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CQS Rig Finance Fund Ltd (RIG)

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Monday 22 February, 2010

CQS Rig Finance Fund Ltd

Annual Financial Report

Audited Annual Financial Report

For immediate release on 22 February 2010

                          CQS RIG FINANCE FUND LIMITED


                               FOR THE YEAR ENDED

                               30 SEPTEMBER 2009

Chairman's Statement


I present the Company's annual report for the twelve months from 1 October 2008
to 30 September 2009.

Investment Performance

The Company's performance for the year under review was extremely disappointing.
The turmoil in financial markets impacted substantially on the Company's NAV and
share price.The Company's NAV was affected by both events specific to particular
portfolio  holdings  and  especially  by  the  rapid  deterioration in financial
markets overall.

The  Company's NAV  declined from  73 pence per  ordinary share  on 30 September
2008 to  10.8 pence  per  ordinary  share  on  30 September  2009. The price per
ordinary  share declined  from a  closing price  of 57.75 pence  on 30 September
2008 to  8.5 pence  on  30 September  2009, representing  a  return of -85%. The
ordinary shares ended the year at a 21% discount to the NAV.

The collapse in credit markets following the failure of Lehman Brothers led to a
market-wide  deleveraging and significant selling of  high yield bonds by market
participants.  Rig  bonds  were  significantly  impacted  by this and all of the
Company's  holdings were subject to substantial  mark downs in price. Mindful of
increasing  market risk, the terms of the Company's financing agreement and with
a  desire to reduce risk and leverage, the Company sold positions. October 2008
proved  to be  an exceptionally  challenging month  for the Company. The Company
sought to renegotiate new committed financing terms with the secured lender, but
because  of the prevailing market conditions, found the secured lender unwilling
at the time to do so. Nonetheless, the secured lender indicated a willingness to
continue  to support the  Company. The secured  lender was able  to implement an
increase of 100 basis points to the cost of the Company's financing as it sought
to cover its own financing cost increases during this period.

The Company sought to respond to the continuing challenging market conditions in
a number of ways.

The Company continued to reduce risk and debt through the orderly sale of assets
reducing  the debt burden further by an  amount equivalent to GBP32.8 million in
October 2008.

On  24 October  2008 the  Company  announced  it  had  entered into an unsecured
facility  agreement  with  RBC  Cees  Trustee  Limited  ("RBC") under which US$6
million  (GBP3.4 million) was made available  to the Company to increase working
capital  (the "Facility"). The Facility  was provided by RBC  in its capacity as
trustee  of certain assets for the benefit of Michael Hintze, Chief Executive of
CQS,  who holds a majority  interest in CQS Cayman  LP, the Company's Investment
Manager.  The unsecured term loan  carries an interest rate  of LIBOR plus 5 per
cent  per annum and per the agreement is repayable at the earliest of 21 October
2010 or  a  date  90 days  after  receipt  of  notice  of early repayment by the
borrower. The unsecured lender has confirmed that it has no current intention to
seek its contractual right to repayment until the secured lender has been repaid
in full.
The  Company also  announced its  intention to  seek a  placing of new equity to
provide stability and a more appropriate capital structure. However, a potential
issuance  of  securities  was  not  able  to  proceed as securing sufficient new
capital  and/or  committed  finance  was  not  possible in the face of continued
deterioration  of  the  NAV  and  the  financial  markets which were at the time
effectively closed to financing.

NAV  per share fell  rapidly through the  month ending at  30.76 pence as at 30
October  2008. That continued rapid  decline in the  NAV moved the  Company to a
position  of  expected  margin  deficit  and,  on  the basis of this anticipated
material change in the financial condition of the Company, the Company announced
on  30 October 2008 it had requested  that trading in its  shares on AIM and the
CISX  be suspended with immediate effect  pending clarification of the Company's
financial position. That request was granted.

Over  the course  of the  remainder of  the calendar  year the  asset prices and
liquidity  conditions in the markets continued  to deteriorate. The NAV declined
to  11.67 pence per share on 24 November 2008 and on 1 December 2008 the Company
announced  that in  light of  the lack  of liquidity  and visibility in the high
yield  bond markets, the Company no  longer considered that the methodology used
to  calculate the NAV provided  an accurate indication of  value and that it had
therefore  decided  to  defer  publication  of  the NAV until more normal market
conditions returned.

