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CQS Rig Finance Fund Limited (RIG)

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Wednesday 20 June, 2012

CQS Rig Finance Fund Limited

CQS Rig Finance Fund Ltd : Half-yearly report a...

CQS Rig Finance Fund Ltd : Half-yearly report and Interim Dividend Declaration

   

For release on Wednesday 20 June 2012

CQS Rig Finance Fund Limited
(the "Company")

Unaudited Half-Yearly Report and Condensed Financial Statements

The Company announces its unaudited half-yearly results for the six months ended 31 March 2012.  A full copy of the unaudited half-yearly report will from today be available on the Company's website: www.cqsrigfinance.com and is set out below.

The Company also announces that an interim dividend of 0.69 pence per Ordinary Share will be paid on 8 August 2012 to shareholders on the register as at close of business on 13 July 2012 with a corresponding ex-divided date of 11 July 2012.  Full details of the Company's dividend policy are included in the Chairman's Statement in the half-yearly report.

Enquiries:

Alastair Moreton, Hannah Young
NOMAD and Broker
Westhouse Securities Limited
Telephone 020 7601 6118

Secretary
Kleinwort Benson (Channel Islands) Fund Services Limited
Telephone 01481 710607

Page
Management and Administration 1
Chairman's Statement 2
Investing Policy 4
Investment Manager's Report 5
Financial Statements
- Unaudited Condensed Statement of Comprehensive Income 7
- Unaudited Condensed Statement of Financial Position 8
- Unaudited Condensed Statement of Changes in Equity 9
- Unaudited Condensed Statement of Cash Flows 10
- Notes to the Unaudited Condensed Financial Statements 11

Directors                                                        Nominated Adviser and Broker
Michael Salter                 (Chairman) (UK resident)                Westhouse Securities Limited
Bruce Appelbaum        (US resident)                                1 Angel Court
Trevor Ash                (Guernsey resident)                        London EC2R 7HJ
Jonathan Gamble        (Guernsey resident)                        England
Gavin Strachan                (UK resident)                               

Investment Manager                                                Sub-Administrator
CQS Cayman Limited Partnership                                State Street Fund Services (Ireland) Limited
PO Box 242                                                        78 Sir John Rogerson's Quay
45 Market Street                                                Dublin 2
Gardenia Court                                                        Ireland
Camana Bay
Grand Cayman KY1-1104                                       
Cayman Islands               
                                                
Prime Broker and Custodian                                        Registrar, Transfer Agent & Paying Agent
Credit Suisse Securities (Europe) Limited                        Capita Registrars (Guernsey) Limited
One Cabot Square                                                2nd Floor
London E14 4QJ                                                 No. 1 Le Truchot
England                                                        St Peter Port
                                                                Guernsey GY1 4AE
Independent Auditor                                               
Ernst & Young LLP
2nd Floor
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF

Investment Adviser
CQS (UK) LLP
5th Floor
33 Grosvenor Place
London SW1X 7BL
England

Administrator and Secretary
Kleinwort Benson (Channel Islands) Fund Services Limited
Dorey Court
Admiral Park
St. Peter Port
Guernsey GY1 2HT

Registered Office
Dorey Court
Admiral Park
St. Peter Port
Guernsey GY1 2HT

Introduction

I present the Company's half yearly report for the six months from 1 October 2011 to 31 March 2012.

I am encouraged with the progress that the Company has made during the interim period, including the payment of regular dividends and the progress that the NAV has shown year-to-date. The share price has also performed well despite ongoing turbulence in global markets.

Investment Performance

The Company's performance for the period under review was positive, despite ongoing concerns in global markets and continued market volatility.

The Company's NAV increased from 27.59 pence per ordinary share on 30 September 2011 to 33.45 pence per ordinary share on 31 March 2012. In November 2012, the Company paid a 0.55 pence per ordinary share dividend. The total return to shareholders (appreciation in NAV plus dividend income) over the interim period was 23.23%.

