____________________ Authorised signatory
See accompanying notes to the financial statements
4
DOLOMITE CAPITAL LIMITED
Statement of comprehensive income
For the year ended December 31, 2016
(stated in United States dollars)
Notes 2016 2015
Investment income
Financial assets and liabilities at fair value through profit or loss
Designated at fair value through profit or loss at initial recognition
Net change in unrealised gain/(loss) on
Charged Assets 5 629,250 (1,716,814)
Realised (loss)/gain on Charged Assets 5 (845,002) 834,296
Net change in unrealised gain/(loss) on
derivative financial instruments 7,895,726 (5,027,930)
Net change in unrealised (loss)/gain on foreign currency (377) 2,905
Realised loss on settlement of derivatives (356,196) (3,065,225)
Interest income 455,131 1,013,690
Net swap income 2,994,174 3,635,310
Loans and receivables
Interest income 996,325 21,359
Other income 1,173 894
Net investment income/(loss) 11,770,204 (4,301,515)
Expenses
Accretion of discount on Notes 70,150 211,435
Bank charges 26,387 923
Other expenses 61 60
96,598 212,418
Net increase/(decrease) in net assets resulting
from operations US$ 11,673,606 (4,513,933)
See accompanying notes to the financial statements
5
DOLOMITE CAPITAL LIMITED
Statement of changes in shareholders’ and noteholders’ equity
For the year ended December 31, 2016
(stated in United States dollars)
Ordinary
share Retained Noteholders'
Notes capital earnings equity Total
Balance as at January 1, 2015 US$ 1,000 2,997 62,819,899 62,823,896
Proceeds from issue of notes - - 37,762,027 37,762,027
Redemption of notes - - (50,384,329) (50,384,329)
Accretion of discount on Notes - - 211,435 211,435
Interest on notes - - (4,673,051) (4,673,051)
Net decrease in net assets
resulting from operations - 250 (4,514,183) (4,513,933)
Balance as at December 31, 2015 US$ 1,000 3,247 41,221,798 41,226,045
Proceeds from issue of notes - - 100,000,000 100,000,000
Redemption of notes - - (39,552,905) (39,552,905)
Accretion of discount on Notes - - 70,150 70,150
Interest on notes - - (4,445,630) (4,445,630)
Write-down of notes due
to credit event 10 - - (1,573,975) (1,573,975)
Net increase in net assets
resulting from operations - 500 11,673,106 11,673,606
Balance as at December 31, 2016 US$ 1,000 3,747 107,392,544 107,397,291
See accompanying notes to the financial statements
6
DOLOMITE CAPITAL LIMITED
Statement of cash flows
For the year ended December 31, 2016
(stated in United States dollars)
2016 2015
Cash provided by/(used in):
Operating activities
Net increase/(decrease) in net assets resulting from operations 11,673,606 (4,513,933)
Purchase of Charged Assets - (3,400,000)
Disposal of Charged Assets 5,421,050 9,477,296
Realised loss/(gain) on Charged Assets 845,002 (834,296)
Net change in unrealised (gain)/loss on Charged Assets (629,250) 1,716,814
Proceeds from settlement of derivatives - 1,700,000
Net change in unrealised (gain)/loss on
derivative financial instruments (7,895,726) 5,027,930
Accretion of discount on Notes 70,150 211,435
Adjustments to reconcile net increase/(decrease) in net assets from
operations to net cash (used in)/provided by operating activities:
(Increase)/decrease in receivable from repurchase agreement 36,062,027 7,909,479
Increase in other payables 498,405 977,895
46,045,264 18,272,620
Financing activities
Proceeds from issue of notes - 37,762,027
Redemption of notes (39,552,905) (50,384,329)
Interest on notes (4,445,630) (4,673,051)
Write-down of notes due to credit event (1,573,975) -
(45,572,510) (17,295,353)
Increase in cash and cash equivalents for the year 472,754 977,267
Cash and cash equivalents, at beginning of year 984,515 7,248
Cash and cash equivalents, at end of year US$ 1,457,269 984,515
Cash and cash equivalents, at end of year include:
Cash at bank 1,483,887 984,515
Bank overdraft (26,618) -
US$ 1,457,269 984,515
Supplementary disclosure of non-cash transaction (refer to note 6)
Proceeds from issuance of notes paid directly
to repo counterparty US$ 100,000,000 -
See accompanying notes to the financial statements
7
DOLOMITE CAPITAL LIMITED
Notes to financial statements
December 31, 2016
(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 and receivables from repurchase agreements”). The receivables
from repurchase agreements are further described in note 6 and note 10.
Each Series of Notes are credit linked to the following reference assets:
Series Notes Reference Entities
Series 3 Notes AngloGold Ashanti Limited
Series 4 Notes iTraxx® Europe Crossover Index Series 20 Version 1
Series 9 Notes 0-10% Tranche of the iTraxx® Europe Crossover Index Series 22 Version 1
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. On January 13, 2016, Series 10 Notes were
issued directly under the Programme and had no derivative contracts.
