TIDMAOF
RNS Number : 2299D
Africa Opportunity Fund Limited
25 June 2021
25 June 2021
Africa Opportunity Fund Limited (AOF LN)
Annual Results for the Year ended 31 December 2020
The Board of Africa Opportunity Fund Limited ("AOF", the
"Company" or the "Fund") is pleased to announce its audited results
for the year ended 31 December 2020. The Company's full annual
report and financial statements will shortly be sent to
shareholders and will be available to view and download from the
Company's website at: www.africaopportunityfund.com.
The following text and financial information does not constitute
the Company's annual report but has been extracted from the annual
report and financial statements for the year ended 31 December
2020.
For further information please contact:
Africa Opportunity Fund Limited
Francis Daniels Tel: +2711 684 1528
Liberum (Corporate Broker)
Darren Vickers
Owen Matthews Tel: +44 20 3100 2223
The Company
Africa Opportunity Fund Limited ("AOF" or the "Company") is a
Cayman Islands incorporated closed-end investment company traded on
the Specialist Fund Segment ("SFS") of the London Stock Exchange
("LSE"). AOF's net asset value on 31 December 2020 was $22.6
million and its market capitalisation was $15.8 million.
CHAIRPERSON'S STATEMENT
2020 Review
Africa Opportunity Fund (the "Fund" or "AOF") completed the
first half of its three year asset realization period at the end of
2020. It made two distributions to shareholders amounting to $25
million or 59% of its December 2019 net asset value.
2020 was a difficult year for the Fund as its net asset value
(including redemptions) declined 0.8% while its share price
declined by 19%[1]. To provide some basis for comparison, South
Africa rose 1%, Nigeria rose 43%, Kenya fell 11%, and Egypt fell
10%. In non-African emerging markets, China rose 38%, Brazil fell
20%, Russia fell 5% and India rose 13%. In developed markets, Japan
rose 24%, the US rose 18%, Europe rose 8%, and the UK fell 8%.
([2])
Covid-19 was the overarching theme of 2020. Despite countries
like Tanzania which claimed to have vanquished the virus by prayer
or Zambia which decided against imposing lockdown restrictions, the
overall impact on the typical African household was decidedly
negative. The actual number of African victims of covid-19 will
never be known. What is certain, though, is that, unlike other
economies, a majority of Sub-Saharan Africa's economies grew
anemically in 2020. But, the gross domestic products of its two
largest economies-South Africa and Nigeria-shrank, respectively,
7%, the biggest decline in a century, and 3%. Africa's recovery
picked up in 2020's second half as prices of major commodities like
crude oil, and copper, as well as precious metals like gold and
platinum group metals, rose in 2020. Palm oil was up 30%. However,
prices of key imports for African consumers such as white maize and
yellow maize also rose 33% and 27% respectively. To offset the
harsh impact of the pandemic on poor citizens, financial conditions
were loosened in heavily indebted countries like South Africa,
Ghana, and Kenya even as most African governments also increased
dramatically their budget deficits. Zambia defaulted on its
Eurobonds in Q4 2020. Hyperinflation in Zimbabwe declined from 460%
in 2019 to 340% in 2020. ([3]) The Fund participated in this
recovery as its net asset value per share rose 13% in H2 2020.
AOF's 2020 strategy was one of deliberate realization to
maximize the value of the assets returned to shareholders. In some
cases, that objective inclined the Fund towards corporate
transactions to create value for the Fund. In several other cases,
the Fund exited through the secondary public markets.
2021 Outlook
AOF's 2021 is likely to be determined by commodity price
trends-currently favourable-and the slow pace of Africa recovery
from the Covid-19 pandemic matching the slow rollout of vaccines in
Africa. The International Monetary Fund forecasts that Sub-Saharan
Africa's gross domestic product should rise 3.2% in 2021 and 3.9%
in 2022. Sub-Saharan Africa will be the second slowest growing
region in 2021. There is little doubt that it will take a few years
for Africa to recover from this pandemic.
Concluding Thoughts
In closing, I wish also to extend my thanks to our shareholders
for their support.
Dr. Myma Belo-Osagie
Chairperson
June 2021
MANAGER'S REPORT
2020 Review
2020 marked the thirteenth full year of operation of Africa
Opportunity Fund (the "Fund" or "AOF"). Its ordinary shares had an
annual return of -0.8%. At year-end, AOF held $3.9 million in cash,
$20.8 million in equity securities, and $1 million in debt
securities. The Fund's underlying end-of-year holdings were in
Botswana, Cote d'Ivoire, Egypt, Ghana, Kenya, Senegal, South
Africa, Tanzania, Zambia, and Zimbabwe.
The Fund's shareholders decided in June 2019 to commence an
orderly realization of the Fund over a three-year period ending in
June 2022. Realization proceeds are to be returned to shareholders
via intermittent mandatory redemptions of the Fund's shares. The
Fund liquidated nine investments in their entirety in 2020, of
which, Anglogold, Kosmos Energy, and Continental Reinsurance, were
the most significant in size. The Fund made those disposals via the
secondary markets as well as in corporate transactions. It also
reduced its holdings in seven other issuers. After year end, it
completed its exit from Egypt. The balance of this report will
discuss a few of the Fund's holdings.
The Fund's largest investment is in Enterprise Group. Enterprise
Group's total return was -14% in 2020. It announced in November
that it had been granted a license to commence life assurance
operations in Nigeria. With this entry into Nigeria, Enterprise is
present in three West African countries: Gambia, Ghana, and
Nigeria. Greenfield insurance operations tend to commence in
losses, as they pay upfront commissions to agents to build their
life policy books, in the hope of enjoying subsequent profits. A
cautious approach is to expect up to three years of losses. Today's
overvalued Naira and the negative real interest rates of Nigeria's
money market instruments will handicap Enterprise in its search for
inflation-beating investment destinations for its Nigerian
premiums. Lastly, Nigeria's low insurance penetration must exist
for good reason. Our enquiries indicate that Nigeria's insurance
industry is perceived to be a slow claims-paying industry. Against
these negatives stand Nigeria's patent potential and size.
Enterprise Life Assurance Company (Nigeria) Limited faces
formidable opportunities and obstacles. Yet, it should succeed in
its Nigerian mission. Enterprise's Ghanaian subsidiaries remain, by
market share, number one in life assurance, property and casualty
insurance, and pension administration. Its property subsidiary
continues to be a profit drag. Enterprise recorded solid 2020
results. It is very encouraging that, despite Enterprise's actual
revenue and investment income results turning out much lower than
forecast in its March 2018 rights offering circular and the
unanticipated covid-19 pandemic, its 2020 group profits exceeded
those forecasts for the third year in a row. Enterprise's trend of
rising management expense and claims ratios reversed in 2019 and
2020. Those diminishing ratios improve Enterprise's
competitiveness. Operating expenses, year-on-year, rose 17% in an
11% inflation environment; net premiums rose 22%, and profit after
tax rose 18% (in $ terms) to $26 million. Enterprise's own
shareholders were entitled to $13 million of those profits. The
most significant development, though, was that Enterprise's cost of
float (money owed to policyholders that is treated a balance sheet
liability in accounting terms) declined for the third straight year
to 1.4%, as it reduced its underwriting losses. Contrast that 1.4%
cost of float with the risk-free Government of Ghana 5 year bonds
of 20.6% and Ghana's inflation rate to understand how Enterprise's
float earned a minimum real (inflation adjusted) spread of 9.6%.
Whether measured in Cedis or Dollars, in a world of negative real
interest rates, that spread is a wide moat. No wonder it reported a
return on assets of 9%, and a return on equity of 17% in 2020. The
most important development, though, was that the embedded value of
Enterprise Life had risen to 775 million Cedis (or $132 million) at
year end versus 678 million Cedis ($119 million) in December 2019.
Enterprise Group is valued at a 45% discount to its share of its
December 2020 embedded value of Enterprise Life (worth $79
million). With a current market capitalization of $45 million,
Enterprise is trading on a P/E of 3x and a P/B ratio of 0.4x. At
these levels, investors are getting Enterprise's other Ghanaian
businesses and its Nigerian life expansion for free. Our goal is to
realize a commercially reasonable value for the Fund's Enterprise
stake.
The Fund's second largest holding is in African Leadership
International ("ALI"). The Fund made its initial investment in
2015, followed by an additional investment in 2016. Founded in 2013
by Fred Swaniker - one of four co-founders of African Leadership
Academy, a small two-year pre-university high school for Africa
students located in South Africa, ALI is a for-profit private
Mauritius holding company for educating talented young Africans
(regardless of income or background) to be ethical and
entrepreneurial leaders. The original intent was to use a blend of
(a) regular classroom instruction; (b) online university course
through modern Internet technology; (c) mutual instruction among
students organized in teams; and (d) 3-4 month internships of
students with the same employers during their university careers to
provide high quality "employment ready" university education to
some of the brightest students in Africa. The hope was that ALI
would be a low-cost tertiary institution. Like many start-ups,
though, ALI's strategy has undergone several twists
while preserving a steadfast focus on its goals. It started with
an undergraduate university campus in Mauritius. African parents
were unwilling or unable to pay its tuition costs. A second and
cheaper campus in Rwanda suffered the same financial fate. Campus
capital and operating costs were too high, inflicting losses on
ALI.
ALI spun out its campuses to place them in a not-for-profit
entity. It: (a) retained an educational division - ALX - that uses
only student-driven and technology enabled instruction outside the
conventional accreditation requirements for tertiary educational
institutions; (b) launched a network for connecting talented
individuals - the Room - to economic opportunities; and (c)
concluded the first of several collaborations with both charitable
organizations and companies to accelerate job creation on the
African continent for its network. ALI is far more capital-lite
today than it was at inception, but it has succeeded in raising a
considerable amount of equity capital and non-dilutive capital in
its short existence to build its business. We expect to sell our
ALI holding in the private secondary market.
The Fund's Zimbabwean property holdings turned in excellent
returns. First Mutual posted an annual total return of 247% while
Mashonaland Holdings generated a total return of 101%. We continue
to monitor the various Zimbabwe Dollar exchanges rates to select
the most realistic rate for valuing the Fund's Zimbabwean
holdings[4].
Zimbabwe continues to suffer from hyperinflation and intense
foreign currency shortages. Covid-19 lockdowns have hurt several
sectors like commercial property, as tenants are forced to work
remotely. Nevertheless, our property holdings do preserve
purchasing power in the long run. Like property companies
elsewhere, it is apparent that First Mutual Properties and
Mashonaland Holdings will have to adapt to a post Covid world.
First Mutual's buildings are well located in Harare's suburbs while
those of Mashonaland suffer from their older age and location in
Harare's city centre. There is likely to be consolidation, via
corporate transactions, to align commercial real estate supply with
changing demand. As Zimbabwe's economy recovers - the timing of
such a recovery a known unknown - there will also be need for
significant increases in capital expenditure and new construction.
Our intent in disposing of these holdings is to minimize the
devaluation risk facing disposal proceeds.
Copperbelt's share price gained 19% in H2, scant relief after
the 51% decline of H1. However, its total return was down 18% for
2020. Copperbelt raised its dividend for the 4(th) straight year by
11% in Dollar terms, giving it an astounding 44% dividend yield.
Evidently the market did not believe the dividend would be
forthcoming, but the Fund received its dividend despite Zambia
having defaulted on its sovereign debt. The reason? Zambia has no
exchange controls. Copperbelt's future remains shrouded in
uncertainties as it wages legal and arbitral battles against two
key parties: a major customer - Konkola Copper Mine - seeking
repayment of $145 million in unpaid invoices; and also a major
supplier - ZESCO and the Zambian government - for imposing
loss-making tariffs on its electricity transmission services. So
far, the Zambian high courts have ruled in favor of Copperbelt
against Konkola Copper Mine and the Zambian government. Both
Konkola Copper Mines and the Zambian government have appealed to
the Zambian appeals court against the two high court decisions.
Copperbelt delivered strong results in 2020, despite its legal
battles and the covid-19 pandemic. As is its norm, Copperbelt
completed its twelfth fatality free year. Its electricity sales
rose 5% to 3284GWh, a sign of copper production recovery.
Underlying net profit (excluding impairments and write-offs)
climbed to its highest level in 5 years - $54 million, although net
profit fell 54% to $5.6 million. Copperbelt has written off or
impaired $80 million of receivables over the last two years because
of the outstanding Konkola Copper Mine debt. Net cash from
operations rose 43% to $71 million-the third highest level in the
last five years. By contrast, net debt dropped to $27 million-its
lowest level in five years. Copperbelt's current enterprise value
of $118 million is less than 2x operating cash flow. Despite the
uncertainties, it is a deeply undervalued holding.