November  2008 also saw  the resignation  of Mark  Conway, the  senior portfolio
manager, as announced on 24 November 2008. The Investment Adviser confirmed that
it continued to have an appropriately skilled and experienced team to manage the
portfolio.  The Company sold further assets  for the equivalent of GBP10 million
as it continued to seek to reduce risk and debt.

During  December 2008 the Company moved initially to a position of negative NAV,
where  the long market value of securities was less than the sum of both secured
and  unsecured debt and subsequently,  the long market value  of the assets fell
below  that  of  the  secured  debt.  During  the month there was no substantive
disposal  of assets.  There was  some small  change in  the portfolio  where the
Company  saw the  opportunity to  enhance the  expected recovery  profile of the
portfolio  through selective sale and purchase of positions as sanctioned by the
secured lender.

Post  the suspension of trading there was an ongoing discussion with the secured
lender with respect to a clarification of the Company's financial position and a
continued  exploration  of  options  to  achieve  financial stability and a more
appropriate capital structure.

I  am  pleased  to  note  that,  as  announced  on  22 April  2009, the  Company
successfully  concluded the renegotiation of  its committed financing terms with
its secured lender.

The key terms are: The secured lender agreed to provide financing for 18 months.
The  financing cost is LIBOR + 400 basis points.  There is a USD2.8m fee for the
facility  payable at the earlier of the end  of 18 months and the point at which
the secured lender is repaid.

During the period of the facility:
  * all  cash receipts, net of  agreed operating expenses, are  used to pay down
    the secured lender's debt (including fee) and, if achieved,
  * all  cash receipts thereafter, net of agreed operating expenses, are used to
    pay down the unsecured lender's principal and interest and, if achieved,
  * all  cash  receipts  thereafter,  net  of  operating expenses, and remaining
    portfolio assets are available for the benefit of shareholders.

There are some conditions under which the secured lender may, but is not obliged
to,  withdraw the  facility. The  primary condition  is one where the cumulative
cash  recovered  from  assets,  that  have  crystallised through maturity, early
redemption,  or from the conclusion of realisation scenarios, falls short of the
total  expected  aggregate  level  of  recoverable  cash  for  the  whole of the
portfolio  as agreed  with the  secured lender  at the  date of execution of the
facility,  by an  amount greater  than or  equal to  20% of that  total expected
recoverable  cash. Such expected aggregate level of recoverable cash agreed with
the  secured lender at the  date of execution of  the facility was substantially
higher then the long market value of the securities as at that date.

The  Company has  been and  believes it  should be  able to  continue to operate
within the terms of this new financing agreement based on its cash forecasts and
projections.  Over  the  year,  asset  sales  and  cash  flows  generated by the
portfolio have reduced currency borrowing from the two lenders as follows:

         30 Sep 09   30 Sep 08 (including forward)

  CCY   Local (mm)                      Local (mm)

  EUR        (1.3)                           (1.9)

  GBP         0.98                            82.6

  NOK      (101.8)                         (337.2)

  USD       (46.5)                         (240.1)

The  Directors have had detailed cash projections prepared for the period of the
facility  and beyond, and are confident that  they will be able to remain within
the  terms of the facility for its entire duration.  The Company has reduced the
secured  borrowings to  GBP25.6m as  at 31 December  2009.  The Company believes
that over the period January 2010 to October 2010, proceeds from restructurings,
asset  maturities and  selective asset  sales will  further reduce  the level of
indebtedness materially.

