Financial instruments
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Contingent considerations, included in trade and other payables, are level 3 financial liabilities.
Changes in level 3 instruments are as follows:
Six months ended 30 November 2017 Unaudited R'000 |
Six months ended 30 November 2016 Unaudited R'000 |
Year ended 31 May 2017 Audited R'000 |
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Contingent consideration | |||||||
Opening balance | 32 974 | 83 563 | 83 563 | ||||
Acquisition of Reware Proprietary Limited | – | 1 150 | 1 150 | ||||
Acquisition of Utilities World Proprietary Limited | – | 4 516 | 4 516 | ||||
Settlements | (27 867) | (49 109) | (50 666) | ||||
Gains and losses recognised in profit or loss | 540 | 2 271 | (5 589) | ||||
Closing balance | 5 647 | 42 391 | 32 974 | ||||
Total gains or losses for the period included in profit or loss for liabilities held at the end of the reporting period, under: | |||||||
Other income | (252) | – | (10 210) | ||||
Finance costs | 288 | 2 271 | 4 621 | ||||
Unrealised gains or losses recognised in profit or loss for liabilities held at the end of the reporting period | (288) | 2 003 | 5 304 |
The fair value of the contingent consideration is estimated by applying the income approach. The fair value is based on the discount rates applicable to the Group and management's probability assumptions on certain warranties being achieved. There have been changes in management's probability assumptions in respect of certain of the companies. The resulting changes in the fair values are accounted for in other income in the statement of comprehensive income. The resulting changes in the fair values are accounted for in finance costs in the statement of comprehensive income.
The investment in Oxigen Services India, Oxigen Online and 2DFine Mauritius are viewed as venture capital investments and accounted for at fair value, and are level 3 instruments. Refer to "Investment and loans to venture capital associates and joint venture".
The Group has not disclosed the fair values of all financial instruments measured at amortised cost, as their carrying amounts closely approximate their fair values.
Financial assets at fair value through profit and loss are level 3 financial assets.
Changes in level 3 instruments are as follows:
Six months ended 30 November 2017 Unaudited R'000 |
Six months ended 30 November 2016 Unaudited R'000 |
Year ended 31 May 2017 Audited R'000 |
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Financial asset at fair value through profit and loss | |||||||
Opening balance | – | – | – | ||||
Bond notes issued by SPV1 | 79 050 | – | – | ||||
Gains and losses recognised in profit or loss | – | – | – | ||||
Closing balance | 79 050 | – | – |
In terms of the Cell C acquisition, special purpose vehicles (SPVs) have been established by Cell C to facilitate the debt restructuring arrangements. The only assets within the SPVs are shareholdings in Cell C and their corresponding external debt is to the original Cell C lenders. TPC, a wholly owned subsidiary of BLT, has engaged with the SPVs as follows:
Cedar Cellular Investments 1 Proprietary Limited ("SPV1"): TPC has agreed to acquire 7.625% of the USD275 million in bond notes issued by SPV1, with a face value of USD21 million and accruing interest at 8.625% per annum, from Saudi Oger for a purchase consideration of USD9 million. TPC advanced USD6 million (R79 million) on 21 August 2017. The balance of USD3 million will be advanced once the South African Exchange Control Authorities have approved the cash outflow.
Magnolia Cellular Investment 2 (RF) Proprietary Limited ("SPV2"): TPC has agreed to provide liquidity support of up to USD80 million to SPV2. Of this amount, USD20 million has been provided by Oger Telecoms, thus reducing TPC's obligations to a maximum of USD60 million. The obligation was reduced by a further USD16.5 million which was paid by Saudi Oger into SPV2 from the proceeds of the sale of a specific asset. TPC's remaining funding obligations may be reduced if certain further assets of Oger Telecoms are realised and the proceeds thereof contributed to SPV2. Irrespective of the amounts received from Oger Telecoms, TPC will be entitled to receive the entire balance of the funding provided to SPV2 (USD80 million plus accrued interest). The balance of the liquidity support of USD43.5 million will be provided as to USD3.5 million in August 2018 followed by two tranches of USD20 million each every six months thereafter, and will bear interest at a Libor linked rate. These payments may be reduced in the event of any further contributions being forthcoming from Oger Telecoms during the period. As at 30 November 2017, no funds had been provided by TPC.
Based on the structure of the SPVs, TPC will only recover the funding it provides if the realised value of Cell C shares held by the respective SPVs exceeds the external debt owed by the SPVs. To the extent that the amount realised by the SPVs on the Cell C shares is less than the external debt, TPC will receive no repayment. The nature of this arrangement exposes TPC to the performance risk of the Cell C share price and not the credit risk of the SPVs.
As a result of the structure and associated risks, the funding arrangement has been accounted for as a financial asset at fair value through profit and loss. Any funding amounts advanced to the SPVs are accounted for as an adjustment to this balance.