The Fund's financial liabilities - primarily short positions and
hedges - generated profits of $1,173,488 in 2020. The four
loss-incurring years for financial liabilities were 2009, 2012,
2016, and 2019. Over its life, the Fund has generated from its
financial liabilities a cumulative gain of $5.7 million and a
cumulative gain of $3.3 million since 2014.
2021 promises to be a year in which the pandemic will continue
to cast doubts on the pace of economic recovery. We shall strive to
preserve the value of the Fund in this fog of doubts and
uncertainty. Although the realization pace may slow, we continue to
believe that the Fund's holdings are undervalued. Our mission is to
monetize that undervaluation through our realization strategy.
Francis Daniels
Africa Opportunity Partners
June 2021
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
Notes 2020 2019
-------------------------- -----------------------------
USD USD
Income
Net gains on investment in subsidiaries
at fair value
through profit or loss 6(a) 482,924 -
482,924 -
-------------------------- -----------------------------
Expenses
Net losses on investment in subsidiaries
at fair value
through profit or loss 6(a) - 1,115,691
Management fee 534,637 1,002,326
Other operating expenses 107,015 37,219
Directors' fees 70,000 148,750
Audit and professional fees 173,016 199,628
884,668 2,503,614
-------------------------- -----------------------------
Loss/total comprehensive loss for the
year attributable to equity holders (401,744) (2,503,614)
========================== =============================
Earnings per share attributable
to equity holders (0.011) (0.033)
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
Notes 2020 2019
------------------------ ------------------------
USD USD
ASSETS
Cash and cash equivalents 8 38,965 103,067
Other receivables 7 7,516 7,911
Loan receivable from related
party 7 83,329 70,180
Investment in subsidiaries
at fair value through profit
or loss* 6(a) 22,584,303 47,888,007
Total assets 22,714,113 48,069,165
------------------------ ------------------------
EQUITY AND LIABILITIES
LIABILITIES
Trade and other payables 10 147,817 334,497
Total liabilities 147,817 334,497
------------------------ ------------------------
Net assets attributable to
shareholders 22,566,296 47,734,668
======================== ========================
Ordinary share capital 350,062 748,496
Share premium 13,553,258 37,921,452
Retained earnings 8,662,976 9,064,720
Total equity 9(b) 22,566,296 47,734,668
======================== ========================
Net assets value per share:
- Ordinary shares 9(b) 0.645 0.638
* The investment in subsidiaries at fair value through profit
or loss include the investment in the Master Fund- Africa Opportunity
Fund L.P
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
Share Share Retained
Capital Premium Earnings Total
------------------------ -------------------------- --------------------- --------------------
USD USD USD USD
At 1 January
2019 748,496 37,921,452 11,568,334 50,238,282
OPERATIONS:
Loss/total
comprehensive
loss
for the year - - (2,503,614) (2,503,614)
------------------------ -------------------------- --------------------- --------------------
At 31 December
2019 748,496 37,921,452 9,064,720 47,734,668
======================== ========================== ===================== ====================
Share Share Retained
Capital Premium Earnings Total
------------------------ -------------------------- --------------------- --------------------
USD USD USD USD
At 1 January 2020 748,496 37,921,452 9,064,720 47,734,668
CAPITAL TRANSACTIONS:
Redemption of
ordinary shares (398,434) (23,601,566) - (24,000,000)
Dividend Payment - (766,628) - (766,628)
OPERATIONS:
Total
comprehensive
loss for
the year - - (401,744) (401,744)
------------------------ -------------------------- --------------------- --------------------
At 31 December
2020 350,062 13,553,258 8,662,976 22,566,296
======================== ========================== ===================== ====================
AFRICA OPPORTUNITY FUND LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2020
2020 2019
-------------------------------- ----------------------------------
USD USD
Operating activities
Loss for the year (401,744) (2,503,614)
Adjustment for non-cash items:
Net (gain)/losses on investment
in
subsidiaries at
fair value through profit or
loss 6(a) (482,924) 1,115,691
-------------------------------- ----------------------------------
Cash used in operating
activities (884,668) (1,387,923)
-------------------------------- ----------------------------------
Net changes in operating assets
and
liabilities
Reduction in investment in
subsidiaries
at fair value through profit
or loss
* 6(a) 25,786,628 1,382,200
Repayment of loan receivable
from
related party (13,149) (70,180)
Decrease/(increase) in other
receivables 395 (2,962)
(Decrease)/increase in trade
and
other payables (186,680) 177,556
-------------------------------- ----------------------------------
Net cash generated from
operating
activities 25,587,194 1,486,614
-------------------------------- ----------------------------------
Financing activities
(24,000,000) -
Redemption of ordinary shares
(766,628) -
Divided payment
-------------------------------- ----------------------------------
(24,766,628) -
Net cash flow used in financing
activities
-------------------------------- ----------------------------------
Net increase/(decrease) in
cash and
cash equivalents (64,102) 98,691
Cash and cash equivalents at 1
January 103,067 4,376
-------------------------------- ----------------------------------
Cash and cash equivalents at
end
of year 38,965 103,067
================================ ==================================
* The investment in subsidiaries at fair value through profit or
loss include the investment in the Master Fund- Africa Opportunity
Fund L.P.
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Africa Opportunity Fund Limited (the "Company") was launched
with an Alternative Market Listing "AIM" in July 2007 and moved to
the Specialist Funds Segment "SFS" in April 2014.
Africa Opportunity Fund Limited is a closed-ended fund
incorporated with limited liability and registered in Cayman
Islands under the Companies Law on 21 June 2007, with registered
number MC-188243. The Company is exempted from registering with
CIMA under the Private Funds Act of the Cayman Islands given that
it is listed on the Specialist Funds Segment of the London Stock
Exchange which is approved by CIMA.
The Company aims to achieve capital growth and income through
investment in value, arbitrage, and special situations investments
in the continent of Africa. The Company may therefore invest in
securities issued by companies domiciled outside Africa which
conduct significant business activities within Africa. The Company
has the ability to invest in a wide range of asset classes
including real estate interests, equity, quasi-equity or debt
instruments and debt issued by African sovereign states and
government entities.
The Company's investment activities are managed by Africa
Opportunity Partners Limited, a limited liability company
incorporated in the Cayman Islands and acting as the investment
manager pursuant to an Amended and Restated Investment Management
Agreement dated 12 February 2014.
To ensure that investments to be made by the Company and the
returns generated on the realisation of investments are both
effected in the most tax efficient manner, the Company has
established Africa Opportunity Fund L.P. ("the Master Fund") as an
exempted limited partnership in the Cayman Islands. All investments
made by the Company are made through the Master Fund. The limited
partners of the Master Fund are the Company and AOF CarryCo
Limited. The general partner of the Master Fund is Africa
Opportunity Fund (GP) Limited. Africa Opportunity Fund Limited has
100% holdings in Africa Opportunity Fund (GP) Limited.
The financial statements for the Company for the year ended 31
December 2020 were authorised for issue in accordance with a
resolution of the Board of Directors on 25 June 2021.
Presentation currency
The financial statements are presented in United States dollars
("USD"). All figures are presented to the nearest dollar.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied from the prior year to the current year
for items which are considered material in relation to the
financial statements.
Statement of compliance
The financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Basis of preparation
The Company satisfies the criteria of an investment entity under
IFRS 10: Consolidated Financial Statements. As such, the Company
does not consolidate the entities it controls. Instead, its
interest in the subsidiaries has been classified as fair value
through profit or loss and measured at fair value. This
consolidation exemption has been applied prospectively and more
details of this assessment are provided in Note 4 "significant
accounting judgements, estimates and assumptions." The financial
statements are prepared in accordance with International Financial
Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board (IASB). The financial statements have
been prepared under the historical cost convention except for
financial assets and financial liabilities measured at fair value
through profit or loss. The preparation of financial statements in
accordance with IFRS requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting year.
Although these estimates are based on management's knowledge of
current events and actions, actual results ultimately may differ
from those estimates. In additional to the following: All assets
including the investment in subsidiaries have been assessed for
impairment regardless of whether any indicators for impairment were
identified; and all possible liabilities that might arise from the
winding up of the Company have been accrued for. Following the
assessment, no assets were identified which were subject to
impairment. The preparation of financial statements in conformity
with IFRS requires the use of certain critical accounting
estimates. It also requires the Board of Directors to exercise its
judgment in the process of applying the Company's accounting
policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the financial statements are disclosed in Note
4.
As the entity is not a going concern due to the limited life,
the directors have considered an alternative basis of preparation
but believe that IFRS as a basis for preparation best reflects the
financial position and performance of the entity. The carrying
value of the assets, which were determined in accordance with the
accounting policies, have been reviewed for possible impairment and
changes which have occurred since the year end and consideration
has been given to whether any additional provisions are necessary
as a result of the decision to deregister. It is expected that all
assets will realise at least at the amounts at which they are
included in the statement of financial position and there will be
no material additional liabilities.
The Company presents its statement of financial position in
order of liquidity. An analysis regarding recovery within 12 months
(current) and more than 12 months after the reporting date
(non-current) is presented in Note 14.
The Company's financial statements include disclosure notes on
the Master Fund, Africa Opportunity Fund L.P given that the net
asset value of the Master Fund is a significant component of the
Investment in subsidiaries of the Company. These additional
disclosures are made in order to provide the users of the financial
statements with an overview of the Master Fund performance.
Foreign currency translation
(i) Functional and presentation currency
The Company's financial statements are presented in USD, which
is the functional currency, being the currency of the primary
economic environment in which both the Company operates. The
Company determines its own functional currency and items included
in the financial statements of each entity are measured using that
functional currency. The functional currency of the Company is USD.
The Company chooses USD as the presentation currency.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded at the
functional currency rate prevailing at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency spot rate of the
exchange ruling at the reporting date. All differences are taken to
profit or loss. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
is determined.
Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
(a) Classification
The Company classifies its financial assets and liabilities in
accordance with IFRS 9 into the following categories:
(i) Financial assets and liabilities at fair value through
profit or loss
For the Company, financial assets classified at fair value
through profit or loss upon initial recognition include investment
in subsidiaries.
Investment in subsidiaries
In accordance with the exception under IFRS 10 Consolidated
Financial Statements, the Company does not consolidate subsidiaries
in the financial statements. Investments in subsidiaries are
accounted for as financial assets at fair value through profit or
loss in accordance with IFRS 9-Financial Instruments.
Management concluded that the Company meets the definition of an
investment entity as it invests solely for returns from capital
appreciations, investment income or both, and measures and
evaluates the performance of its investments on a fair value basis.
Accordingly, consolidated financial statements have not been
prepared.
(ii) Financial assets at amortised cost
The Company measures financial assets at amortised cost if both
of the following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in
order to collect contractual cash flows
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss when
the asset is derecognised, modified or impaired. The Company's
financial assets at amortised cost comprise 'trade and other
receivables' and 'cash and cash equivalents in the statement of
financial position.
(iii) Other financial liabilities
This category includes all financial liabilities, other than
those classified as fair value through profit or loss. The Company
includes in this category amounts relating to trade and other
payables and dividend payable.
(a) Initial Recognition
The Company recognises a financial asset or a financial
liability when, and only when, it becomes a party to the
contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of
assets within the time frame generally established by regulation or
convention in the market place are recognised directly on the trade
date, i.e., the date that the Master Fund commits to purchase or
sell the asset.
(b) Initial measurement
Financial assets and liabilities at fair value through profit or
loss are recorded in the statement of financial position at fair
value. All transaction costs for such instruments are recognised
directly in profit or loss.
Derivatives embedded in other financial instruments are treated
as separate derivatives and recorded at fair value if their
economic characteristics and risks are not closely related to those
of the host contract, and the host contract is not itself
classified as held for trading or designated at fair value though
profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Financial assets at amortised cost and financial liabilities
(other than those classified as held for trading) are measured
initially at their fair value plus or minus any directly
attributable incremental costs of acquisition or issue.
(c) Subsequent measurement
The Company measures financial instruments which are classified
at fair value through profit or loss at fair value. Subsequent
changes in the fair value of those financial instruments are
recorded in 'Net gain or loss on financial assets and liabilities
at fair value through profit or loss. Interest earned elements of
such instruments are recorded separately in 'Interest revenue'.
Financial assets at amortised costs are subsequently measured
using the effective interest method and are subject to impairment.