The  Company has as  yet not entered  into formal negotiations  with the secured
lender  with regards to  extending the current  facility.  In the  first half of
2010 the  Company plans to  approach the secured  lender to renegotiate the debt
financing arrangement that will apply subsequent to the maturity of the existing
facility.   The Company continues to be in communication with the secured lender
and  is  not  aware  of  any  intention  of  the  secured lender to withdraw the
financing beyond the maturity of the existing facility.  However in the unlikely
event  that the  secured lender  will not  be willing  to continue financing the
Company,  the Company will pursue all available options, which will include, but
not be limited to, one or more of the following options:

  * Approach  other lenders to provide replacement financing.  While the Company
    believes  the  list  of  potential  lenders  will  be  limited  due  to  the
    specialised  nature  of  the  Company's  assets,   the Company will approach
    several lenders who have experience of this asset class
  * Raise additional equity capital to repay the secured lender
  * Dispose of assets to repay the secured lender


I  am encouraged  by the  progress the  Company has  achieved in  its successful
renegotiationon  the 23 April  2009 of the  secured committed financing facility
ending  21 October 2010, which has provided stability to the Company's financial

The  NAV and  share price  have shown  encouraging progress,  with the Net Asset
Value  at GBP20.98m as at 29 January  2010. With progress being discerned in the
wider  markets and  with current  oil price  levels, we  believe that  with good
management this trend will continue.


No  dividends were  paid during  the year  and the  Company does  not anticipate
dividends  being paid to ordinary  shareholders during the forthcoming financial

Annual General Meeting

The  Company's Annual General Meeting  will be held at  the offices of Kleinwort
Benson (Channel Islands) Fund Services Limited on18 March 2010.

Post Year End

The  Company  announced  that  on  23 October 2009 it extended, until 21 October
2010, the  one  year  US$6  million  unsecured  facility  agreement,  which  was
originally  entered  into  with  RBC  on  23 October  2008 (the "Facility"). The
Directors  consider, having consulted with the Company's Nominated Adviser, that
the  terms  of  the  extended  Facility  are  fair and reasonable insofar as the
Company's shareholders are concerned.

Michael Salter
19 February 2010
Investment Manager's Report

Energy Markets

Crude  oil prices declined  materially during the  first half of  the year under
review  due to  concerns about  a decline  in demand  for oil in response to the
weakness  in  global  economies.  This  was  followed by a partial recovery from
mid-February  2009. WTI crude  oil prices  declined from  US$101 on 30 September
2008 to  a low of US$37.41  a barrel on 18 February  2009 despite the agreed and
proposed  production cuts  by OPEC.  Oil prices  subsequently staged a recovery,
closing at c. US$70 on 30 September 2009.

In  its 2009 edition of the World Energy Outlook, the IEA¹ projected that global
oil  demand is  expected to  advance 1% a  year to  105 million barrels a day by
2030 from 85 million barrels a day in 2008, citing primarily the economic crisis
impacting consumption in developed countries.

In this environment, average day rates declined significantly. Research provided
by ODS-Petrodata indicates that Jackup day rates declined almost 50% to the year
ending 30 September 2009, Midwater Rig day rates fell almost 30% while deepwater
day rates showed the most resilience, declining around 25%.

It  is clear that much  of the developed world  has experienced and continues to
suffer  from very  challenging economic  conditions. The  decline in GDP and the
associated  collapse in  world trade  in both  raw material  and finished goods,
despite  the recent recovery, have caused  a significant reduction in the demand
for  energy  and  in  particular  oil  and  gas.  We believe that offsetting the
supply/demand  driven fall  in oil  prices is  the strength  of growth  in Asia,
primarily  driven by Chinese  demand, and the  decline in production capacity as
existing  fields continue to be depleted at rates in excess of the rate at which
new capacity comes on stream.

Financial Markets

The  first six months of the Company's  financial year witnessed one of the most
volatile  and  challenging  trading  environments  ever  observed  in  financial
markets.  The catalyst for the severe market declines appeared to be the failure
of  Lehman Brothers leading to investor panic and real concerns about the credit
quality of many financial institutions and indeed the integrity of the financial
system  itself.  As  a  result,  many global regulators introduced short-selling
restrictions,  primarily in financial shares and globally authorities encouraged
consolidations  and  rescues  of  many  major  financial institutions while also
introducing  a range  of bailout  programmes designed  to support  the financial
system.  Simultaneously,  liquidity  pressures  in  the banking system driven by
reduced  appetite to extend any form of  credit forced Libor spreads and funding
margins   to   widen  dramatically  in  combination  with  increased  collateral
requirements.  This widening drove  financing costs higher  for companies whilst
the  general  decline  in  asset  prices  was exacerbated by forced selling. The
financial markets continued to deteriorate significantly and deleverage. Selling
continued  across the high  yield bond markets  driving down asset prices. Since
April  2009, many financial and  oil markets have  generally stabilised and more
recently  improved. High yield credit markets,  which posted steep losses in the
last  quarter  of  2008, have  seen  a  reversal as credit prices recovered with
financial markets.