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 3, 4 and 9 are listed on JSE and Series 10 Notes 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 Deutsche Bank (Cayman) Limited, P.O. Box 1984,
Boundary Hall, Cricket Square, Grand Cayman, KYI-1104, 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.
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DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(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
and liabilities 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 income. 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 income. All other foreign
currency exchange differences relating to monetary items are presented separately in the
statement of comprehensive income.
(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 receivables from repurchase agreements and cash and
cash equivalents into financial assets that are classified as loans and receivables. Financial
liabilities held at amortised cost include bank overdraft and other payables.
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DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
2. Significant accounting policies (continued)
(e) Financial instruments (continued)
(ii) Recognition
The Company recognises 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
income. 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 fair value. 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 income.
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) Fair value measurement principles
The Charged Assets and derivative financial instruments are carried at fair value and any gain
or loss in fair value is recorded in the statement of comprehensive income.
(v) 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.
(vi) 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 income
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 income.
10
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
2. Significant accounting policies (continued)
(e) Financial instruments (continued)
(vii) 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.
(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 specialising 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.
(h) Receivables from repurchase agreements
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 (“receivables from repurchase agreements”), and the underlying asset is
not recognised on the Company’s financial statements.
Receivables from repurchase agreements 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 receivables from repurchase agreements is recognised in the statement of
comprehensive income as interest income.
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DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
2. Significant accounting policies (continued)
(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. Cash equivalents include collateral as detailed in note 7.
(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
proprietary 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 income. Periodic receipts received at the
end of each measurement period, but prior to termination, are recorded as swap income in the
statement of comprehensive income.
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 income.
Depending on the available observable inputs, cross currency swaps are generally categorised
in Level 2 of the fair value hierarchy.
(iii) Interest rate swaps
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 unrealised gains or
losses are recorded in the statement of comprehensive income.
Depending on the available observable inputs, interest rate swaps are generally categorised in
Level 2 of the fair value hierarchy.
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DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(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.
The Company issued Notes in ZAR and USD (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, 2016 and 2015 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.
(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.
13
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
2. Significant accounting policies (continued)
(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 Notes
remain 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 March 18, 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. The Company is compliant to FATCA and
its Global Intermediary Identification Number ("GIIN") is 7KWGN1.99999.SL.136.
(o) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory
for December 31, 2016 reporting periods and have not been early adopted by the Company. None
of these is expected to have a significant effect on the financial statements.
IFRS 9, 'Financial Instruments'
The complete version of IFRS 9 replaces most of the guidance in IAS 39. IFRS 9 retains but
simplifies the mixed measurement model and establishes three primary measurement categories
for financial assets: amortised cost, fair value through other comprehensive income (OCI) and fair
value through profit or loss. The basis of classification depends on the entity's business model and
the contractual cash flow characteristics of the financial asset. Investments in equity instruments
are required to be measured at fair value through profit or loss with the irrevocable option at
inception to present changes in fair value in OCI. There is now a new expected credit losses model
that replaces the incurred loss impairment model used in IAS 39.
14
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
2. Significant accounting policies (continued)
(o) New standards and interpretations not yet adopted (continued)
IFRS 9, 'Financial Instruments' (continued)
For financial liabilities there were no changes to classification and measurement except for the
recognition of changes in own credit risk in other comprehensive income for liabilities designated
at fair value through profit or loss.
IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge
effectiveness tests. It requires an economic relationship between the hedged item and hedging
instrument and for the 'hedged ratio' to be the same as the one management actually use for risk
management purposes. Contemporaneous documentation is still required but is different to that
currently prepared under IAS 39.
The new standard is effective for annual periods beginning on or after January 1, 2018 with early
adoption permitted.
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, 2016 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 8,619,843 1,836,194 - 10,456,037
Derivative financial assets - 4,019,820 - 4,019,820
US$ 8,619,843 5,856,014 - 14,475,857
December 31, 2016 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 - 7,059,535 - 7,059,535
US$ - 7,059,535 - 7,059,535
December 31, 2015 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 10,321,521 5,771,318 - 16,092,839
Derivative financial assets - 6,691,451 - 6,691,451
US$ 10,321,521 12,462,769 - 22,784,290
15
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
3. Fair value information (continued)
Fair value hierarchy analysis (continued)
December 31, 2015 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 - 17,626,892 - 17,626,892
US$ - 17,626,892 - 17,626,892
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.
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 and 2 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 receivables from repurchase agreements, cash and cash
equivalents, bank overdraft and other payables, 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 the
Supplemental Information Memorandum of each Series of Notes.
The Trust Instruments and the 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 the 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.
16
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(a) Market risk (continued)
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.
Series 3 Notes are linked to AngloGold Ashanti Limited, Series 4 Notes are linked to iTraxx®
Europe Crossover Index Series 20 Version 1 and Series 9 Notes are linked to 0-10% Tranche of
the iTraxx® Europe Crossover Index Series 22 Version 1. The noteholders are 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. With respect to Series 9 Notes, the Company entered into a credit
default swap on a pool of referenced assets which included a feature that has a 0% attachment
point and a 10% exhaustion point attached to the iTraxx Europe Crossover Index (refer to note 10).