Gains and losses are recognised in profit or loss when the asset is
derecognised, modified or impaired.
Financial liabilities, other than those classified as at fair
value through profit or loss, are measured at amortised cost using
the effective interest method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised, as well as
through the amortisation process.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Company estimates cash flows
considering all contractual terms of the financial instruments but
does not consider future credit losses. The calculation includes
all fees paid or received between parties to the contract that are
an integral part of the effective interest rate, transaction costs
and all other premiums or discounts.
(e) Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- The rights to receive cash flows from the asset have expired; or
-- The Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
'pass-through' arrangement; and
Either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset. When the
Company has transferred its rights to receive cash flows from an
asset (or has entered into a pass-through arrangement), and has
neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the
asset is recognised to the extent of the Company's continuing
involvement in the asset.
The Company derecognises a financial liability when the
obligation under the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or
loss.
Determination of fair value
The Company measures it investments in subsidiaries at fair
value through profit or loss at fair value at each reporting
date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measured is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either in the
principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or
liability. The principal or the most advantageous market must be
accessible to the Company. The fair value for financial instruments
traded in active markets at the reporting date is based on their
quoted price without any deduction for transaction costs.
For all other financial instruments not traded in an active
market, the fair value is determined by using appropriate valuation
techniques. Valuation techniques include: using recent arm's length
market transactions; reference to the current market value of
another instrument that is substantially the same; discounted cash
flow analysis and option pricing models making as much use of
available and supportable market data as possible. An analysis of
fair values of financial instruments and further details as to how
they are measured is provided in Note 6.
The Company uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) market prices in active markets
for identical assets and liabilities.
-- Level 2: valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3: valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
Impairment of financial assets
The Company recognises an allowance for expected credit losses
(ECLs) for all financial assets measured at amortised cost. When
measuring ECL, the Company uses reasonable and supportable
forward-looking information, which is based on assumptions for the
future movement of different economic drivers and how these drivers
will affect each other. Loss given default is an estimate of the
loss arising on default. It is based on the difference between the
contractual cash flows due and those that the entity would expect
to receive, taking into account cash flows from credit
enhancements. The Company considers a financial asset in default
when contractual payments are 90 days past due. However, in certain
cases, the Company may also consider a financial asset to be in
default when internal or external information indicates that the
Company is unlikely to receive the outstanding contractual amounts
in full before taking into account any credit enhancements held by
the Company. A financial asset is written off when there is no
reasonable expectation of recovering the contractual cash
flows.
At the reporting date, the trade and other receivables and cash
and cash equivalents are de minimis. As a result, no ECL has been
recognised as any amount would have been insignificant.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the statement of financial position if, and
only if, there is a currently legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
Net gain or loss on financial assets and liabilities at fair
value through profit or loss
This item includes changes in the fair value of financial assets
and liabilities held for trading or designated upon initial
recognition as 'at fair value through profit or loss' and excludes
interest and expenses.
Unrealised gains and losses comprise changes in the fair value
of financial instruments for the year and from reversal of prior
year's unrealised gains and losses for financial instruments which
were realised in the reporting period.
Shares that impose on the Company, an obligation to deliver to
shareholders a pro-rata share of the net asset of the Company on
liquidation classified as financial liabilities
The shares are classified as equity if those shares have all the
following features:
(a) It entitles the holder to a pro rata share of the Company's
net assets in the event of the Company's liquidation.
The Company's net assets are those assets that remain after
deducting all other claims on its assets. A pro rata share is
determined by:
(i) dividing the net assets of the Company on liquidation into units of equal amount; and
(ii) multiplying that amount by the number of the shares held by the shareholder.
(b) The shares are in the class of instruments that is
subordinate to all other classes of instruments. To be in such a
class the instrument:
(i) has no priority over other claims to the assets of the Company on liquidation, and
(ii) does not need to be converted into another instrument
before it is in the class of instruments that is subordinate to all
other classes of instruments.
(c) All shares in the class of instruments that is subordinate
to all other classes of instruments must have an identical
contractual obligation for the issuing Company to deliver a pro
rata share of its net assets on liquidation.
In addition to the above, the Company must have no other
financial instrument or contract that has:
(a) total cash flows based substantially on the profit or loss,
the change in the recognised net assets or the change in the fair
value of the recognised and unrecognised net assets of the Company
(excluding any effects of such instrument or contract); and
(b) the effect of substantially restricting or fixing the residual return to the shareholders.
The shares that meet the requirements to be classified as a
financial liability have been designated as at fair value through
profit or loss on initial recognition.
Dividend expense
Dividend expense relating to equity securities sold short is
recognised when the shareholders' right to receive the payment is
established.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank. Cash
equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of change in value.
3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Company applied for the first-time certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2020. The Company has not early adopted any other
standard, interpretation or amendment that has been issued but is
not yet effective.
The accounting policies adopted are consistent with those of the
previous financial year except for the following new and amendments
to IFRS as from 1 January 2020:
Effective for
accounting period
beginning on
or after
Amendments to IFRS 3: Definition of a Business 1 January 2020
Amendments to IFRS 7, IFRS 9 and IAS 39 Interest 1 January 2020
Rate Benchmark Reform
Amendments to IAS 1 and IAS 8 Definition of Material 1 January 2020
Conceptual Framework for Financial Reporting 1 January 2020
The above new standards and amendments applied for the first
time in 2020, they did not have a material impact on the financial
statements of the Company.
3.1 ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
The following standards, amendments to existing standards and
interpretations were in issue but not yet effective. The Company
would adopt these standards, if applicable, when they become
effective. No early adoption of these standards and interpretations
is intended by the Board of directors.
Effective for
accounting period
beginning on
or after
IFRS 17 Insurance Contracts 1 January 2023
Amendments to IAS 1: Classification of Liabilities 1 January 2023
as Current or Non-current
Reference to the Conceptual Framework - Amendments 1 January 2022
to IFRS 3
Property, Plant and Equipment: Proceeds before 1 January 2022
intended use - Amendments to IAS 16
Onerous Contracts - Costs of Fulfilling a Contract 1 January 2022
- Amendments to IAS 37
IFRS 1 First-time Adoption of International Financial 1 January 2022
Reporting Standards - Subsidiary as a first-time
adopter
IFRS 9 Financial Instruments - Fees in the '10 1 January 2022
per cent' test for derecognition of financial liabilities
IAS 41 Agriculture - Taxation in fair value measurements 1 January 2022
Amendments to IFRS 16 Covid-19 Related Rent Concessions 1 June 2020
The Company does not expect that the adoption of these standards
will have any material impact on its financial statements.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Company's financial statements requires
management to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements
and disclosure of contingent liabilities. However, uncertainty
about these assumptions and estimates could result in outcomes that
could require a material adjustment to the carrying amount of the
asset or liability affected in future periods.
Judgements
In the process of applying the Company's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the financial
statements:
Going concern
In June 2019, the Directors convened an Annual General Meeting
and an Extraordinary General Meeting where the following was
passed:
-- Ordinary resolution that the requirement of the Company to
propose the realisation opportunity be and is hereby waived.
-- Ordinary resolution that the continuation of the existence of
the Company be and is hereby approved.
-- The text set out under "New Investing Policy" in paragraph 2
of Part III of the Company's circular to Shareholders dated 5 June
2019 (the "Circular") be and is hereby adopted as the new
investment policy of the Company;
-- The terms of the Amended and Restated Investment Management
Agreement (as defined in the Circular) be and are hereby
approved;
-- The memorandum and the articles of association in the form
initialled by the Chair of the meeting be adopted as the memorandum
and articles of association of the Company in substitution for and
to the exclusion of the existing memorandum and articles of
association; and
-- Any variation to the rights attaching to the Ordinary Shares
in the Company pursuant to the adoption of the new memorandum and
articles of association, and in particular the right for the
Company to redeem the Ordinary Shares (including any redemptions
made of 15 per cent. or more of the Company's issued share
capital), be and is hereby approved.
Below is a brief synopsis of the "New Investing Policy" as per
the Company's Circular dated 5 June 2019:
For a period of up to three years following the Extraordinary
General Meeting (the "Return Period"), the Company will make no new
investments (save that it may invest in, or advance additional
funds to, existing investments within the Company's portfolio to
maximise value and assist in their eventual realisation). The
Company will adopt the New Investment Policy whereby the Company's
existing portfolio of investments will be divested in a controlled,
orderly and timely manner to facilitate a staged return of capital.
It should be appreciated that there is no time horizon in terms of
the implementation of the New Investment Policy. Although the
Company's portfolio is comprised of largely liquid equity holdings,
the Company has some illiquid investments and it may take the
Investment Manager some time to realise these. Shareholders will be
provided with an opportunity to reassess the investment policy and
distribution policy at the end of the Return Period. To that end, a
further ordinary resolution for the Company's continuation will be
proposed at an extraordinary general meeting to be convened at the
end of the Return Period (the "Second Continuation Vote").
Subsequent to the disposal of the investments, the Company will be
liquidated, which indicates that it will no longer be a going
concern. IAS 1 - Presentation of Financial Statements and IAS 10 -
Events after the reporting period require that the financial
statements should not be prepared on a going concern basis if
management determines that it intends to liquidate the entity. The
directors have considered an alternative basis of preparation but
believe that International Financial Reporting Standards ("IFRS")
as a basis for preparation best reflects the financial position and
performance of the Company.
Other than financial assets at fair value through profit or
loss, the carrying value of the remaining assets, which were
determined in accordance with the accounting policies, have been
reviewed for any possible impairment, and consideration has been
given to whether any additional provision is necessary as a result
of the Directors' intention to wind up the Company at the end of
the Return Period that is in June 2022. It is expected that all
assets will realise at least at the amounts at which they are
presented in the statement of financial position and that there
will be no material additional liabilities. It should be noted that
due to events after finalisation of the interim financials, the
final amounts to be received could vary from the amount shown in
the statement of financial position due to circumstances which
arise subsequent to preparation of the financial statement and
these variations could be material.
Determination of functional currency
The determination of the functional currency of the Company is
critical since recording of transactions and exchange differences
arising thereon are dependent on the functional currency selected.
As described in Note 2, the directors have considered those factors
therein and have determined that the functional currency of the
Company is the United States Dollar.
Assessment for an investment entity
An investment entity is an entity that:
(a) Obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management
services;
(b) Commits to its investor(s) that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
(c) Measures and evaluates the performance of substantially all
of its investments on a fair value basis.
An investment entity must demonstrate that fair value is the
primary measurement attribute used. The fair value information must
be used internally by key management personnel and must be provided
to the entity's investors. In order to meet this requirement, an
investment entity would:
-- Elect to account for investment property using the fair value
model in IAS 40 Investment Property
-- Elect the exemption from applying the equity method in IAS 28
for investments in associates and joint ventures, and
-- Measure financial assets at fair value in accordance with IFRS 9.
In addition, an investment entity should consider whether it has
the following typical characteristics:
-- It has more than one investment, to diversify the risk portfolio and maximise returns;
-- It has multiple investors, who pool their funds to maximise investment opportunities;
-- It has investors that are not related parties of the entity; and
-- It has ownership interests in the form of equity or similar interests.
The Board considers that the Company meets the definition of an
investment entity as it invests solely for returns from capital
appreciations, investment income or both, and measures and
evaluates the performance of its investments in subsidiaries on a
fair value basis. In addition, the Company has more than one
investor and the major investors are not related parties of the
Company. The Company also has an exit strategy given that it is a
limited life entity, realising its investments at the end of the
Return Period of 3 years as per the 'New Investment Policy'.
Accordingly, consolidated financial statements have not been
prepared. IFRS 10 allows the application of this change to be made
prospectively in the period in which the definition is met. IFRS 10
Consolidated Financial Statements provides 'investment entities' an
exemption from the consolidation of particular subsidiaries and
instead require that an investment entity measures the investment
in each eligible subsidiary at fair value through profit or loss in
accordance with IFRS 9 Financial Instruments.
Assumptions and Estimates
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below. The Company based its assumptions and
estimates on parameters available when the financial statements
were prepared. However, existing circumstances and assumptions
about future developments may change due to market changes or
circumstances arising beyond the control of the Company. Such
changes are reflected in the assumptions when they occur. When the
fair value of financial assets and financial liabilities recorded
in the statement of financial position cannot be derived from
active markets, their fair value is determined using a variety of
valuation techniques that include the use of mathematical
models.