Although  there have been  some encouraging signs  regarding the ability of some
companies  in the offshore  oil and gas  sector to secure  capital in equity and
debt markets to refinance, the ongoing and increasing scarcity of available bank
credit continues.

The Portfolio

It  is  against  this  backdrop  that  we  see a continuing vulnerability of all
construction  projects where  completion is  predicated on  the ability to raise
further debt and/or equity finance even as the construction risk diminishes.

As  at  30 September  2009 the  portfolio  was  divided into 3 broad categories.
Analysed  by face value,  drilling rigs are  the largest category accounting for
59% of  assets. These  rigs break  down into  two main  sub categories,  jack up
drilling  rigs and  semisubmersible drilling  rigs. The  majority of the jack up
rigs  are regarded  as "giant  jack-ups" which  are targeted at particular water
depths and demanding environmental conditions, such as the Norwegian Continental
Shelf,  setting them  apart from  the general  jack up  market which  focuses on
shallow depths and is much better supplied and is very competitive.
Production-focused equipment, the majority being Floating Production Storage and
Offloading  (FPSO) vessels, is the second largest category accounting for 21% of
assets. FPSO vessels are customised to meet the particular chemical and physical
characteristics  of  a  target  oil  reservoir  to which they are then typically
contracted  for  many  years.  While  this  customisation  takes time and can be
costly,  it also makes it difficult to switch a vessel from one field to another
at short notice. The current level of oil prices and associated softening in the
capital  expenditure  plans  of  oil  companies  means  that  FPSO's  built on a
speculative  basis are expected to find it  harder to get employment in the near

The  remaining  20% of  portfolio  assets  are  invested  in oil service related
equipment such as well intervention vessels and barges. Subsea well intervention
entails  improving oil recovery from wells that have been in production for some
time.  Due to the general  decrease in average production  of existing wells, an
increasing  demand for well intervention services  in the future is anticipated.
In  addition,  some  of  these  vessels  may  be used for the growing markets in
offshore wind turbine installation.

Exposure by Collateral Type

  Elevating Support Vessel    12.2%

  FDPSO                       13.2%

  FPSO                        20.4%

  Giant Jackup                19.5%

  Jackup                      11.4%

  Light Well Intervention      5.1%

  Other                        2.9%

  Semisubmersible Driller     15.3%
  Total                      100.0%

Regional Analysis ( Shipyard Location)

  China                     25.4%

  Dubai                      0.2%

  Indonesia                  1.6%

  Korea                      5.6%

  Netherlands                0.0%

  Norway/China               1.8%

  Norway/China/Indonesia     4.6%

  On Location               26.8%

  Singapore                 32.1%

  USA                        1.9%
  Total                    100.0%

Positions by Category

As  at 30 September 2009, the  Company's portfolio may  be categorised as either
performing,  performing under  the terms  of a  restructure or non-performing as
shown in the table below. Position-level highlights are included in Note 6.

 Name                         Issuer                       Classification £(mm)

 Africa Offshore Servi FRN
 600BP 15 Feb 12              Africa Offshore Services AS  Performing       2.3

 Marine Subsea AS FRN
 600BP 29 Jun 12              Africa Offshore Services AS  Performing       0.9

 Nexus 1 Pte Ltd 10.5% 07 Mar
 12                           Nexus Floating Production    Performing       2.8

 Northern Offshore FRN
 450BP 14 Jun 10              Northern Offshore Ltd        Performing       3.5

 Petrojack ASA FRN 30 May 12
 USD                          Petrojack AS                 Performing       0.9

 Petrojack ASA FRN 30 May 12
 NOK                          Petrojack AS                 Performing       1.5