Series 10 Notes are not principal protected and its noteholders are exposed to full loss of principal.
In the event of a credit event affecting the reference assets under Series 9 and the losses to be
borne by the Company exceed the exhaustion point of 10%, the noteholders risk losing the entire
amounts invested in the Notes.
(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 bears minimal 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.
17
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(a) Market risk (continued)
(i) Interest rate risk (continued)
At the reporting date, the interest rate risk profile of the Company's interest bearing financial
instruments was:
Non-interest
December 31, 2016 bearing Floating rate Fixed Total
Charged Assets - - 10,456,037 10,456,037
Derivative financial assets - 607,132 3,412,688 4,019,820
Receivable from
repurchase agreement - 100,000,000 - 100,000,000
Cash and cash equivalents 1,476,300 7,587 - 1,483,887
Total assets 1,476,300 100,614,719 13,868,725 115,959,744
Derivative financial liabilities - 1,509,212 5,550,323 7,059,535
Bank Overdraft - 26,618 - 26,618
Other payables 1,476,300 - - 1,476,300
Notes - 107,392,544 - 107,392,544
Total liabilities 1,476,300 108,928,374 5,550,323 115,954,997
Net exposure US$ - (8,313,655) 8,318,402 4,747
Non-interest
December 31, 2015 bearing Floating rate Fixed Total
Charged Assets - 3,874,643 12,218,196 16,092,839
Derivative financial assets - 921,710 5,769,741 6,691,451
Receivable from
repurchase agreement - 36,062,027 - 36,062,027
Cash and cash equivalents 977,895 6,620 - 984,515
Total assets 977,895 40,865,000 17,987,937 59,830,832
Derivative financial liabilities - 7,827,879 9,799,013 17,626,892
Other payables 977,895 - - 977,895
Notes - 41,221,798 - 41,221,798
Total liabilities 977,895 49,049,677 9,799,013 59,826,585
Net exposure US$ - (8,184,677) 8,188,924 4,247
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 floating interest rates as at the reporting date would have
increased the total noteholders’ equity by US$83,137 (2015: US$81,847). A decrease of 100 basis
points would have an equal but opposite effect.
18
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(a) Market risk (continued)
(ii) Currency risk
The Company invested in financial instruments and entered into transactions denominated in
currencies other than its functional currency. Consequently, the Company is exposed to risk that
the exchange rate of its functional currency relative to other foreign currencies could change in a
manner that has an adverse effect on the net asset value of the Company. The Company’s currency
risk is 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.
The Company's exposure to foreign currency risk before and after the impact of derivatives is as
follows:
December 31, 2016 EUR ZAR USD Total
Charged Assets 1,836,194 - 8,619,843 10,456,037
Derivative financial assets 4,019,820 - - 4,019,820
Receivable from
repurchase agreement - - 100,000,000 100,000,000
Cash and cash equivalents 1,476,300 3,077 4,510 1,483,887
Total assets 7,332,314 3,077 108,624,353 115,959,744
Derivative financial liabilities 5,190,231 1,641,813 227,491 7,059,535
Bank overdraft - 26,618 - 26,618
Other payables - 1,476,300 - 1,476,300
Notes - 7,392,544 100,000,000 107,392,544
Total liabilities 5,190,231 10,537,275 100,227,491 115,954,997
Net exposure US$ 2,142,083 (10,534,198) 8,396,862 4,747
December 31, 2015 EUR ZAR USD Total
Charged Assets 5,771,318 - 10,321,521 16,092,839
Derivative financial assets 6,691,451 - - 6,691,451
Receivable from
repurchase agreement - - 36,062,027 36,062,027
Cash and cash equivalents 977,895 2,550 4,070 984,515
Total assets 13,440,664 2,550 46,387,618 59,830,832
19
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(a) Market risk (continued)
(ii) Currency risk (continued)
December 31, 2015 EUR ZAR USD Total
Derivative financial liabilities 11,011,416 5,778,163 837,313 17,626,892
Other payables - 977,895 - 977,895
Notes - 41,221,798 - 41,221,798
Total liabilities 11,011,416 47,977,856 837,313 59,826,585
Net exposure US$ 2,429,248 (47,975,306) 45,550,305 4,247
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.
(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 issuer 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 with 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 Notes and pursuant to the Term Sheets, neither the swap counterparty nor the
Arranger, dealer and agents have any obligation to provide liquidity for the investment made by the
noteholders, and in case they elect to provide the liquidity, they will only do so at the then current
market price they determine in light of their hedging costs. They 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.
20
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(b) Liquidity risk (continued)
Any claims against the Company by the noteholders of the Series and by the swap counterparty
will be limited to the Charged Assets 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.