Fair value of financial instruments
The inputs to these models are taken from observable markets
where possible, but where this is not feasible, estimation is
required in establishing fair values. The estimates include
considerations of liquidity and model inputs such as credit risk
(both own and counterparty's), correlation and volatility. Changes
in assumptions about these factors could affect the reported fair
value of financial instruments in the statement of financial
position and the level where the instruments are disclosed in the
fair value hierarchy.
The models are calibrated regularly and tested for validity
using prices from any observable current market transactions in the
same instrument (without modification or repackaging) or based on
any available observable market data. An analysis of fair values of
financial instruments and further details as to how they are
measured is provided in Note 6.
IFRS 13 requires disclosures relating to fair value measurements
using a three-level fair value hierarchy. The level within which
the fair value measurement is categorised in its entirety is
determined on the basis of the lowest level input that is
significant to the fair value measurement in its entirety as
provided in Note 6. Assessing the significance of a particular
input requires judgement, considering factors specific to the asset
or liability. To assess the significance of a particular input to
the entire measurement, the Company performs sensitivity analysis
or stress testing techniques.
5a. AGREEMENTS
Investment Management Agreement
For the period 1 January 2019 to 30 June 2019, the Amended and
Restated Investment Management Agreement with Africa Opportunity
Partners (the "Investment Manager"), an investment management
company incorporated in the Cayman Islands, to manage the
operations of the Company subject to the overall supervision of the
Company's board as specified in the 2014 prospectus of the Company,
was in effect. Under the Amended and Restated Investment Management
Agreement, the Investment Manager received, a management fee equal
to the aggregate of: (i) two percent of the Net Asset Value per
annum up to US$50 million; and (ii) one per cent of the Net Asset
Value per annum in excess of US$50 million, payable in US$
quarterly in advance.
In addition, the principals (directors) of the Investment
Manager are beneficially interested in CarryCo, which under the
terms of the Amended and Restated Limited Partnership Agreement, is
entitled to share an aggregate annual carried interest (the
"Performance Allocation") from the Limited Partnership equivalent
to 20 per cent of the excess of the Net Asset Value (as at 31
December in each year) over the sum of (i) the annual management
fee for that year end (ii) a non-compounding annual hurdle amount
equal to the Net Asset Value as at 31 December in the previous
year, as increased by 5 per cent. The Performance Allocation will
be subject to a "high watermark" requirement. Subsequent to the
merger of the ordinary shares and the C shares, the high watermark
is calculated as the aggregate of the Net Asset Value of the
pre-merger ordinary share high watermark plus the proceeds of the C
class share placing before expenses. The Performance Allocation
accrues monthly and is calculated as at 31 December in each year
and is allocated following the publication of the NAV for such
date.
Effective 1 July 2019, the Company and the Investment Manager
have, upon the approval of the Reorganisation Resolution at the EGM
in June 2019, entered into the Amended and Restated Investment
Management Agreement which amends the fees payable to the
Investment Manager as follows:
Management fees
The management fee shall be reduced to 1 per cent of the Net
Asset Value per annum for the first two years of the Return Period
(the period of up to three years following the EGM held in June
2019) and then further reduced to 0 per cent in the last year of
the Return Period.
The Investment Manager's entitlement to future performance fees
(through AOF CarryCo Limited) will be cancelled and AOF CarryCo
Limited's limited partnership interest in the Limited Partnership
will be transferred to the Company for nominal value in the last
year of the Return Period, that being 2022.
Realisation fees
The Investment Manager shall be entitled to the following
realisation fees during the Return Period from the net proceeds of
all portfolio realisations (including any cash returned by way of a
Compulsory Redemption):
On distributions of cash to Shareholders where the applicable
payment date is on or prior to 30 June 2020: 2 per cent of the net
amounts realised.
On distributions of cash to Shareholders where the applicable
payment date is 1 July 2020 or later: 1 per cent of the net amounts
realised.
The revisions to the arrangements with the Investment Manager,
constitute a related party transaction under the Company's related
party policy, and in accordance with that policy, the Company was
required to obtain: (i) the approval of a majority of the Directors
who are independent of the Investment Manager; and (ii) a fairness
opinion or third-party valuation in respect of such related party
transaction from an appropriately qualified independent
adviser.
The management fee for the financial year under review amounts
to USD 534,637 (2019: USD 1,002,326) of which USD 134,585 (2019:
USD 246,321) relates to accrued realisation fees and the
performance fees for the financial year under review was nil (2019:
nil).
Administrative Agreement
SS&C Technologies is the Administrator for the Company.
Administrative fees are expensed at the Master Fund level and have
been included in the NAV of the subsidiary.
Custodian Agreement
A Custodian Agreement has been entered into by the Master Fund
and Standard Chartered Bank (Mauritius) Ltd, whereby Standard
Chartered Bank (Mauritius) Ltd would provide custodian services to
the Master Fund and would be entitled to a custody fee of between
18 and 25 basis points per annum of the value of the assets held by
the custodian and a tariff of between 10 and 45 basis points per
annum of the value of assets held by the custodian. The custodian
fees are expensed at the Master Fund level and have been included
in the NAV of the subsidiary.
Prime Brokerage Agreement
Under the Prime Brokerage Agreement, the Master Fund appointed
Credit Suisse Securities (USA) LLC as its prime broker for the
purpose of carrying out the Master Fund's instructions with respect
to the purchase, sale and settlement of securities. Custodian fees
are expensed at the Master Fund level and have been included in the
NAV of the subsidiary.
Brokerage Agreement
Under the Broker Agreement revised during 2016, the Master Fund
appointed Liberum, a company incorporated in England to act as
Broker. The broker fee is payable in advance at six-month
intervals. The broker fees are expensed at the Master Fund level
and have been included in the NAV of the subsidiary.
5b. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AT THE MASTER FUND LEVEL
Africa Opportunity Fund LP (the "Master Fund") is incorporated
in the Cayman Islands and is not subject to regulatory review.
Management has voluntarily disclosed all the policies and notes to
the accounts of the Master Fund to provide shareholders of the
Company with a better insight.
The primary accounting policies for interest revenue and
expense, dividend revenue and expense and cash and cash
equivalents, are similar as in Note 2. Those policies which only
relate to the Master Fund's financial statements are set out below.
These policies have been consistently applied from the prior year
to the current year for items which are considered material in
relation to the financial statements.
Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
(a) Classification
The Master Fund classifies its financial assets and liabilities
in accordance with IFRS 9 into the following categories:
(i) Financial assets and liabilities at fair value through
profit or loss
The category of the financial assets and liabilities at fair
value through the profit or loss is subdivided into:
Financial assets and liabilities held for trading
Financial assets are classified as held for trading if they are
acquired for the purpose of selling and repurchasing in the near
term. This category includes equity securities, investments in
managed funds and debts instruments. These assets are acquired
principally for the purpose of generating a profit from short term
fluctuation in price. All derivatives and liabilities from the
short sales of financial instruments are classified as held for
trading.
Financial assets at fair value through profit or loss upon
initial recognition
These include equity securities and debt instruments that are
not held for trading. These financial assets are classified at
FVTPL on the basis that they are part of a group of financial
assets which are managed and have their performance evaluated on a
fair value basis, in accordance with risk management and investment
strategies of the Company, as set out in each of their offering
documents. The financial information about the financial assets is
provided internally on that basis to the Investment Manager and to
the Board of Directors.
Derivatives - Options
Derivatives are classified as held for trading (and hence
measured at fair value through profit or loss), unless they are
designated as effective hedging instruments (however the Company
does not apply any hedge accounting). The Master Fund's derivatives
relate to option contracts.
Options are contractual agreements that convey the right, but
not the obligation, for the purchaser either to buy or sell a
specific amount of a financial instrument at a fixed price, either
at a fixed future date or at any time within a specified
period.
The Master Fund purchases and sells put and call options through
regulated exchanges and OTC markets. Options purchased by the
Master Fund provide the Master Fund with the opportunity to
purchase (call options) or sell (put options) the underlying asset
at an agreed-upon value either on or before the expiration of the
option. The Master Fund is exposed to credit risk on purchased
options only to the extent of their carrying amount, which is their
fair value.
Options written by the Master Fund provide the purchaser the
opportunity to purchase from or sell to the Master Fund the
underlying asset at an agreed-upon value either on or before the
expiration of the option.
Options are generally settled on a net basis.
Derivatives relating to options are recorded at the level of the
Master Fund. The financial statements of the Company do not reflect
the derivatives as they form part of the net asset value (NAV.) of
the Master Fund which is fair valued.
(ii) Financial assets at amortised cost
The Master Fund measures financial assets at amortised cost if
both of the following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss when
the asset is derecognised, modified or impaired. The Master Fund's
financial assets at amortised cost comprise 'trade and other
receivables' and 'cash and cash equivalents in the statement of
financial position.
(iii) Other financial liabilities
This category includes all financial liabilities, other than
those classified as fair value through profit or loss. The Master
Fund includes in this category amounts relating to trade and other
payables and dividend payable.
(a) Recognition
The Master Fund recognises a financial asset or a financial
liability when, and only when, it becomes a party to the
contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of
assets within the time frame generally established by regulation or
convention in the market place are recognised directly on the trade
date, i.e., the date that the Master Fund commits to purchase or
sell the asset.
(b) Initial measurement
Financial assets and liabilities at fair value through profit or
loss are recorded in the statement of financial position at fair
value. All transaction costs for such instruments are recognised
directly in profit or loss.
Derivatives embedded in other financial instruments are treated
as separate derivatives and recorded at fair value if their
economic characteristics and risks are not closely related to those
of the host contract, and the host contract is not itself
classified as held for trading or designated at fair value though
profit or loss. Embedded derivatives separated from the host are
carried at fair value.
Financial assets at amortised cost and financial liabilities
(other than those classified as held for trading) are measured
initially at their fair value plus any directly attributable
incremental costs of acquisition or issue.
(c) Subsequent measurement
The Master Fund measures financial instruments which are
classified at fair value through profit or loss at fair value.
Subsequent changes in the fair value of those financial instruments
are recorded in 'Net gain or loss on financial assets and
liabilities at fair value through profit or loss. Interest earned
elements of such instruments are recorded separately in 'Interest
revenue'. Dividend expenses related to short positions are
recognised in 'Dividends on securities sold not yet purchased'.
Dividend income/distributions received on investments at FVTPL is
recorded in "Net gain or loss on financial assets at fair value
through profit or loss".
Financial assets at amortised costs are subsequently measured
using the effective interest method and are subject to impairment.
Gains and losses are recognised in profit or loss when the asset is
derecognised, modified or impaired.
(iii) Other financial liabilities
(d) Subsequent measurement
Financial liabilities, other than those classified as at fair
value through profit or loss, are measured at amortised cost using
the effective interest method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised, as well as
through the amortisation process.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Master Fund estimates cash flows
considering all contractual terms of the financial instruments, but
does not consider future credit losses. The calculation includes
all fees paid or received between parties to the contract that are
an integral part of the effective interest rate, transaction costs
and all other premiums or discounts.
(e) Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- The rights to receive cash flows from the asset have expired; or
-- The Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
'pass-through' arrangement; and
Either (a) the Master Fund has transferred substantially all the
risks and rewards of the asset, or (b) the Master Fund has neither
transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset. When the
Master Fund has transferred its rights to receive cash flows from
an asset (or has entered into a pass-through arrangement), and has
neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the
asset is recognised to the extent of the Master Fund's continuing
involvement in the asset.
The Master Fund derecognises a financial liability when the
obligation under the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or
loss.
Determination of fair value
The Master Fund measures its investments in financial
instruments, such as equities, debentures and other
interest-bearing investments and derivatives, at fair value at each
reporting date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measured is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either in the
principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or
liability. The principal or the most advantageous market must be
accessible to the Master Fund. The fair value for financial
instruments traded in active markets at the reporting date is based
on their quoted price without any deduction for transaction
costs.
For all other financial instruments not traded in an active
market, the fair value is determined by using appropriate valuation
techniques. Valuation techniques include: using recent arm's length
market transactions; reference to the current market value of
another instrument that is substantially the same; discounted cash
flow analysis and option pricing models making as much use of
available and supportable market data as possible. An analysis of
fair values of financial instruments and further details as to how
they are measured is provided in Note 6.
Impairment of financial assets
The Master Fund uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) market prices in active markets
for identical assets and liabilities.
-- Level 2: valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3: valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
The Master Fund recognises an allowance for expected credit
losses (ECLs) for all financial assets measured at amortised cost.