 Remedial Cyprus Ltd FRN
 525BP 28 Mar 12              Remedial Cyprus Plc          Performing       6.3

 Rubicon Offshore Hol FRN
 500bp 16 Apr 12              Rubicon Offshore Holdings    Performing       5.1

 Sevan Drilling ASA FRN  07
 Dec 12                       Sevan Drilling               Performing       6.7

 Sevan Marine ASA 9.25% 20
 Dec 11                       Sevan Marine ASA             Performing       0.6

 Sea Production Ltd FRN 14
 Feb 10                       Sea Production Ltd           Performing       0.1

 Master Marine AS FRN
 1200BP 20 Jun 11             Master Marine AS             Restructured     0.8

                              Skeie Drilling & Production
 Prodjack AS 11.25% 19 Feb 13 AS                           Restructured     2.3

                              Skeie Drilling & Production
 Prodjack AS 11.25% 08 Mar 13 AS                           Restructured     1.6

 Skeie Drilling & Prod        Skeie Drilling & Production
 11.25% 12 Jul 13             AS                           Restructured     2.8

 Skeie Drilling & Production  Skeie Drilling & Production
 AS                           AS                           Restructured     2.2

 FPS Ocean AS FRN 600bp 05
 Dec 11                       Fps Ocean AS                 Non Performing   0.1

 Petromena AS 10.85% 19 Nov
 10                           Petromena AS                 Non Performing   2.2

 Petrorig III Pte Ltd FRN
 575BP 20 Feb 14              Petromena AS                 Non Performing   4.7

 Petroprod Ltd 10.85% 24 May
 13                           Petroprod Ltd                Non Performing   1.1

 Petroprod Ltd FRN 600BP 12
 Jan 12                       Petroprod Ltd                Non Performing   1.8

 Viking Drilling 15% 20 Dec
 12                           Viking Drilling ASA          Non Performing   0.0

 Viking Drilling ASA-CW10 20
 Dec 10                       Viking Drilling ASA          Non Performing   0.0

 Viking Drilling FRN
 750BP 05 Oct 11 NOK          Viking Drilling ASA          Non Performing   0.2

 Viking Drilling ASA FRN  05
 Oct 11                       Viking Drilling ASA          Non Performing   0.7


We  expect a  number of  the restructurings  to conclude  over the coming twelve
months  and would anticipate  a material reduction  in the outstanding committed
financing facility balances.
All WTI price data sourced from Bloomberg
All share price data sourced from Bloomberg

¹ Source: International Energy Agency - Oil Market Report 5 November 2009
All share price data sourced from Bloomberg

CQS Cayman Limited Partnership
19 February 2010

Statement of Comprehensive Income for the year ended 30 September 2009

                                                30 Sep 2009    30 Sep 2008

                                       Notes            GBP            GBP

 Operating loss                          3     (57,221,852)   (14,468,181)
                                              -------------- --------------

 Operating expenses

 Other operating expenses                4        (972,664)    (1,787,798)

 Finance costs                                  (2,453,268)    (4,321,565)
                                              -------------- --------------
 Total operating expenses                       (3,425,932)    (6,109,363)

                                              -------------- --------------
 Net loss                                      (60,647,784)   (20,577,544)

                                              -------------- --------------
 Total comprehensive loss for the year         (60,647,784)   (20,577,544)

 Loss per Ordinary Share

 Basic and Diluted                       5         (62.26p)       (24.55p)

All items in the above statement are derived from continuing operations.

All income is attributable to the Ordinary Shareholders of the Company.

The accompanying notes(available on the Company's website) form an integral part
of the financial statements.