With respect to Series 10, any claims against the Company by the noteholders and by the repo
counterparty will be limited to the Mortgaged Property. The proceeds of realisation of such
Mortgaged Property may be less than the sums due to the noteholders and the repo counterparty.
Any shortfall will be borne by the noteholders and by the repo counterparty in accordance with the
Security Ranking Basis.
(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.
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 ability of the Company to meet its obligations under the Series 10 Notes will be dependent on
all sums due from the repo counterparty. In the event the repo counterparty defaults in its payment
obligations or the repo agreement terminates early, the notes will be subject to early redemption
and the amount payable to the noteholders may be less than their investment.
The ability of the Company to meet its obligations under the Series 10 Notes will also be dependent
on all parties to the transaction to perform their respective obligations. Accordingly, the noteholders
are exposed to the creditworthiness of the repo counterparty, the Principal Paying Agent, the
Collateral Agent and the Custodian.
The Company is exposed to a concentration of credit risk in that the Arranger of the Notes, the
swap counterparty and the repo counterparty is the same entity.
21
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(c) Credit risk (continued)
The current liquidity shortage and volatility in the credit markets have 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 (Cayman) Limited.
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, 2016, HSBC Bank had a Moody’s credit
rating of A1 (2015: Aa2). Deutsche Bank (Cayman) Limited and Standard Bank had a Moody’s
credit rating of A3 and Baa3 respectively (2015: A2 and Baa2 respectively). Credit risk in relation
to credit default swaps is discussed further in note 10.
(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.
22
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
4. Financial instruments and associated risks (continued)
(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, 2016 Initial Outstanding
Interest Maturity Principal Principal
Series Description rate date CCY amount amount Fair value
Merrill Lynch Series USD
Series 3 700,000,000 Bonds 6.50% 15-Jul-18 USD 4,020,000 4,020,000 4,401,016
Morgan Stanley Global
Medium-Term Notes,
Series 4 Series F 2.50% 24-Jan-19 USD 2,300,000 2,208,000 2,255,207
Bank of America, 1.875%
Series 4 10 Jan 2019 1.88% 10-Jan-19 EUR 1,650,000 1,650,000 1,836,194
Series 9 Bank of America Corp 2.65% 1-Apr-19 USD 3,400,000 1,933,000 1,963,620
Total charged assets 10,456,037
December 31, 2015 Initial Outstanding
Interest Maturity Principal Principal
Series Description rate date CCY amount amount Fair value
Merrill Lynch Series USD
Series 3 700,000,000 Bonds 6.50% 15-Jul-18 USD 4,020,000 4,020,000 4,550,286
Morgan Stanley Global
Medium-Term Notes,
Series 4 Series F 2.50% 24-Jan-19 USD 2,300,000 2,300,000 2,339,818
Bank of America, 1.875%
Series 4 10 Jan 2019 1.88% 10-Jan-19 EUR 1,650,000 1,650,000 1,896,675
JP Morgan Chase & Co.
Series 78 Tranche 1
EUR1,000,000,000
Floating Rate Notes due
Series 7 2019 0.53% 7-May-19 EUR 1,775,000 1,775,000 1,937,812
Series 7 Bank of America Corp 0.67% 19-Jun-19 EUR 1,775,000 1,775,000 1,936,831
Series 9 Bank of America Corp 2.65% 1-Apr-19 USD 3,400,000 3,400,000 3,431,417
Total charged assets 16,092,839
23
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
5. Charged Assets (continued)
Movements in the Charged Assets are as follows:
2016 2015
Opening balance 16,092,839 23,052,653
Additions - 3,400,000
Disposals (5,421,050) (9,477,296)
Realised (loss)/gain on Charged Assets (845,002) 834,296
9,826,787 17,809,653
Net change in unrealised gain/(loss) on Charged Assets 629,250 (1,716,814)
Closing balance US$ 10,456,037 16,092,839
Interest on the Charged Assets is 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.
As a result of the credit events affecting Series 4 and 9, the Company had to redeem in part Series 4
and 9 Charged Assets in an aggregate principal amount of US$92,000 and US$1,467,000 respectively
in order to make the relevant payments to the swap counterparty.
The Charged Assets are listed on several Stock Exchanges which include Berlin Stock Exchange;
Düsseldorf Stock Exchange; EuroTLX Bond Market; Frankfurt Stock Exchange; London Stock
Exchange; Luxembourg Stock Exchange; Munich Stock Exchange; New York Stock Exchange;
Stuttgart Stock Exchange and SIX Swiss Exchange.
6. Receivables from repurchase agreements
The Company originally entered into repurchase agreements under Series 8 and Series 11 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. In return, the Company receives
monthly interest at one month USD Libor plus a margin of 0.70% and a margin of 0.55% for Series 8
and Series 11 respectively. Series 8 and Series 11 matured on October 30, 2015 and November 25,
2016 respectively. On January 13, 2016, the Company entered into a new repurchase agreement under
Series 10.