ECLs are based on the difference between the contractual cash flows
due in accordance with the contract and all the cash flows that the
Master Fund expects to receive, discounted at an approximation of
the original effective interest rate. The expected cash flows will
include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms.
ECLs are recognised either on a 12-month or lifetime basis. For
credit exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs are
provided for credit losses that result from default events that are
possible within the next 12-months (a 12-month ECL). For those
credit exposures for which there has been a significant increase in
credit risk since initial recognition, a loss allowance is required
for credit losses expected over the remaining life of the exposure,
irrespective of the timing of the default (a lifetime ECL).
The Master fund considers a financial asset in default when
contractual payments are 90 days past due. However, in certain
cases, the Master fund may also consider a financial asset to be in
default when internal or external information indicates that the
Master fund is unlikely to receive the outstanding contractual
amounts in full before taking into account any credit enhancements
held by the Master fund. A financial asset is written off when
there is no reasonable expectation of recovering the contractual
cash flows.
For trade receivables, the Master Fund applies a simplified
approach in calculating ECLs. Therefore, the Master Fund does not
track changes in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each reporting date. At the
reporting date, the assessment of the Master Fund's debt
instruments which include trade and other receivables and cash and
cash equivalents were considered as de minimis. As a result, no ECL
has been recognised as any amount would have been
insignificant.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the statement of financial position if, and
only if, there is a currently legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
Net gain or loss on financial assets and liabilities at fair
value through profit or loss
This item includes changes in the fair value of financial assets
and liabilities held for trading or designated upon initial
recognition as 'at fair value through profit or loss' and excludes
interest and expenses. At the Master Fund Level, the fair value
gains and losses exclude interest and dividend income.
Unrealised gains and losses comprise changes in the fair value
of financial instruments for the year and from reversal of prior
year's unrealised gains and losses for financial instruments which
were realised in the reporting period.
Realised gains and losses on disposals of financial instruments
classified as 'at fair value through profit or loss' are calculated
using the Average Cost (AVCO) method. They represent the difference
between an instrument's initial carrying amount and disposal
amount, or cash payments or receipts made on derivative contracts
(excluding payments or receipts on collateral margin accounts for
such instruments).
Due to and due from brokers
Amounts due to brokers are payables for securities purchased (in
a regular way transaction) that have been contracted for but not
yet delivered on the reporting date at the Master Fund level. Refer
to the accounting policy for financial liabilities, other than
those classified at fair value through profit or loss for
recognition and measurement.
Amounts due from brokers include margin accounts and receivables
for securities sold (in a regular way transaction) that have been
contracted for but not yet delivered on the reporting date. Refer
to accounting policy for financial assets at amortised cost for
recognition and measurement.
Interest revenue and expense
Interest revenue and expense are recognised in profit or loss
for all interest-bearing financial instruments using the effective
interest method.
Dividend revenue
Dividend revenue is recognised when the Master Fund's right to
receive the payment is established. Dividend revenue is presented
gross of any non-recoverable withholding taxes, which are disclosed
separately in profit or loss of the Master Fund.
6. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
6(a). Investment in subsidiaries at fair value
The Company has established Africa Opportunity Fund L.P., an
exempted limited partnership in the Cayman Islands to ensure that
the investments made and returns generated on the realisation of
the investments are both effected in the most tax efficient manner.
All investments made by the Company are made through the limited
partner which acts as the master fund. At 31 December 2020, the
limited partners of the limited partnership are the Company
(99.45%) and AOF CarryCo Limited (0.55%). The general partner of
the limited partnership is Africa Opportunity Fund (GP) Limited.
Africa Opportunity Fund Limited holds 100% of Africa Opportunity
Fund (GP) Limited.
2020 2019
------------------------------- ---------------------------------
USD USD
Investment in Africa Opportunity
Fund L.P. 22,581,947 47,885,834
Investment in Africa Opportunity
Fund (GP) Limited 2,356 2,173
------------------------------- ---------------------------------
Total investment in subsidiaries
at fair value 22,584,303 47,888,007
=============================== =================================
Fair value at 01 January 47,888,007 50,385,898
Reduction in investment in subsidiaries* (25,786,628) (1,382,200)
Net gain/(loss) on investment in
subsidiaries at fair value 482,924 (1,115,691)
------------------------------- ---------------------------------
Fair value at 31 December 22,584,303 47,888,007
=============================== =================================
* The reduction in investment in subsidiaries relates to capital
withdrawn from the Master Fund by the Company.
6(b). Fair value hierarchy
The Company uses the following hierarchy for determining and
disclosing the fair value of the financial instruments by valuation
technique:
Level 1: quoted (unadjusted) market prices in active markets for
identical assets and liabilities.
Level 2: valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
Note: The assets and liabilities of the Master Fund have been
presented but do not represent the assets and liabilities of the
Company as the Master Fund has not been consolidated.
-- Fair value hierarchy of the Company
31 December
2020 Level 1 Level 2 Level
3
----------------------- ------------------------- ---------------------- -------------------
COMPANY USD USD USD USD
Investment in
subsidiaries 22,584,303 - 22,584,303 -
======================= ========================= ====================== ===================
31 December
2019 Level 1 Level 2 Level
3
----------------------- ------------------------- ---------------------- -------------------
COMPANY USD USD USD USD
Investment in
subsidiaries 47,888,007 - 47,888,007 -
======================= ========================= ====================== ===================
-- Fair value hierarchy of the Master Fund
The Company has investment in Africa Opportunity Fund L.P, the
Master Fund amounting to USD 22,581,947. The underlying investments
of the Master Fund amounts to USD 19,480,476. Details on the
financial assets and liabilities of the Master Fund and the fair
value hierarchy are as follows:
31 December
2020 Level 1 Level 2 Level
3
------------------------- --------------------- --------------------------- -------------------
USD USD USD USD
MASTER FUND
Financial assets at fair value
through profit or loss
Equities 18,351,992 12,139,383 6,212,609 -
Debt
securities 1,128,484 1,128,484 - -
------------------------- --------------------- --------------------------- -------------------
19,480,476 13,267,867 6,212,609 -
========================= ===================== =========================== ===================
31 December
2019 Level 1 Level 2 Level
3
------------------------- --------------------- --------------------------- -------------------
USD USD USD USD
MASTER FUND
Financial assets at fair value
through profit or loss
Equities 37,212,025 34,026,371 3,185,654 -
Debt
securities 1,160,484 1,160,484 - -
------------------------- --------------------- --------------------------- -------------------
38,372,509 35,186,855 3,185,654 -
========================= ===================== =========================== ===================
Financial liabilities at fair
value through profit or loss
Written put
options 632,250 632,250 - -
------------------------- --------------------- --------------------------- -------------------
6(c). The valuation technique of the investment in subsidiaries at Company level is as follow:
The Company's investment manager considers the valuation
techniques and inputs used in valuing these funds as part of its
due diligence, to ensure they are reasonable and appropriate and
therefore the NAV of these funds may be used as an input into
measuring their fair value. In measuring this fair value, the NAV
of the funds is adjusted, as necessary, to reflect restrictions on
redemptions, future commitments, and other specific factors of the
fund and fund manager. In measuring fair value, consideration is
also paid to any transactions in the shares of the fund. Given that
there have been no such adjustments made to the NAV of the
underlying subsidiaries and given the simple structure of the
subsidiaries investing over 95% in quoted funds, the Company
classifies these investments in subsidiaries as Level 2.
6(d). The valuation technique of the investments at Master Fund level are as follows:
Equity and debt securities
These pertain to equity and debt instruments which are quoted
for which there is a market price. As a result, they are classified
within level 1 of the hierarchy except for the valuation of listed
on the Zimbabwe Stock Exchange which have been classified as level
2 given that their quoted share price has been discounted as at 31
December 2020 as follows:
Valuation of investments listed on the Zimbabwe Stock
Exchange
The fair value of the investments listed on the Zimbabwe Stock
Exchange amounted to USD 3,780,962 based on the Zimbabwe official
exchange rate of ZWL 81.79 to the US Dollar. The Company has
applied discounts to its investments listed on the Zimbabwe Stock
Exchange since November 30, 2018. In applying those discounts, it
has taken note of rising economic uncertainties, and signs of
sovereign stress, in Zimbabwe, especially since October 2018,
manifest, for example, in lengthening queues for the foreign
exchange remittances, and a heightened volatility in share prices.
It selected a transparent discount factor to the market values of
its listed Zimbabwean holdings, otherwise, and popularly, known as
the Old Mutual Implied Rate. However, since June 2020, the Zimbabwe
authorities suspended Old Mutual shares from the Zimbabwe Stock
Exchange, necessitating the Company to devise an alternative
transparent discount factor. The new discount factor is based on
the official Zimbabwe Dollar exchange rate at the end of June 2019,
when the Zimbabwe Dollar, became the sole legal tender in Zimbabwe,
modified by the inflation differential between Zimbabwe and the
United States captured in their respective monthly Consumer Price
Indices (the US Consumer Price Index is that for urban consumers),
then adjusted by the proportion of export proceeds that must be
surrendered by Zimbabwean exporters to the Zimbabwe Reserve Bank.
The initial surrender requirement was 20% of export proceeds, but
the Company uses a 5% surrender requirement to reflect subsequent
exemptions from this surrender requirement granted to some export
industries. This discount factor changes every month. The
consequence of applying this discount factor is that the Zimbabwe
Dollar prices of the Company's investments listed on the Zimbabwe
Stock Exchange were converted into US Dollars, on December 31,
2020, at a rate of ZWL 119.54 versus an official Zimbabwe exchange
rate of ZWL 81.79. The value of the Zimbabwe investments recorded
in the books of the Company, after applying this discount factor,
was USD 2,586,810.
Written put options
These are traded on an active market and have a quoted market
price. They have therefore been classified in level 1 of the
hierarchy.
Unquoted debt and equity investments
African Leadership University ("ALU") is a network of tertiary
institutions, currently with operations in both Mauritius and
Rwanda. The Investment Manager valued ALU on the basis of an
observable arms-length transaction between an existing shareholder
selling a portion of their shares and an unaffiliated third party.
The economics of this transaction were agreed to in December 2020,
and thus were utilized as the basis of the valuation as at 31
December 2020.
Unquoted debt and equity investments
2020 2019
------------- ------------------
USD USD
Investment in ALU 3,625,800 2,361,193
============= ==================
Financial assets at fair value through profit 2020 2019
or loss
------------- ------------------
USD USD
Investment in ALU:
At 1 January 2,361,193 2,361,193
Total gain in profit or loss 1,264,607 -
------------- ------------------
At 31 December 3,625,800 2,361,193
============= ==================
Total gain included in the statement of profit
or loss and other comprehensive income of
Africa Opportunity Fund L.P. for asset held
at the end of the reporting period 1,264,607 -
============= ==================
6(e). Statement of profit or loss and other comprehensive Income
of the Master Fund for the year ended 31 December 2020
The net gain on financial assets at fair value through profit or
loss amounting to USD 482,924 (2019: net loss USD 1,115,691 is
mainly due to the loss arising at the Master Fund level which is
disclosed below:
2020 2019
-------------------------- -----------------------
USD USD
Income
Interest revenue 209,116 511,309
Dividend revenue 1,487,564 2,208,919
Other income 348 23,773
-------------------------- -----------------------
1,697,028 2,744,001
-------------------------- -----------------------
Expenses
Net losses on financial assets and
liabilities at fair value
through profit or loss 741,764 2,762,813
Net foreign exchange loss 45,542 179,653
Custodian fees, Brokerage fees and
commission 126,930 471,637
Other expenses 71,107 170,544
-------------------------- -----------------------
985,343 3,584,647
-------------------------- -----------------------
Operating loss before tax 711,685 (840,646)
Less withholding tax (205,367) (281,256)
-------------------------- -----------------------
Total Comprehensive loss for the
year 506,318 (1,121,902)
========================== =======================
Attributable to:
AOF Limited (direct interests) 482,741 (1,115,641)
AOF Limited (indirect interests through AOF (GP) Ltd) (50)
482,924 (1,115,691)
AOF CarryCo Limited (NCI) 23,394 (6,211)
506,318 (1,121,902)
========================== =======================
The financial assets and liabilities of the Master Fund are
analysed as follows:
(i) Net gains on financial assets and liabilities at fair value
through profit or loss held by Africa Opportunity Fund L.P.
2020 2019
------------------------------ ------------------------
USD USD
Net losses on fair value of financial
assets at fair value through profit
or loss (1,846,446) (3,421,780)
Net gains on fair value of financial
liabilities at fair value through profit
or loss 1,173,488 658,967
------------------------------ ------------------------
Net losses (672,958) (2,762,813)
============================== ========================
(ii) Financial asset and liabilities at fair value through
profit or loss held by Africa Opportunity Fund L.P.