Statement of Changes in Equity for the year ended 30 September 2009

                               Share      Other Accumulated Losses        Total
                             Capital    Reserve

                          Notes  GBP        GBP               GBP)         GBP)

 Balance at 1
 October 2008                      - 90,982,384       (19,800,264)   71,182,120

 Net loss for the
 year                              -          -       (60,647,784) (60,647,784)
 Total recognised income and
 expense plus equity brought
 forward                           - 90,982,384       (80,448,048)   10,534,336

 Balance at 30 September 2009      - 90,982,384       (80,448,048)   10,534,336

For theyear ended 30 September 2008:

                              Share       Other Accumulated Losses        Total
                            Capital     Reserve

                         Notes  GBP         GBP               GBP)         GBP)

 Balance at 1
 October 2007                     -  48,724,675           777,280) 49,501,955)

 Net loss for the
 year                             -           -       (20,577,544) (20,577,544)
 Total recognised income and
 expense plus equity brought
 forward                          -  48,724,675       (19,800,264)   28,924,411

 Conversion of C
 Shares into
 Ordinary Shares                  -           -                  -   49,018,863

 Transfer to other                   49,018,863
 reserve                          -                              -            -

 Dividends paid to
 Shareholders           16        - (6,761,154)                  -  (6,761,154)

 Balance at 30 September 2008     -  90,982,384       (19,800,264)   71,182,120

The accompanying notes (available on the Company's website) form an integral
part of the financial statements.

Statement of Financial Position

                                                     30 Sep 2009     30 Sep2008

                                            Notes            GBP            GBP


 Non-current assets

 Investments at fair value through profit     6
 or loss                                              51,177,474    158,024,503
                                                   -------------- --------------

 Current assets

 Receivable for securities sold                                -      2,769,402

 Cash and cash equivalents                               975,983         97,888

 Other assets                                             14,634              -
                                                   -------------- --------------
                                                         990,617      2,867,290
                                                   -------------- --------------

 Total assets                                         52,168,091    160,891,793

 Equity and liabilities


   * Other reserve                                    90,982,384     90,982,384

   * Accumulated losses                             (80,448,048)   (19,800,264)
                                                   -------------- --------------
   *                                                  10,534,336     71,182,120
                                                   -------------- --------------
 Current liabilities

 Interest-bearing borrowings                  9       36,601,096     77,164,899

 Short-term borrowings                        9        3,751,524              -

 Payable for securities purchased                              -      1,288,008

 Derivative financial liabilities -
 unrealised loss on                 forward
 exchange contracts                           8                -     10,722,889

 Other liabilities and payables              10        1,281,135        533,877
                                                   -------------- --------------
 Total liabilities                                    41,633,755     89,709,673
                                                   -------------- --------------

 Total equity and liabilities                         52,168,091    160,891,793

 Net Asset Value per Share                                10.81p         73.07p

The accompanying notes (available on the Company's website) form an integral
part of the financial statements.

Cash Flow Statement for the year ended 30 September 2009

                                                     30 Sep 2009    30 Sep 2008

                                             Notes           GBP            GBP

 Net cash inflow/(outflow) from operating
 activities                                   12      63,779,800   (51,037,278)

 Financing activities

        Proceeds from issuance of shares                       -     50,000,000

        Costs related to issuance of shares                    -      (981,137)

 Short-term borrowings                                 3,728,213              -

        Interest expense paid                        (2,358,130)    (4,245,297)

  (Decrease)/increase in interest-bearing
  borrowings                                   9   (64,271,788 )     13,122,754

        Dividends paid to shareholders        15               -    (6,761,154)
                                                  --------------- --------------
 Cash (outflows)/inflows from financing
 activities                                         (62,901,705)     51,135,166

                                                  --------------- --------------
 Net increase in cash                                    878,095         97,888
                                                  --------------- --------------

 Reconciliation of net cash flow to movement
 in net cash

 Net increase in cash and cash equivalents               878,095         97,888

 Cash and cash equivalents at 1 October 2008              97,888              -
                                                  --------------- --------------
 Cash and cash equivalents at 30 September
 2009                                                    975,983         97,888

The accompanying notes (available on the Company's website) form an integral
part of the financial statements.

The Annual Report and Accounts for  the year ended 30 September 2009 will be
posted  to shareholders  shortly and in  accordance with  AIM Rule 26 a copy is
available  to view and download from the  Company's website <>


Lynette Le Prevost

Kleinwort Benson (Channel Islands) Fund Services Limited

Telephone (01481) 752515

NOMAD and Broker

Arbuthnot Securities Limited

Alastair Moreton

Telephone 020 7012 2000