The securities are held in trust by HSBC Plc (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, 2016, the total fair value of collateral received from the counterparty
with respect to Series 10, including accrued interest, is approximately US$100,040,470 (2015:
US$37,774,643 for Series 11). 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 a basket of shares and the Company has not recognised these
securities in the statement of financial position.
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.
24
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
7. Derivative financial instruments (continued)
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,
and (ii) Cross Currency Swap transactions and Interest Rate Swap transactions.
Details of the derivative financial instruments as at December 31, 2016 are as follows:
Credit Default Swaps
Series Reference portfolio Maturity date Fair value CCY Notional
3 AngloGold Ashanti Limited 20-Sep-2018 (20,228) USD 4,020,000
4 Pool of reference assets 20-Dec-2018 607,132 EUR 6,468,000
4 Pool of reference assets 20-Dec-2018 (32,150) EUR 6,468,000
9 Pool of reference assets 20-Dec-2019 (880,526) EUR 1,679,790
Cross Currency Swaps
Series Counterparty Maturity date Fair value CCY Notional
3 Bank of America, N.A. 15-Jul-2018 (1,344,265) USD /ZAR 4,020,000 /40,000,000
4 Bank of America, N.A. 20-Dec-2018 3,412,688 EUR /ZAR 6,468,000 /49,000,000
4 Bank of America, N.A. 20-Dec-2018 (3,908,510) EUR /ZAR 6,468,000 /49,000,000
9 Merrill Lynch International 01-Apr-2019 (297,548) USD /ZAR 1,933,000 /22,397,215
Interest Rate Swaps
Series Counterparty Maturity date Fair value CCY Notional
3 Bank of America, N.A. 20-Sep-2018 (70,722) USD 4,020,000
4 Bank of America, N.A. 24-Jan-2019 (136,541) USD 2,208,000
4 Bank of America, N.A. 10-Jan-2019 (98,216) EUR 1,650,000
9 Merrill Lynch International 20-Dec-2019 (270,829) EUR 1,679,790
Details of the derivative financial instruments as at December 31, 2015 are as follows:
Credit Default Swaps
Series Reference portfolio Maturity date Fair value CCY Notional
3 AngloGold Ashanti Limited 20-Sep-2018 (452,132) USD 4,020,000
4 Pool of reference assets 20-Dec-2018 682,132 EUR 6,600,000
7 Pool of reference assets 20-Jun-2019 239,578 EUR 14,200,000
9 Pool of reference assets 20-Dec-2019 (2,159,548) EUR 3,000,000
11 Republic of South Africa and
any Successors 25-Nov-2016 (139,600) USD 16,227,912
Cross Currency Swaps
Series Counterparty Maturity date Fair value CCY Notional
3 Bank of America, N.A. 15-Jul-2018 (1,816,036) USD /ZAR 4,020,000 /40,000,000
4 Bank of America, N.A. 24-Jan-2019 2,785,828 EUR /ZAR 6,600,000 /50,000,000
4 Bank of America, N.A. 24-Jan-2019 (4,020,850) EUR /ZAR 6,600,000 /50,000,000
7 Bank of America, N.A. 20-Jun-2019 2,983,913 EUR /ZAR 14,200,000 /50,000,000
9 Merrill Lynch International 01-Apr-2019 (479,568) USD /ZAR 3,400,000 /40,000,000
11 Merrill Lynch International 25-Nov-2016 (3,482,559) USD /ZAR 36,062,027 /500,000,000
Interest Rate Swaps
Series Counterparty Maturity date Fair value CCY Notional
3 Bank of America, N.A. 20-Sep-2018 (110,672) USD 4,020,000
4 Bank of America, N.A. 24-Jan-2019 (134,909) USD 2,300,000
4 Bank of America, N.A. 10-Jan-2019 (198,264) EUR 1,650,000
7 Bank of America, N.A. 07-May-2019 (1,977,374) EUR 1,775,000
7 Bank of America, N.A. 19-Jun-2019 (1,991,453) EUR 1,775,000
9 Merrill Lynch International 20-Dec-2019 (663,927) EUR 3,000,000
25
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
7. Derivative financial instruments (continued)
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.
On August 13, 2015, the swap counterparty determined that a credit event occurred affecting the
reference entity portfolio of Abengoa S.A under Series 9. MLI, as swap counterparty, agreed bilaterally
with Series 9 Noteholders to forbear from its right to terminate the CDS, which would constitute a
mandatory early redemption event of the Notes, in return for the Noteholders collateralising what MLI
calculated as the shortfall of collateral needed to bring collateralisation of the CDS back above the
required threshold. As a consequence, the Company was required to pay a settlement amount of
EUR900,000 (the “Collateral Amount”) to the swap counterparty. Effectively, on August 27, 2015, the
swap counterparty, the noteholders and the Company entered into a deed of collateral support pursuant
to which the noteholders transferred the collateral amount to ensure that there are no write-downs on
the Series 9 Notes. During the financial year 2016, market conditions increased the likelihood of credit
events. Consequently, on January 12, 2016, the Company entered into a Supplemental Deed of
Collateral Support with the swap counterparty and the noteholders whereby the noteholders transferred
an additional amount of EUR500,000 (the “Collateral Amount”) to the swap counterparty to protect
against write-downs on the Series 9 Notes. At the reporting date, a total collateral amount of
EUR1,400,000 (US$1,476,300) was received from the noteholders and was recorded under cash and
cash equivalents. This amount was also recorded as other payables which represents the total
collateral amount payable to the swap counterparty.