2020 2019
------------------------ -------------
USD USD
Held for trading assets:
At 1 January 38,372,508 49,278,324
Additions - 3,547,544
Disposal (17,045,587) (11,031,579)
Net losses on financial assets at
fair value through profit or loss (1,846,446) (3,421,780)
------------------------ -------------
At 31 December (at fair value) 19,480,476 38,372,509
======================== =============
Analysed as follows:
- Listed equity securities 14,726,191 34,850,831
- Listed debt securities 1,128,485 1,160,485
- Unlisted equity securities 3,625,800 2,361,193
------------------------ -------------
19,480,476 38,372,509
======================== =============
(iii) Net changes on fair value of financial assets at fair value through profit or loss
2020 2019
-------------------------- ----------------------
USD USD
Realised (4,368,072) (4,350,287)
Unrealised 2,521,625 928,507
-------------------------- ----------------------
Total losses (1,846,446) (3,421,780)
========================== ======================
(iv) Financial liabilities at fair value through profit or loss
held by Africa Opportunity Fund L.P.
2020 2019
----------------------------- ----------------------
USD USD
Held for trading financial
liabilities
Written call options - 632,250
------------------------- ----------------------
Financial liabilities at fair value
through profit or loss - 632,250
========================= ======================
(v) Net changes on fair value of financial liabilities at fair value through profit or loss
2020 2019
------------------------------ --------
USD USD
Realised 1,210,600 585,447
Unrealised (37,112) 73,520
------------------------------ --------
1,173,488 658,967
============================== ========
7. RECEIVABLES
2020 2019
------- -------
USD USD
Amount due from Africa Opportunity
Fund L.P. (Note 12) 83,329 70,180
Prepayments 7,516 7,911
------- -------
90,845 78,091
======= =======
8. CASH AND CASH EQUIVALENTS
2020 2019
-------------------- ---------------------
USD USD
Other bank accounts 38,965 103,067
==================== =====================
9(a). ORDINARY SHARE CAPITAL
Company
2020 2020 2019 2019
------------------------ --------------------- --------------------- -----------------------
Number USD Number USD
Authorised
share capital
Ordinary
shares with
a par value
of
USD 0.01 1,000,000,000 10,000,000 1,000,000,000 10,000,000
======================== ===================== ===================== =======================
Issued share
capital
Ordinary
shares with
a par value
of
USD 0.01 35,006,160 350,062 74,849,606 748,496
======================== ===================== ===================== =======================
The directors have the general authority to repurchase the
ordinary shares in issue subject to the Company having funds
lawfully available for the purpose. However, if the market price of
the ordinary shares falls below the Net Asset Value, the directors
will consult with the Investment Manager as to whether it is
appropriate to instigate a repurchase of the ordinary shares.
9(b). SHARE CAPITAL AND SHARE PREMIUM
Ordinary
Shares
------------------------
USD
At 1 January 2019 38,669,948
At 31 December 2019 38,669,948
========================
Ordinary
Shares
------------------------
USD
At 1 January 2020 38,669,948
Changes during the period:
Redemption of ordinary shares (24,000,000)
Dividend payment (766,628)
At 31 December 2020 (24,766,628)
========================
Ordinary and C share Merger, Issuance of Contingent Value
Rights
In 2014, AOF closed a Placing of 29.2 million C shares of
US$0.10 each, at a placing price of US$1.00 per C share, raising a
total of $29.2 million before the expenses of the Issue. The
placing was closed on 11 April 2014 with the shares commencing
trading on 17 April 2014. AOF's Ordinary Shares and the C Shares
from the April placing were admitted to trading on the LSE's
Specialist Fund Segment ("SFS") effective 17 April 2014.
Due to the fact that there were two separate pools of assets and
liabilities attributable to the C Class and Ordinary shareholders
respectively, the requirements of IAS 32.16C(a) would not be met.
Therefore, both the classes were classified as financial
liabilities as from 17 April 2014 upon issuance of a Class C
shares.
The Fund merged the C share class and the ordinary shares as
contemplated in the April 2014 issuance of the C share class, and
with the consent of the Board of Directors, on 23 August 2017. The
C Class shares were converted into ordinary shares.
The Shoprite arbitral award was issued in 2016. The arbitral
award resulted in AOF not being considered the legal owner of the
specified Shoprite Holdings; therefore, the Shoprite investment was
written off. To effectuate this merger, Contingent Value Rights
certificates for any residual rights with respect to Shoprite
shares listed on the Lusaka Stock Exchange were issued to the
ordinary shareholders of record on 21 August 2017.
Subsequent to the merger, one class of ordinary shares exists
for all investors and all financial and return information
presented reflects the existing ordinary share class. Upon
conversion of the C Class shares into Ordinary shares, the
remaining shares in AOF are classified as equity. Information
regarding the merger was distributed and released to the market
prior to, and upon execution of, the merger. This information and
information relative to the CVRs can be found on the Fund's
website.
10. TRADE AND OTHER PAYABLES
2020 2019
------------------- -------------------
USD USD
Directors fees payable 17,500 17,500
Other payables 130,317 316,997
------------------- -------------------
147,817 334,497
=================== ===================
`
Other payables and accrued expenses are non-interest bearing and
have an average term of six months. The carrying amount of trade
and other payables approximates their fair value.
11. EARNING PER SHARE
The earnings per share (EPS) is calculated by dividing the
decrease in net assets attributable to shareholders by number of
ordinary shares. The EPS for 2020 and 2019 represent both the basic
and diluted EPS.
2020 2019
----------------------- -------------------
Ordinary Ordinary
shares shares
----------------------- -------------------
Total comprehensive loss USD (401,744) (2,503,614)
======================= ===================
Number of shares in issue 35,006,160 74,849,606
======================= ===================
Change in net assets attributable
to shareholders
per share USD (0.011) (0.033)
12. RELATED PARTY DISCLOSURES
The Directors consider Africa Opportunity Fund Limited (the
"Company") as the ultimate holding company of Africa Opportunity
Fund (GP) Limited and Africa Opportunity Fund L.P.
% equity % equity
Country of interest interest
Name incorporation 2020 2019
------------------------- ---------------- --------- ---------
Africa Opportunity Fund
(GP) Limited Cayman Islands 100 100
Africa Opportunity Fund
L.P. Cayman Islands 98.66 99.45
During the year ended 31 December 2020, the Company transacted
with related entities. The nature, volume and type of transactions
with the entities are as follows:
Type of Nature of Volume Balance
at
Name of related relationship transaction USD 31 Dec
parties 2020
-------------------- --------------- ---------------- -------------------- ------------------
USD
Africa Opportunity Investment Management fee
Partners Limited Manager expense 534,637 35,000
Africa Opportunity
Fund LP Subsidiary Receivable - 83,329
SS&C Technologies Administrator Administration 18,900 -
fees
Type of Nature of Volume Balance
at
Name of related relationship transaction USD 31 Dec
parties 2019
-------------------- --------------- ---------------- -------------------- ------------------
USD
Africa Opportunity Investment Management fee 1,002,326 -
Partners Limited Manager expense
Africa Opportunity
Fund LP Subsidiary Payable - 70,180
SS&C Technologies Administrator Administration 105,855 -
fees
Key Management Personnel (Directors' fee)
Except for Robert Knapp who has waived his fees, each director
has been paid a fee of USD 35,000 per annum plus reimbursement for
out-of pocket expenses during both 2020 and 2019.
Robert Knapp, who is a director of the Company, also forms part
of the executive team of the Investment Manager. Details of the
agreement with the Investment Manager are disclosed in Note 5. He
has a beneficiary interest in AOF CarryCo Limited. The latter is
entitled to carry interest computed in accordance with the rules
set out in the Admission Document (refer to Note 5 - 'Investment
management agreement' for further detail of the performance fee
paid to the director).
Details of investments in the Company by the Directors are set
out below:
No of shares Direct interest
held held %
2020 5,697,994 16.28
2019 12,183,358 16.28
13. TAXATION
Under the current laws of Cayman Islands, there is no income,
estate, transfer, sales or other Cayman Islands taxes payable by
the Company. As a result, no provision for income taxes has been
made in the financial statements.
Dividend revenue is presented gross of any non-recoverable
withholding taxes, which are disclosed separately in the statement
of profit or loss and other comprehensive income. Withholding taxes
are not separately disclosed in statement of cash flows as they are
deducted at the source of the income.
A reconciliation between tax expense and the product of
accounting profit multiplied by the applicable tax rate is as
follows:
2020 2019
------------------------- ------------------------
USD USD
Total comprehensive loss (401,744) (2,503,614)
------------------------- ------------------------
Income tax expense calculated at 0% -
-
------------------------- ------------------------
Withholding tax suffered outside Cayman -
Islands -
------------------------- ------------------------
Income tax expense recognized in profit -
or loss -
========================= ========================
Withholding taxes are borne at the master fund level and
amounted to USD 205,367 (2019: USD 281,256). These have been
included in the NAV of the subsidiary.
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
14(a). AT THE COMPANY'S LEVEL
Introduction
The Company's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company's
activities. It is managed through a process of ongoing
identification, measurement and monitoring, subject to risks limits
and other controls. The process of risk management is critical to
the Company's continuing profitability. The Company's exposure to
market risk (which includes currency risk, interest rate risk and
price risk), credit risk and liquidity risk arising from the
financial instruments it holds is disclosed as follows.
Risk management structure
The Investment Manager is responsible for identifying and
controlling risks. The Board of Directors supervises the Investment
Manager and is ultimately responsible for the overall risk
management approach of the Company.
Fair value
Investment in subsidiaries at Company level are measured at fair
value at the reporting date. The carrying amount of other
receivables, cash and cash equivalents, Loans receivable from
related party and trade and other payables approximates their fair
value due to their short-term nature.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices and includes interest rate risk, foreign currency
risk and equity price risk. The Company is not directly exposed to
market risk. The Company holds investments in subsidiaries, Africa
Opportunity Fund L.P (Master Fund) and Africa Opportunity Fund
(G.P) Limited which are valued at their net asset value. The
Company is thus exposed to market risk indirectly through the
investments held by the Master Fund.
Equity price risk
Equity price risk is the risk that the fair value of equities
decreases as a result of changes in the levels of the equity
indices and the values of individual stocks. The equity price risk
of the Company arises from the net asset value (NAV) of the
underlying funds, the Master Fund and AOF G.P. The equity price
risk at Company level is analysed as follows:
Equity
Effect on
Company Change in Equity
NAV price 2020
-------------- ---------------------
USD
Investment in subsidiaries at fair
value through profit or loss 10% 2,258,430
-10% (2,258,430)
Effect on
Company Change in Equity
NAV price 2019
-------------- ---------------------
USD
Investment in subsidiaries at fair
value through profit or loss 10% 4,788,801
-10% (4,788,801)
Currency risk
All of the Company's financial assets and financial liabilities
are denominated in its functional currency. The Master Fund's
investments are denominated in various currencies. The effect of a
change in USD against other currencies at the Master fund level
will have the same impact at the Company level and will form part
of the NAV of the subsidiary (refer to note 14(b)). The currency
profile of the Company's financial assets and liabilities is
therefore summarised as follows:
2020 2020 2019 2019
Financial Financial Financial Financial
assets liabilities assets liabilities
----------------- ----------------- ----------------- -----------------
USD USD USD USD
United States Dollar 22,706,597 147,817 48,061,254 334,497
----------------- ----------------- ----------------- -----------------
22,706,597 147,817 48,061,254 334,497
================= ================= ================= =================
Prepayments are typically excluded as these are not financial
assets; prepayments as at 31 December 2020 and 2019 amounted to USD
7,516 and US 7,911, respectively.