The price per ordinary share ended the period higher, with a closing price of 22.13 pence on 30 September 2011 and a closing price of 29.38 pence on 31 March 2012. This represents a return of 35.47% which includes the 0.60 pence dividend that went ex-dividend on 14 March and which was paid on 11 April 2012. During the period under review, the ordinary shares' discount to NAV fell from 21% at the beginning of the period to 12% at the end of the period.

Dividends

As announced on 14 February 2012, the Company has amended its Dividend Policy to increase the regular cash distributions in the form of semi-annual dividend payments to target dividends equivalent to an annual yield of 5 per cent of the Net Asset Value per Share at the start of each financial year. This Dividend Policy will be applied to the current financial year and based on the opening Net Asset Value per Share on 1 October 2011 of 27.59 pence, a 5% yield would equate to approximately 1.38 pence per Share for the year to 30 September 2012.

On 19 June 2012, the Company declared an interim dividend of 0.69 pence per Ordinary Share in respect of the financial year ending 30 September 2012. The interim dividend will be payable on 8 August 2012 to Shareholders on the register on 13 July 2012.

Extraordinary general meeting

At an extraordinary general meeting held on 21 March 2012 Shareholders voted against the requisitioned resolution from Ironsides Partners Opportunity Master Fund LP.

I am pleased that the overwhelming majority of Shareholders voting supported the Board's position which was explained to Shareholders in the notice of the extraordinary general meeting dated 29 February 2012.

Outlook

While global markets remain uncertain, with ongoing political issues in the Eurozone and geopolitical unrest in the Middle East and North Africa, expectations for future energy demand remain strong. With an elevated oil price and ongoing significant offshore oil and gas discoveries underlying robust utilisation rates for high specification drilling and services equipment and floating production, storage and offloading (FPSO) vessels, we believe that the current market environment provides attractive opportunities for the Company.

I look forward to reporting to you again in the Annual Financial Report for the year ending 30 September 2012.

Michael Salter
Chairman
19 June 2012

The Company's investing policy in the period under review was as follows:

 

The Company's investment objective is to provide Shareholders with an attractive total return, through a combination of capital appreciation and dividends.

The Investment Adviser seeks to achieve the investment objective of the Company by sourcing and trading a portfolio comprising predominantly debt instruments. The Investment Adviser seeks to use fundamental credit and industry analysis to identify instruments expected to provide attractive risk-adjusted returns which meet the investment objective of the Company. Such instruments are expected to be issued primarily to finance companies involved in the construction, modification and operation of offshore rigs and related infrastructure equipment, and companies involved in the development and operation of assets used in the offshore and/or onshore exploration, production and distribution of oil, natural gas and other resources. Investments in adjacent sectors such as shipping and transportation may be included at the discretion of the Investment Adviser.

It is expected that the Company's portfolio will continue to be passively managed, although the Investment Adviser may elect to become actively involved in workout situations should they arise. It is expected that some investments will be held through to maturity (or earlier redemption/repayment by the issuer/borrower), while others may be held for shorter terms to capture mispricing of risk. The Investment Adviser may trade investments depending on the prevailing market conditions at any time.

The Company seeks, on a global basis, to capture on its investments attractive risk-adjusted yields and potential capital appreciation arising from possible corporate activity, including but not limited to, refinancing, industry consolidation and workouts, and from equity appreciation for securities exhibiting equity characteristics. The Company is permitted to borrow to enhance the returns of the portfolio. The gearing of the portfolio is not expected to exceed 30% of Net Asset Value, and from time to time the portfolio may be constructed with little or no gearing. The Company may retain amounts in cash, or cash equivalents, pending reinvestment if this is considered appropriate to the achievement of its investment objective.