In 2016, three more credit events further affected the reference entity portfolio of Series 9. The
reference entities affected were (i) Norske Skogindustrier ASA, (ii) Portugal Telecom International
Finance B.V. and (iii) Grupo Isolux Corsan Finance B.V. which ultimately resulted in payments of
US$1,481,309 made to the swap counterparty and partial write-downs of the Series 9 Notes.
Consequently, the CDS original notional amount was decreased from EUR3,000,000 to EUR1,679,790.
The credit event of Portugal Telecom International Finance B.V. also affected the reference entity
portfolio of Series 4 which resulted in a payment of US$92,666 made to the swap counterparty and
partial write-down of the Series 4 Notes. This also resulted in the decrease of the CDS original notional
amount from EUR6,600,000 to EUR6,468,000.
Under the credit default swaps, the reference assets are exposed to a wide range of countries and
industries and due to the unique nature of each agreement in place, it is not practical to disclose details
of all such exposures.
26
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
7. Derivative financial instruments (continued)
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.
In 2015, Series 2 Notes and Series 6 Notes were terminated as a result of the repurchase of the Notes
by the Arranger, resulting in the termination of all the derivative financial instruments and the Company
had to pay a net settlement amount of US$1,071,140 and US$1,994,085 respectively. Similarly in 2016,
Series 7 was terminated and the Company had to pay a net settlement amount of US$356,196. In
2016, Series 11 matured and all swap transactions matured and hence required no settlement amount.
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 recognised assets and liabilities.
These recognised 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 recognised assets
presented in the statement of financial position had the Company elected to offset:
December 31, 2016
Gross Gross amounts Net amounts
amounts of offset in the presented in
recognised Statement of the Statement Gross amounts not
assets and Financial of Financial offset in the Statement Net
Description liabilities Position Position of Financial Position amount
Financial
Instruments Cash
(including non- collateral
cash received
collateral) / pledged
Assets:
Merrill Lynch International
Receivables from
repurchase agreements 100,000,000 - 100,000,000 (100,000,000) - -
Derivative financial assets
Bank of America, N.A.
Cross currency swaps 3,412,688 - 3,412,688 (3,412,688) - -
Credit default swaps 607,132 - 607,132 (52,378) - 554,754
104,019,820 - 104,019,820 (103,465,066) - 554,754
27
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
8. Offsetting assets and liabilities (continued)
December 31, 2016
Gross Gross amounts Net amounts
amounts of offset in the presented in
recognised Statement of the Statement Gross amounts not
assets and Financial of Financial offset in the Statement
Description liabilities Position Position of Financial Position Net amount
Financial
Instruments Cash
(including non- collateral
cash received
collateral) / pledged
Liabilities:
Derivative financial liabilities
Bank of America, N.A.
Cross currency swaps (5,252,775) - (5,252,775) 3,412,688 - (1,840,087)
Credit default swaps (52,378) - (52,378) 52,378 - -
Interest rate swaps (305,479) - (305,479) - (305,479)
Merrill Lynch International
Cross Currency swaps (297,548) - (297,548) - - (297,548)
Credit default swaps (880,526) - (880,526) - - (880,526)
Interest rate swaps (270,829) - (270,829) - - (270,829)
(7,059,535) - (7,059,535) 3,465,066 - (3,594,469)
December 31, 2015
Gross Gross amounts Net amounts
amounts of offset in the presented in
recognised Statement of the Statement Gross amounts not
assets and Financial of Financial offset in the Statement
Description liabilities Position Position of Financial Position Net amount
Financial
Instruments Cash
(including non- collateral
cash received
collateral) / pledged
Assets:
Merrill Lynch International
Receivables from
repurchase agreements 36,062,027 - 36,062,027 (36,062,027) - -
Derivative financial assets
Bank of America, N.A.
Cross currency swaps 5,769,741 - 5,769,741 (5,769,741) - -
Credit default swaps 921,710 - 921,710 (452,132) - 469,578
Merrill Lynch International
Cross currency swaps - - - - - -
Credit default swaps - - - - - -
42,753,478 - 42,753,478 (42,283,900) - 469,578
December 31, 2015
Gross Gross amounts Net amounts
amounts of offset in the presented in
recognised Statement of the Statement Gross amounts not
assets and Financial of Financial offset in the Statement
Description liabilities Position Position of Financial Position Net amount
Financial
Instruments Cash
(including non- collateral
cash received
collateral) / pledged
Liabilities:
Derivative financial liabilities
Bank of America, N.A.