Company Gross amounts
of recognised Net amount of
Gross financial financial assets
amounts liabilities presented
of set off in
recognised in the statement the statement
financial of financial of financial Financial Cash
assets position position instruments collateral Net amount
--------------------- ---------------------- ------------------------ --------------- ------------ -------------------
USD USD USD USD USD USD
Cash and
cash
equivalents 38,965 - 38,965 - - 38,965
--------------------- ---------------------- ------------------------ --------------- ------------ -------------------
Total 38,965 - 38,965 - - 38,965
===================== ====================== ======================== =============== ============ ===================
As at 31 December
2019
Company Gross amounts
of recognised Net amount
of
Gross financial financial
assets
amounts liabilities presented
of set off in
recognised in the statement the statement
financial of financial of financial Financial Cash
assets position position instruments collateral Net amount
--------------------- ---------------------- ------------------------ --------------- ------------ -------------------
USD USD USD USD USD USD
Cash and
cash
equivalents 103,067 - 103,067 - - 103,067
--------------------- ---------------------- ------------------------ --------------- ------------ -------------------
Total 103,067 - 103,067 - - 103,067
===================== ====================== ======================== =============== ============ ===================
Cash and cash equivalents are offset as the Company has current
bank balances and bank overdraft with the same counterparty which
the Company has the current legally enforceable right to set off
the recognised amounts and the intention to settle on a net basis
or realise the asset and settle the liability simultaneously.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The Company's financial assets and
liabilities are non-interest bearing; therefore, the Company is not
exposed to interest rate risk and thus, no sensitivity analysis has
been presented.
Credit risk
The Company takes on exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
Financial assets that potentially expose the Company to credit risk
consist principally of cash and cash equivalent balances and trade
and other receivables, comprising of an intercompany balance with
the Master Fund. The extent of the Company's exposure to credit
risk in respect of these financial assets approximates their
carrying values as recorded in the Company's statement of financial
position.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date was:
2020 2019
------- --------
USD USD
Other receivables, excluding prepayments
(Note 7) 83,329 70,180
Cash and cash equivalents (Note 8) 7,516 103,067
The cash and cash equivalent assets of the Company are
maintained with Standard Chartered Bank (Mauritius) Ltd. Standard
Chartered Bank has an A1- issuer rating from Moody's long term
rating agency, a P-1 short term rating from Moody's rating agency,
an AA- issuer rating from Standard and Poor's rating agency, and an
A-1+ short term rating from Standard and Poor's rating agency.
Concentration risk
The Company does not have any concentration risk as at 31
December 2020. Given that the Company has invested in Africa
Opportunity Fund L.P (the Master Fund) which holds investments in
various countries in Africa, the concentration risk therefore
arises primarily at the Master Fund Level.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Company's
approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Company's reputation.
The Company manages liquidity risk by maintaining adequate
reserves, by continuously monitoring forecast and actual cash
flows. The table below illustrates the maturity profile of the
Company's financial liabilities based on undiscounted payments.
Year 2020 Due Due Due
Due Between Between greater
3 1
Due on within and 12 and 5 than
3 5
demand Months Months years years Total
---------------------- -------------------- ------------------------ --------------------------- ------------------- -----------------------
USD USD USD USD USD USD
Financial
liabilities
Other
payables - 147,817 - - - 147,817
----------------------- -------------------- ------------------------ --------------------------- ------------------- -----------------------
Total
liabilities - 147,817 - - - 147,817
======================= ==================== ======================== =========================== =================== =======================
Year 2019 Due Due Due
Due Between Between greater
3 1
Due on within and 12 and 5 than
3 5
demand Months Months years years Total
---------------------- -------------------- ------------------------ --------------------------- ------------------- -----------------------
USD USD USD USD USD USD
Financial
liabilities
Other
payables - 334,497 - - - 334,497
----------------------- -------------------- ------------------------ --------------------------- ------------------- -----------------------
Total
liabilities - 334,497 - - - 334,497
======================= ==================== ======================== =========================== =================== =======================
Capital Management
Total capital is considered to be the total equity as shown in
the statement of financial position.
The Company is a closed end fund and repurchase of shares in
issue can be done with the consent of the Board of Directors. The
Company is not subject to externally imposed capital
requirements.
The objectives for managing capital are:
-- To invest the capital in investment meeting the description,
risk exposure and expected return indicated in the Admission
document.
-- To achieve consistent capital growth and income through
investment in value, arbitrage and special situations opportunities
derived from the African continent.
-- To maintain sufficient size to make the operation of the Company cost effective.
The primary objective of the Company's capital management is to
ensure that it maintains a strong credit rating and healthy capital
ratios in order to support its business and maximise shareholder
value.
14(b). AT MASTER FUND'S LEVEL
The financial risks at Master Fund Level are described as
follows:
Fair value
The carrying amount of financial assets and liabilities at fair
value through profit or loss held at Master Fund level are measured
at fair value at the reporting date. The carrying amount of other
receivables, cash and cash equivalents, trade and other payables
and amount payable to related party at Master Fund levels
approximates their fair value due to their short-term nature.
Market risk
The market risk lies primarily at the Master Fund level. Short
selling involves borrowing securities and selling them to a
broker-dealer. The Master Fund has an obligation to replace the
borrowed securities at a later date. Short selling allows the
Master Fund to profit from a decline in market price to the extent
that such decline exceeds the transaction costs and the costs of
borrowing the securities, while the gain is limited to the price at
which the Fund sold the security short. Possible losses from short
sales may be unlimited as the Master Fund has an obligation to
repurchase the security in the market at prevailing prices at the
date of acquisition.
With written options, the Master Fund bears the market risk of
an unfavourable change in the price of the security underlying the
option. Exercise of an option written by the Master Fund could
result in the Master Fund selling or buying a security at a price
significantly different from its fair value.
A contract for difference creates, as its name suggests, a
contract between two parties speculating on the movement of an
asset price. The term 'CFD' which stands for 'contract for
difference' consists of an agreement (contract) to exchange the
difference in value of a particular currency, commodity share or
index between the time at which a contract is opened and the time
at which it is closed. The contract payout will amount to the
difference in the price of the asset between the time the contract
is opened and the time it is closed. If the asset rises in price,
the buyer receives cash from the seller, and vice versa. The Master
Fund bears the risk of an unfavourable change on the fair value of
the CFD. The risk arises mainly from changes in the equity and
foreign exchange rates of the underlying security.
The Master Fund's financial assets are susceptible to market
risk arising from uncertainties about future prices of the
instruments. Since all securities investments present a risk of
loss of capital, the Investment Manager moderates this risk through
a careful selection of securities and other financial instruments.
The Master Fund's overall market positions are monitored on a daily
basis by the Investment Manager.
The directors have based themselves on past and current
performance of the investments and future economic conditions in
determining the best estimate of the effect of a reasonable change
in equity prices, currency rate and interest rate.
Equity price risk
Equity price risk is the risk that the fair value of equities
decreases as a result of changes in the levels of the equity
indices and the values of individual stocks.
The equity price risk exposure arises from the Master Fund's
investments in equity securities, from equity securities sold short
and from equity-linked derivatives (the written options). The
Master Fund manages this risk by investing in a variety of stock
exchanges and by generally limiting exposure to a single industry
sector to 15% of NAV.
Management's best estimate of the effect on the profit or loss
for a year due to a reasonably possible change in equity indices,
with all other variables held constant is indicated in the table
below. There is no effect on 'other comprehensive income' as the
Master Fund have no assets classified as 'available-for-sale' or
designated hedging instruments.
In practice, the actual trading results may differ from the
sensitivity analysis below and the difference could be material. An
equivalent decrease in each of the indices shown below would have
resulted in an equivalent, but opposite impact.
Effect on net
assets
attributable to
Master Fund Change in shareholders
NAV price 2020
-------------- -----------------------------------
USD
Financial assets at fair value through
profit or loss 10% 1,948,048
-10% (1,948,048)
Financial liabilities at fair value 10% -
through profit or loss
-10% -
Effect on net
assets
attributable to
Master Fund Change in shareholders
NAV price 2019
-------------- -----------------------------------
USD
Financial assets at fair value through
profit or loss 10% 3,837,251
-10% (3,837,251)
Financial liabilities at fair value
through profit or loss 10% (63,225)
-10% 63,225
Currency risk
The Master Fund's investments are denominated in various
currencies as shown in the currency profile below. Consequently,
the Company is exposed to the risk that the exchange rate of the
United States Dollar (USD) relative to these various currencies may
change in a manner which has a material effect on the reported
values of its assets denominated in those currencies. To manage its
risks, the Master Fund may enter into currency arrangements to
hedge currency risk if such arrangements are desirable and
practicable.
The following table details the master fund's sensitivity to a
possible change in the USD against other currencies. The percentage
applied as sensitivity represents management's assessment of a
reasonably possible change in foreign currency denominated monetary
items by adjusting the translation at the year-end for the change
in currency rates at the Master Fund level. A positive number below
indicates an increase in profit where the USD weakens against the
other currencies. In practice, actual results may differ from
estimates and the difference can be material. The effect of a
change in USD against other currencies at the master fund level as
per the table below will have the same impact at the company level
and will form part of the NAV of the subsidiary.
The sensitivity analysis shows how the value of a financial
instrument will fluctuate due to changes in foreign exchange rates
against the US Dollar, the functional currency of the Company.
Currency Risk -
Year 2020
Effect on net assets
attributable to
Currency shareholders in (USD)
-----------------------------
Master Fund
Change: 30% -30%
Botswana Pula (244,269) 244,269
Ghana Cedi (1,241,371) 1,241,371
Kenyan Shilling (113,067) 113,067
Tanzanian
Shilling (332,521) 332,521
South African
Rand (356,415) 356,415
Zambian Kwacha (536,326) 536,326
Change: 10% -10%
CFA Franc (329,555) 329,555
Egyptian Pound (33,629) 33,629
Change: 5% -5%
Australian
Dollar (9,395) 9,395
Great British
Pound 717 (717)
Currency Risk - Year 2019
Effect on net assets
attributable to
Currency shareholders in (USD)
---------------------------
Master Fund
Change: 30% -30%
Botswana Pula (246,091) 246,091
Ghana Cedi (1,965,547) 1,965,547
Kenyan Shilling (200,264) 200,264
Nigerian Naira (1,101,834) 1,101,834
South African
Rand (396,164) 396,164
Tanzanian
Shilling (335,406) 335,406
Uganda Shilling (46,612) 46,612
Zambian Kwacha (1,165,784) 1,165,784
Change: 10% -10%
CFA Franc (550,235) 550,235
Egyptian Pound (168,527) 168,527
Change: 5% -5%
Australian
Dollar (44,594) 44,594
Great British
Pound (9,708) 9,708
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The fair values of the Master Fund's debt
securities fluctuate in response to changes in market interest
rates. Increases and decreases in prevailing interest rates
generally translate into decreases and increases in fair values of
those instruments.
The investments in debt securities have fixed interest rate and
the income and operating cash flows are not exposed to interest
rate risk. The change in fair value of investments based on a
change in market interest rate (a 50 basis points change) is not
significant and has not been disclosed.
Credit risk
Financial assets that potentially expose the Master Fund to
credit risk consist principally cash balances and interest
receivable. The extent of the Master Fund's exposure to credit risk
in respect of these financial assets approximates their carrying
values as recorded in the Master Fund's statement of financial
position (note 15).The Master Fund takes on exposure to credit
risk, which is the risk that a counterparty will be unable to pay
amounts in full when due
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date was:
2020 2019
Master Fund Master
Fund
------------ -----------
Carrying Carrying
amount amount
------------ -----------
USD USD
Other receivables, excluding
prepayments 62,221 486,335
Cash and cash equivalents 3,899,860 10,479,259
Concentration risk
At 31 December 2020 the Master Fund held investments in Africa
which involves certain considerations and risks not typically
associated with investments in other developed countries. Future
economic and political developments in Africa could affect the
operations of the investee companies.