The Company may construct the portfolio using a range of securities, derivatives and other agreements including but not limited to positions in secured, unsecured and subordinated bonds, including convertible bonds, that may be fixed or floating rate securities, payment-in-kind bonds, senior, second lien and mezzanine loans, equities and equity warrants. The Company may trade both rated and unrated debt instruments although it expects, in most cases, that such instruments will not be rated by a recognised rating agency. Exposure to securities may be taken directly or synthetically through the use of repurchase agreements, total return swaps and other derivatives referencing the securities selected for the portfolio. Interest rate and foreign exchange transactions may be effected using swaps, forwards, futures and options and other derivatives. The Company may trade listed and unlisted securities, and may execute derivative transactions on exchange or over the counter.

Dividend Policy

Pursuant to the announcement on 14 February 2012 the Company's dividend policy is to make regular cash distributions in the form of semi-annual dividend payments and to target dividends equivalent to an annual yield of 5 per cent of the Net Asset Value per share at the start of each financial year. This dividend policy will be applied to the current financial year and based on the opening Net Asset Value per share on 1 October 2011 of 27.59 pence, a 5% yield would amount to approximately 1.38 pence per share.

Energy Markets

Brent Crude oil prices gained c.25% over the period under review, rising from c.USD97 at the end of September 2011 to USD122 on 31 March 2012.

The elevated oil price has contributed to plans for increased investment in the various stages of oil production from exploration through to seismic surveying, drilling, subsea installation and production.

In its oil market research report from January 2012, "The Next Mega-Cycle Takes Hold", Barclays Capital noted the supply challenges facing the oil market, stating that key producer countries will defend prices around the USD90 (Brent) levels and that "heightened geopolitical tensions add further support" to the oil price.

Barclays further forecast Global Exploration and Production "E&P" Spending to rise 10% in 2012 to USD600bn and stated that the deep water and subsea sectors are the main themes of this cycle with 50% of new discoveries over the last decade coming from offshore markets, primarily in deep water.

Financial Markets

Over the first six months of the Company's financial year, major equity and credit market indices were volatile, although positive developments around the European sovereign debt crisis and accommodative monetary policy led markets higher and the MSCI World rose 18.8% in US dollars. The U.S. advanced most, recording a 24.5% gain as measured by the S&P 500, while the Euro Stoxx 50 was up 13.7%. Credit markets were also stronger, with iTraxx Crossover (S15) tightening from 757bps to 524bps, and iTraxx Main (S15) from 198bps to 123bps.

Despite the market rally during the interim period and improved investor confidence, significant headwinds remain. The recent deterioration in Spanish government finances, political uncertainty following election results in France and Greece and a gradual incremental softening in US economic data warrant caution. In addition, the European Central Bank's Long Term Refinancing Operation has resulted in increased subordination of senior unsecured debt in many European banks, which we believe may lead to credit spread widening.

The Portfolio

The Company's Net Asset Value ("NAV") per Ordinary Share rose over the six-month period from 27.59 pence at the end of September 2011 to 33.45 pence at the end of March 2012.

Performance was positively impacted by the payment in respect of the FPS Ocean bonds as reported in the RNS announcement of 24 October 2011 and a general appreciation in the value of a number of the Company's investments reflecting the robust outlook for the offshore energy space.

The Company participated in a number of new issues during the period. We believe the continued activity in the new issue market is encouraging.

As at the end of March 2012, the portfolio was divided into various broad categories. Analysed by value, drilling rigs were the largest single category accounting for some 65% of assets while accommodation vessels accounted for 13%. 6% of assets were invested in Floating Production Storage and Offloading vessels (FPSOs) and the remainder of the portfolio was spread over seismic vessels, service and well intervention vessels and cash.

The Portfolio (continued)

In the Drilling sector, a steady stream of orders for new sixth generation ultra-deep drilling equipment was witnessed as was an increasing trend in ultra-deepwater day-rates, with several contracts being awarded for amounts in excess of USD600k per day. Increased activity has been seen globally but especially in new growth areas offshore Brazil and West Africa. In addition, the recovery in the Gulf of Mexico continues after the Macondo spill in 2010. This has fed through to increased demand for offshore accommodation, seismic surveys and subsea installations which we believe bodes well for the Company's portfolio.