Cross currency swaps (5,836,886) - (5,836,886) 5,769,741 - (67,145)
Credit default swaps (452,132) - (452,132) 452,132 - -
Interest rate swaps (4,412,672) - (4,412,672) - - (4,412,672)
Merrill Lynch International
Cross Currency swaps (3,962,127) - (3,962,127) - - (3,962,127)
Credit default swaps (2,299,148) - (2,299,148) - - (2,299,148)
Interest rate swaps (663,927) - (663,927) - - (663,927)
(17,626,892) - (17,626,892) 6,221,873 - (11,405,019)
28
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
9. Share capital
2016 2015
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.
10. Notes
The Notes in issue at December 31, 2016 were as follows:
Principal
amount Fair value
Series 3: Limited Recourse Secured Variable Rate Notes due 2018 40,000,000 2,967,726
Series 4: Limited Recourse Floating Rate Credit Linked Notes due 2019 49,000,000 3,935,813
Series 9: Limited Recourse Floating Rate Credit Linked Notes due 2019 22,397,215 489,005
ZAR 111,397,215 US$ 7,392,544
Series 10: Limited Recourse Floating Rate Notes due 2017 100,000,000 100,000,000
USD 100,000,000 US$ 100,000,000
US$ 107,392,544
The Notes in issue at December 31, 2015 were as follows:
Principal
amount Fair value
Series 3: Limited Recourse Secured Variable Rate Notes due 2018 40,000,000 2,173,123
Series 4: Limited Recourse Floating Rate Credit Linked Notes due 2019 50,000,000 3,350,440
Series 7: Limited Recourse Floating Rate Credit Linked Notes due 2019 50,000,000 3,129,785
Series 9: Limited Recourse Floating Rate Credit Linked Notes due 2019 40,000,000 128,582
Series 11: Limited Recourse Secured Floating Rate Notes Credit Linked
to South Africa due 2016 500,000,000 32,439,868
ZAR 680,000,000 US$ 41,221,798
29
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
10. Notes (continued)
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, receivables from repurchase agreements
and Charged Assets.
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 Notes will be redeemed at an amount equal to the
net proceeds of liquidation of the receivables from repurchase agreements and Charged Assets plus,
if applicable, 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 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 under the
Credit Default Swap Agreements, the South African Notes will be reduced in an amount equal 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 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.
Series 2 and Series 3 Notes
The Series 2 Notes were issued under the Credit-Linked Securities Conditions Module and were
Auction Settled CLS credit-linked to the iTraxx® Europe Crossover Index Series 19. Upon the
occurrence of a credit event, the Series 2 Notes outstanding principal amount would have been partially
written-down. The Arranger repurchased (“Repurchase”) Series 2 Limited Recourse Secured Variable
Rate Notes due 2018 on February 19, 2015 from the original noteholders. Following the repurchase,
the Arranger terminated the Series 2 Notes.
30
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
10. Notes (continued)
Series 2 and Series 3 Notes (continued)
The Series 3 Notes are issued under the Credit-Linked Securities Conditions Module and are Auction
Settled CLS credit-linked to AngloGold Ashanti Limited. Upon the occurrence of a credit event, the
Series 3 Notes outstanding principal amount will be partially written-down. At December 31, 2016, there
were no credit events which affected Series 3.
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. Upon the
occurrence of a credit event, the Series 4 Notes outstanding principal amount would be partially written-
down. Effectively on July 1, 2016, a credit event took place in respect of one of the reference entities
for Series 4 under the credit defaults swap agreements. This ultimately resulted in a partial write-down
of Series 4 Notes by a principal amount of ZAR1,000,000.
Series 6 Notes were Auction Settled CLS and were issued under the Credit-Linked Securities
Conditions Module. Series 6 noteholders were taking credit risk with respect to the Long Reference
Entity and were providing credit protection to the Company. The Company, in turn, was 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, was providing credit protection
to the Counterparty.
Conversely, the Company was taking credit risk with respect to the Short Reference Entity and was
providing credit protection to the noteholders. The Company, in turn, was purchasing credit protection
from the Counterparty through the Short Credit Default Swap Transaction.
Upon the occurrence of a credit event, the Series 6 Notes outstanding principal amount would have
been partially written-down. The Arranger repurchased (“Repurchase”) Series 6 Limited Recourse
Floating Rate Credit Linked Notes due 2019 on February 27, 2015 from the original noteholders.
Following the Repurchase, the Arranger terminated Series 6 Notes.
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 outstanding principal
amount would have been partially written-down. The Arranger repurchased (“Repurchase”) Series 7
Limited Recourse Floating Rate Credit Linked Notes due 2019 on November 14, 2016 from the original
noteholders. Following the Repurchase, the Arranger terminated Series 7 Notes.
Series 8 were Auction Settled CLS and were credit-linked to the Republic of South Africa and any
Successors. Upon the occurrence of a credit event, the Series 8 Notes outstanding principal amount
would have been partially written-down. Series 8 Notes effectively matured on October 30, 2015 and
were delisted from the CSX with effect from January 13, 2016.