Analysed by geographical distribution of underlying assets:
Master Fund Master
Fund
2020 2019
---------------------- -----------
USD USD
Bond & Notes
South Africa 1,128,484 1,160,484
---------------------- -----------
Total 1,128,484 1,160,484
====================== ===========
Master Fund Master
Fund
2020 2019
---------------------- -----------
USD USD
Equity Securities
Ghana 4,137,903 8,015,936
South Africa 94,463 5,758,288
Senegal 2,217,651 4,357,495
Nigeria - 4,100,179
Other 3,625,800 4,034,293
Zambia 1,787,754 3,458,549
Zimbabwe 2,774,717 1,895,919
Egypt 336,287 1,685,274
Cote D'Ivoire 1,077,896 1,144,851
Tanzania 1,108,402 1,118,020
Botswana 814,231 820,302
Kenya 376,888 667,546
Uganda - 155,373
---------------------- -----------
Total 18,351,992 37,212,025
====================== ===========
Shortsellings
Other - (426,750)
South Africa - (205,500)
---------------------- -----------
- (632,250)
Total 19,480,476 37,740,259
====================== ===========
Analysed by industry of underlying assets:
Master Fund Master Fund
2020 2019
---------------------- ---------------------
USD USD
Bond & Notes
Consumer Finance 956,607 956,459
Consumer Product & Services 171,877 204,025
---------------------- ---------------------
1,128,484 1,160,484
---------------------- ---------------------
Master Fund Master Fund
2020 2020
---------------------- ---------------------
USD USD
Equity Securities and Shortsellings
Financial Services 4,232,365 10,526,724
Mining Industry 187,908 7,487,688
Utilities 2,164,642 4,553,494
Telecommunications 2,217,651 4,357,495
Other 3,962,087 4,046,468
Oil Exploration & Production - 1,464,113
Plantations 1,077,896 1,144,851
Beverages 1,108,402 1,118,020
Real Estate 2,586,810 824,461
Consumer Finance 814,231 820,302
Transport - 179,572
Media - 56,586
---------------------- ---------------------
18,351,992 36,579,775
---------------------- ---------------------
Total 19,480,476 37,740,259
====================== =====================
15. ANALYSIS OF NAV OF MASTER FUND ATTRIBUTABLE TO ORDINARY SHARES
31.12.2020 31.12.2019
---------------------- -----------------------
USD USD
ASSETS
Cash and cash equivalents 3,899,860 10,479,259
Trade and other receivables 62,221 486,335
Financial assets at fair value through
profit or loss 19,480,476 38,372,509
Total assets 23,442,557 49,338,103
---------------------- -----------------------
EQUITY AND LIABILITIES
Liabilities
Trade and other payables 474,296 470,431
Payable to AOF Ltd 83,329 70,180
Financial liabilities at fair value
through profit or loss - 632,250
Total liabilities 557,625 1,172,861
---------------------- -----------------------
Net assets attributable to shareholders 22,884,932 48,165,242
====================== =======================
16. SEGMENT INFORMATION
For management purposes, the Company is organised in one main
operating segment, which invests in equity securities, debt
instruments and relative derivatives. All of the Company's
activities are interrelated, and each activity is dependent on the
others. Accordingly, all significant operating decisions are based
upon analysis of the Company as one segment. The financial results
from this segment are equivalent to the financial statements of the
Company as a whole.
For geographical segmentation at Master Fund level, please refer
to Note 14.
17. PERSONNEL
The Company did not employ any personnel during the year (2019:
the same).
18. COMMITMENTS AND CONTINGENCIES
There are no commitments or contingencies at the reporting
date.
19. SIGNIFICANT EVENTS
MANDATORY REDEMPTION
The Directors, at their sole discretion, can effect a compulsory
redemption of the Ordinary Shares on an ongoing basis and will
therefore undertake a staged return of capital to shareholders.
During the year ended 31 December 2020, the Directors approved 2
partial mandatory redemptions of the Company's Ordinary Shares. On
10 March 2020, the Board of Directors of Africa Opportunity Fund
Limited approved the mandatory redemption of 30,278,230 Ordinary
shares. On 16 March 2020, the mandatory redemption was completed
and AOF redeemed the 30,278,230 Ordinary Shares, on a pro rata
basis, at the prevailing NAV per Ordinary Share of $0.611 as at 29
February 2020. On 22 June 2020, the Company redeemed another
9,565,216 ordinary shares, on a pro rata basis, at the prevailing
NAV per Ordinary Share of $0.5750 as at 31 May 2020. Such shares
were cancelled automatically following their redemption. Fractions
of shares produced by the applicable redemption ratios have not
been redeemed and so the number of shares redeemed in respect of
each shareholder has been rounded down to the nearest whole number
of shares. Payments of redemption proceeds were effected either
through Euroclear or Clearstream (in the case of shares held in
uncertificated form) or by cheque (in the case of shares held in
certificated form) on or around 25 March 2020 and 25 June 2020
respectively. Following the Mandatory Redemption, the Company has
35,006,160 Ordinary Shares in issue. As a result of the Mandatory
Redemption described above, Robert Knapp and Myma Belo-Osagie,
Directors of the Company now hold 5,651,225 and 46,769 Ordinary
Shares, respectively. The Company benefitted from a strong level of
realisations from its underlying portfolio. The redemptions during
the year were funded through proceeds received from realising the
assets of the Company.
20. EVENTS AFTER REPORTING DATE
COVID-19 PANDEMIC
The Board of Directors and Investment Manager continue to assess
the impact of the recent outbreak of a novel and highly contagious
form of coronavirus ("Covid-19"), which the World Health
Organization has officially declared a pandemic. Covid-19, has
resulted in numerous deaths across the globe, adversely impacted
global commercial activity, interrupted normal business and social
activities and contributed to significant volatility in certain
equity and debt markets. The global impact of the outbreak is
rapidly evolving, and many countries have reacted by instituting
quarantines, prohibitions on travel, restrictions on imports and
exports, and the closure of offices, businesses, schools, retail
stores and other public venues. Businesses, including the
Investment Manager and key vendors of the Company are also
implementing similar precautionary measures. Such measures, as well
as the general uncertainty surrounding the dangers and impact of
Covid-19, are creating significant disruption in supply chains and
economic activity and are having a particularly adverse impact on
transportation, hospitality, tourism, entertainment and other
industries. The impact of Covid-19 has led to significant
volatility and declines in the global public equity markets and it
is uncertain how long this volatility will continue. As Covid-19
continues to spread, the impacts, including a potential global,
regional or other economic recession, are increasingly uncertain
and difficult to assess. Public health emergencies, including
outbreaks of Covid-19 or other existing or new epidemic diseases,
or the threat thereof, and the resulting financial and economic
market uncertainty could have a significant adverse impact on the
Company, including the fair value of its investments. As at 31
December 2020, over 50% of the remaining investment portfolio has
been disposed. The proceeds from the disposal of these investments
as well as existing cash resources as at 31 December 2020 have been
used for redemption of shares on 16 March 2020 and 22 June 2020,
and for the 22 June 2020 dividend payment. The current investment
strategy and distribution policy, while mitigating some operational
risks due to the enhanced levels of cash and cash equivalents as a
consequence of the realisation efforts, does pose other challenges
as the Investment Manager continues to attempt to maximise value
while realising investments during this volatile environment. The
Company and the Master fund will continue to meet their working
capital requirements and other obligations through utilisation of
existing cash resources. As at 31 March 2021, the Master fund
disposed 4% of its investment portfolio, with proceeds amounting to
USD 752,274. Despite COVID 19, the value of the remaining portfolio
of investments witnessed an increase of 29% as at 30 April
2021.
The Directors consider the emergence of the Covid-19 pandemic to
be a non-adjusting post balance sheet event and hence any future
impact is likely to be in connection with the assessment of the
fair value of investments at future valuation dates. The Fund's
portfolio of investments may see a range of impacts due to
Covid-19, the specifics of which will depend on a variety of
factors, including geographic location, industry sector, the
effectiveness of governmental actions and country specific
infection rates, amongst others. The Board and the Investment
Manager are actively working towards assessing and minimizing risks
to the Fund's portfolio, however, given the degree of uncertainty
around the potential future course of Covid-19, it is not possible
to accurately quantify the future impact on the portfolio at
this.
MANDATORY REDEMPTION
On 24 May 2021, the Board of Directors of Africa Opportunity
Fund Limited approved the mandatory redemption of 10,218,402
Ordinary shares. On 1 June 2021, the mandatory redemption was
completed and AOF redeemed the 10,218,402 Ordinary Shares, on a pro
rata basis, at the prevailing NAV per Ordinary Share of $0.705 as
at 30 April 2021. Such shares were cancelled automatically
following their redemption. Fractions of shares produced by the
applicable redemption ratios have not been redeemed and so the
number of shares redeemed in respect of each shareholder has been
rounded down to the nearest whole number of shares. Payments of
redemption proceeds were effected either through Euroclear or
Clearstream (in the case of shares held in uncertificated form) or
by cheque (in the case of shares held in certificated form) on or
around 7 June 2021. Following the Mandatory Redemption, the Company
has 24,787,758 Ordinary Shares in issue. As a result of the
Mandatory Redemption described above, Robert Knapp and Myma
Belo-Osagie, Directors of the Company now hold 4,001,616 and 33,117
Ordinary Shares, respectively. The redemption was funded through
proceeds received from realising the assets of the Company.
Except as stated above, there are no other events after the
reporting date which require amendments to and/or disclosure in
these financial statements.
SHARE PRICE
Prices of Africa Opportunity Fund Limited are published daily in
the Daily Official List of the London Stock Exchange. The shares
trade under Reuters symbol "AOF.L" and Bloomberg symbol "AOF
LN".
MANAGER
Africa Opportunity Partners Limited.
COMPANY INFORMATION
Africa Opportunity Fund Limited is a Cayman Islands incorporated
closed-end investment company admitted to trading on the SFS
operated by the London Stock Exchange.
CAPITAL STRUCTURE
The Company has an authorized share capital of 1,000,000,000
ordinary shares of US$0.01 each of which 35,006,160 are issued and
fully paid.
LIFE OF THE COMPANY
Directors consider it desirable that Shareholders should have
the opportunity to review the future of the Company at appropriate
intervals. Accordingly, Shareholders passed an ordinary resolution
at an extraordinary general meeting of the Company on 28 February
2014 that the Company continues in existence.
In June 2019, the Directors convened an Annual General Meeting
and an Extraordinary General Meeting where the following was
passed:
-- Ordinary resolution that the requirement of the Company to
propose the realisation opportunity be and is hereby waived.
-- Ordinary resolution that the continuation of the existence of
the Company be and is hereby approved.
-- The text set out under "New Investing Policy" in paragraph 2
of Part III of the Company's circular to Shareholders dated 5 June
2019 (the "Circular") be and is hereby adopted as the new
investment policy of the Company;
-- The terms of the Amended and Restated Investment Management
Agreement (as defined in the Circular) be and are hereby
approved;
-- The memorandum and the articles of association in the form
initialled by the Chair of the meeting be adopted as the memorandum
and articles of association of the Company in substitution for and
to the exclusion of the existing memorandum and articles of
association; and
-- Any variation to the rights attaching to the Ordinary Shares
in the Company pursuant to the adoption of the new memorandum and
articles of association, and in particular the right for the
Company to redeem the Ordinary Shares (including any redemptions
made of 15 per cent. or more of the Company's issued share
capital), be and is hereby approved
In summary, shareholders voted to give AOF three years during
which the Investment Manager will realize the portfolio in an
orderly manner and distribute the proceeds to the shareholders.
A brief synopsis of the "New Investing Policy" is below: (Please
review the Company's Circular dated 5 June 2019 for a detailed and
comprehensive description of the Policy):
For a period of up to three years following the EGM (the "Return
Period"), the Company will make no new investments (save that it
may invest in, or advance additional funds to, existing investments
within the Company's portfolio to maximise value and assist in
their eventual realisation). The Company will adopt the New
Investment Policy whereby the Company's existing portfolio of
investments will be divested in a controlled, orderly and timely
manner to facilitate a staged return of capital.
It should be appreciated that there is no time horizon in terms
of the implementation of the New Investment Policy. Although the
Company's portfolio is comprised of largely liquid equity holdings,
the Company has some illiquid investments and it may take the
Investment Manager some time to realise these.
REGISTERED NUMBER
Registered in the Cayman Islands number MC-188243.
WEBSITE
www.africaopportunityfund.com
[1] The Fund reported a total return of -2.5% based on its
unaudited results. Upon completion of its audited financial
statements, its total return was -0.8%. The difference was the
outcome of adjustments in its valuations of Level 2 securities
described more fully in note 6(d) of its audited financial
statements.
[2] Reference indices are calculated in US Dollars using:
Nigeria NSE Allshare Index, South Africa FTSE/JSE Africa Allshare
Index, Nairobi NSE Allshare Index, Egypt Hermes Index, Moex Russia
Index, previously known as Russia MICEX Index, Brazil IBOV Index,
the Shanghai Shenzen 300 CSI Index, the India SENSEX Index, the
S&P 500, the Stoxx Europe 600 Index, the FTSE 100 and the
Nikkei 225.
[3] Zimbabwe National CPI -March 2021-in Zimbabwe Dollars.
Available from the Reserve Bank of Zimbabwe website Our
shareholders should rest assured that the lengthy realization
strategy of the Fund will allow it to avoid involuntary or
indiscriminate liquidation of the Fund's holdings and that the Fund
will strive to manage its realization strategy without suffering
permanent impairment of its capital.
[4] See note 6(d) of the audited financial statements for
discussion of Zimbabwean exchange rate estimation.
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END
FR BRGDLUDDDGBU
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