Dividend

A dividend of 0.55 pence was paid in November 2011 and a further 0.60 pence was paid in April 2012.

On 19 June 2012, the Company declared an interim dividend of 0.69 pence per Ordinary Share in respect of the financial year ending 30 September 2012. The interim dividend will be payable on 8 August 2012 to Shareholders on the register on 13 July 2012.

Appointment of Broker

In January 2012, the Company announced the appointment of Westhouse Securities Limited as its nominated adviser and broker following the acquisition of Arbuthnot Securities Limited by Westhouse Holdings plc.

Financing

The Company continues to operate a Prime Brokerage Agreement with Credit Suisse Securities (Europe) Limited that allows the Company to borrow in one or more currencies against assets of the Company. The Company held a positive net cash balance at the end of the period.

Outlook

We remain cautious on the medium-term outlook as macroeconomic risks continue. Ongoing issues in the Eurozone, fiscal deficits, the slowdown of the Chinese economy and geopolitical unrest in the Middle East and North Africa region warrant concern.

We are, however, encouraged by the current level of oil prices and expectations of future demand for energy. The case for investment in offshore infrastructure is, we believe, compelling as oil majors and national oil companies continue to increase their allocation of capital to this sector. Furthermore, the deleveraging trend continues in the financial sector which means that companies still need to access the bond markets to secure their financing requirements. This should provide further opportunities for the Company going forward.

CQS Cayman Limited Partnership

June 2012

All data sourced from Kleinwort Benson (Channel Islands) Fund Services Limited, Bloomberg and Barclays Global Energy Outlook.

Six months ended
31 March 2012
GBP
Six months ended
31 March 2011
GBP
 NotesUnauditedUnaudited
Operating profit 4 6,780,042 2,430,318
Operating expenses
Other operating expenses 5 (486,520) (382,332)
Finance costs - (240,582)
Total operating expenses (486,520) (622,914)
Net profit6,293,5221,807,404
Total comprehensive profit for the period6,293,5221,807,404
Earnings per Ordinary Share
Basic and Diluted 6 6.46p 1.86p

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 form an integral part of the unaudited condensed financial statements.

31 March 201230 September 201131 March 2011
 NotesGBPGBPGBP
AssetsUnauditedAuditedUnaudited
Non-current assets
Financial instruments designated at fair value through profit or loss 7 29,096,734 18,478,247 19,935,402
Current assets
Financial instruments designated at fair value through profit or loss 7 1,823,108 5,581,846 7,085,894
Cash and cash equivalents 9 3,832,678 2,861,937 2,207,649
Derivative financial assets 108,714 181,061 -
Receivable for securities sold - 862,702 -
Other assets 5,672 58,367 91,015
5,770,172 9,545,913 9,384,558
Total assets34,866,90628,024,16029,319,960
Equity and liabilities
Equity

Other reserve 

88,888,069 89,472,529 90,982,384

Accumulated losses 

(56,302,621) (62,596,143) (62,249,380)
32,585,448 26,876,386 28,733,004
Current liabilities
Financial instruments designated at fair value through profit or loss 7 966,002 - -
Payable for securities purchased 540,580 362,738 138,531
Derivative financial liabilities 65,706 86,454 223,546
Distributions payable 584,460 535,755 -
Other liabilities and payables 10 124,710 162,827 224,879
Total liabilities 2,281,458 1,147,774 586,956
Total equity and liabilities34,866,90628,024,16029,319,960
Net Asset Value per Share 33.45p 27.59p 29.50p

The accompanying notes form an integral part of the unaudited condensed financial statements.