Series 9, Series 10 and Series 11 Notes
The Company issued Series 9 ZAR40,000,000 Limited Recourse Floating Rate Credit Linked Secured
Notes at a discount of 54.05%. Series 9 Notes were issued under the Credit-Linked Securities
Conditions Module and are Auction Settled CLS credit-linked to the iTraxx® Europe Crossover Index
Series 22, as determined pursuant to the Credit-Linked Securities Modules.
31
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
10. Notes (continued)
Series 9, Series 10 and Series 11 Notes (continued)
Upon the occurrence of a credit event, the Series 9 Notes outstanding principal amount will be partially
written-down depending on the losses to be incurred under the credit default swap. The Company
entered into a credit default swap on a pool of referenced assets which included a feature that has a
0% attachment point and a 10% exhaustion point attached to the iTraxx Europe Crossover Index. A
tranche is defined by attachment and detachment points. The attachment point defines the amount of
subordination a tranche can have. The tranche thickness, measured by subtracting the attachment
point from the detachment point, represents the maximum loss that can be sustained.
In the event of a credit event affecting the reference assets and the losses to be borne by the Company
exceed the exhaustion point of 10%, the noteholders risk losing the entire amounts invested in the
Notes.
Since the Company has locked into the 0%-10% feature, the Company faces more risks and due to
this mismatch of risk, the Company received an upfront payment on the sale of the credit protection on
the pool of assets in the iTraxx Europe Crossover Index which represented the value of the CDS at the
date it was entered into. This was the ultimate driver of the note issuance being offered at 54.05% of
par value.
Four credit events took place in respect of the reference entities for Series 9 under the credit defaults
swap agreements. This ultimately resulted in a partial write-down of Series 9 Notes by a principal
amount of ZAR17,602,785 and no interest was paid on Series 9 Notes in 2016.
Series 10 and Series 11 Notes were issued under the Issue Terms as set out in the Supplemental
Information Memorandum and Trust Instrument.
With respect to Series 11, the Company and MLI entered into a repurchase agreement, pursuant to
which the Company paid US$36,062,027 (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. On November 25, 2016, Series 11 Notes
effectively matured and were delisted from the CSX with effect from February 17, 2017.
With respect to Series 10, the Company and MLI entered into a repurchase agreement, pursuant to
which the Company paid US$100,000,000 (the “Purchase Price”) to HSBC Bank Plc (the “Custodian”
and “Banker” in respect of all Cash delivered) for benefit of MLI, against the transfer by MLI of collateral
consisting of a basket of shares to the Company. The Company will be under a contractual obligation
to redeliver the collateral to MLI in return for the repayment of the cash plus any interest. The purchase
price was still maintained by the Banker in favour of MLI and the transaction was recorded as
receivables from repurchase agreements.
The repurchase agreement provides for daily margining so as to ensure that the value of the collateral
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, MLI, the Custodian and Euroclear Bank
SA/NV (the “Collateral Agent”) have entered into a tripartite repurchase services agreement relating to
the repo transaction pursuant to which the Collateral Agent is appointed to provide custodial and other
services to HSBC Bank Plc and MLI. The Collateral Agent is also responsible for ascertaining that all
collateral to be transferred by MLI to HSBC Bank Plc is eligible collateral for the purposes of the repo
transaction.
32
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
10. Notes (continued)
Series 9, Series 10 and Series 11 Notes (continued)
To the extent that the haircut-adjusted value of the collateral held by the Custodian 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 eligible collateral from MLI’s account with the Collateral Agent to the Custodian’s
account with the Collateral Agent that has a haircut-adjusted value at least equal to the relevant Margin
Deficit. Conversely, to the extent that the haircut-adjusted value of the collateral held by the Custodian
at any time is greater than the amount of the Purchase Price (a Margin Excess), then the Collateral
Agent will transfer equivalent collateral from the Custodian’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.
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 collateral with a fair market value equal to the Purchase
Price.
11. Fees
Transaction fees
In consideration for entering into the Programme, the Company received an initial transaction fee of
US$1,000 and 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, Andy Peter Harding and Barry
Craine. 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, 2016 and 2015, 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, 2016.
14. Subsequent events
On January 13, 2017, Series 10 US$100,000,000 Limited Recourse Secured Floating Rate Notes due
2017 matured and Series 10 Notes was delisted from CSX on February 17, 2017.
33
DOLOMITE CAPITAL LIMITED
Notes to financial statements (continued)
December 31, 2016
(stated in United States dollars)
14. Subsequent events (continued)
In preparing these financial statements, management has evaluated and disclosed all material
subsequent events up to June 22, 2017, which is the date that the financial statements were available
to be issued.
On March 27, 2017, the Company’s registered office was transferred from the offices of Intertrust
Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman, KYI-9005,
Cayman Islands to Deutsche Bank (Cayman) Limited, P.O. Box 1984, Boundary Hall, Cricket Square,
Grand Cayman, KYI-1104, Cayman Islands.
34
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