Other
Reserve
Accumulated LossesTotal
GBPGBPGBP
UnauditedUnauditedUnaudited
Balance at 1 October 2011 89,472,529 (62,596,143) 26,876,386
Net profit for the period - 6,293,522 6,293,522
Total recognised income and expense plus equity
brought forward
89,472,529 (56,302,621) 33,169,908
Dividends to shareholders (584,460) - (584,460)
Balance at 31 March 201288,888,069(56,302,621)32,585,448

For the six months ended 31 March 2011

Other
Reserve
Accumulated LossesTotal
GBPGBPGBP
UnauditedUnauditedUnaudited
Balance at 1 October 2010 90,982,384 (64,056,784) 26,925,600
Net profit for the period - 1,807,404 1,807,404
Total recognised income and expense plus equity brought forward 90,982,384 62,249,380 28,733,004
Balance at 31 March 201190,982,384(62,249,380)28,733,004

The accompanying notes form an integral part of the unaudited condensed financial statements.

 Six months ended 31 March 2012 Six months ended 31 March 2011
 GBPGBP
UnauditedUnaudited
Net profit  6,293,522 1,807,404
 
Adjustments for:
Realised (gain) on sale of financial instruments designated  
at fair value through profit or loss   (1,407,165) (869,261)
Movement in unrealised (gain) on swaps   (19,001) -
Movement in unrealised loss on forwards   70,605 223,546
Movement in unrealised (gain)/loss on investments designated
at fair value through profit or loss   (2,654,418) 1,334,884
Movement in unrealised loss/(gain) on foreign currency   32,461 (364,162)
Finance cost   - 240,582
Purchases of investments   (27,529,801) (9,584,274)
Sales of investments   26,738,176 20,769,199
Operating cashflows before movement in working capital 1,524,379 13,557,918
 
Decrease/(increase) in other receivables   52,695 (57,503)
(Decrease) in other payables   (28,385) (2,110,638)
Cash generated in (used by) operations  24,310 (2,168,141)
 
Net cashflows from operating activities  1,548,689 11,389,777
 
Financing Activities:
Interest expense paid   (9,732) (710,293)
(Decrease) in interest bearing borrowings   - (8,471,835)
Dividends paid to shareholders   (535,755) -
Net cash outflows from financing activities  (545,487) (9,182,128)
 
Net increase in cash and cash equivalents   1,003,202 2,207,649
Unrealised loss on foreign currency   (32,461) -
Cash and cash equivalents at start of period   2,861,937 -
Cash and cash equivalents at end of period 3,832,6782,207,649
 

The accompanying notes form an integral part of the unaudited condensed financial statements.

1.        General information

CQS Rig Finance Fund Limited (the "Company") was registered on 8 November 2006 with registered number 45805 and is domiciled and incorporated in Guernsey, Channel Islands. The Company is a closed-ended investment company with limited liability formed under The Companies (Guernsey) Law, 2008, as amended and its Ordinary Shares are listed on the Channel Island Stock Exchange ("CISX") and traded on the Alternative Investment Market ("AIM"), a market operated by the London Stock Exchange plc.

The Company does not have a fixed life but, under the Articles of Association, shareholders will be given the opportunity to vote on the continuation of the Company at the Annual General Meeting to be held in 2014.

The Company's investment objective is to provide shareholders with an attractive total return through a combination of capital appreciation and dividends.

The Investment Adviser seeks to achieve the investment objective of the Company by sourcing and trading a portfolio comprising predominantly debt instruments. The Investment Adviser seeks to use fundamental credit and industry analysis to identify instruments expected to provide attractive risk-adjusted returns which meet the investment objective of the Company. Such instruments are expected to be issued primarily to finance companies involved in the construction, modification and operation of offshore rigs and related infrastructure equipment, and companies involved in the development and operation of assets used in the offshore and/or onshore exploration, production and distribution of oil, natural gas and other resources. Investments in adjacent sectors such as shipping and transportation may be included at the discretion of the Investment Adviser.

It is expected that the portfolio will continue to be passively managed, although the Investment Adviser may elect to become actively involved in workout situations should they arise. It is expected that some investments will be held through to maturity (or earlier redemption/repayment by the issuer/borrower), while others may be held for shorter terms to capture mispricing of risk. The Investment Adviser may trade investments depending on the prevailing market conditions at any time.

2.        Significant accounting policies

Statement of compliance

These condensed interim financial statements for the six months ended 31 March 2012 have been prepared in accordance with International Accounting Standards (IAS) 34, "Interim Financial Reporting". The condensed interim financial statements do not include all the information and disclosure required in the annual financial statements and should be read in conjunction with the audited financial statements of the Company for the year ended 30 September 2011, which have been prepared in accordance with International Financial Reporting Standards, as adopted by the European Union ("IFRS").

The audited financial statements of the Company for the year ended 30 September 2011 are available upon request from the Company's registered office at Dorey Court, Admiral Park, St Peter Port, Guernsey GY1 2HT and are also available from the Company's website, www.cqsrigfinance.com.

Basis of preparation

The condensed interim financial statements of the Company are prepared on a historical cost or amortised cost basis as modified by the revaluation of financial assets and financial liabilities held at fair value through profit or loss.

The accounting policies applied by the Company in these condensed unaudited interim financial statements are consistent with those applied by the Company in its financial statements as at and for the year ended 30 September 2011.

2.        Significant accounting policies (continued)

Basis of preparation (continued)

These condensed interim financial statements are presented in GBP. The functional currency of the Company is also considered to be GBP because that is the currency of the primary economic environment in which the Company has raised capital.

Going Concern

The Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements.

Standards and amendments to existing standards effective 1 October 2011

The amendment to IAS 24, "Related party disclosures", clarifies the definition of a related party. The new definition clarifies in which circumstances, persons and key management personnel affect related party relationships of an entity. The amendment also introduces an exemption from the general related party disclosure requirements for transactions with a government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Company.

IFRS 7 (amendment) "Financial instruments: Disclosures". This amendment was part of the IASB's annual improvement project published in May 2010. The amendment emphasises the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instruments. Adoption of this amendment did not have a significant impact on the Company's financial statements.

There are no other standards, interpretations or amendments to existing standards that are effective that would be expected to have a significant impact on the Company.

"Improvements to IFRS" were issued in May 2010 and contain several amendments to IFRS, which the IASB considers non-urgent but necessary. "Improvements to IFRS" comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual standards. Most of the amendments are effective for annual periods beginning on or after 1 January 2011. No material changes to accounting policies are expected as a result of these amendments.

Significant accounting judgments and estimates

The preparation of the Company's financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the amounts recognised in the financial statements. 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 the future.    

2.   Significant accounting policies (continued)

Significant accounting judgments and estimates (continued)

Fair value of financial instruments

When the fair value of financial assets and financial liabilities recorded in the Statement of Financial Position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical pricing models incorporating discounted cash flow techniques. These pricing models apply assumptions regarding asset specific factors and economic conditions generally, including delinquency rates, default rates, maturity profiles, interest rates and other factors that may be relevant to each financial asset. Where such pricing models are used, inputs are based on market-related measures at the Statement of Financial Position date but where this is not feasible a degree of judgment is required in establishing fair values. The judgments 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. No such models were used in deriving fair value of financial assets within these financial statements. The non-performing assets have been assigned values in line with market expectations of recoverability.

3.        Segmental Reporting

IFRS 8 'Operating Segments' requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision maker. The chief operating decision maker is responsible for allocating resources and assessing the performance of the operating segments.

The Board of Directors is charged with the overall governance of the Company in accordance with the Company's Admission Document and the Company's Memorandum and Articles of Incorporation. The Board has appointed CQS Cayman Limited Partnership as the Investment Manager. The Board of Directors and CQS Cayman Limited Partnership are considered the Chief Operating Decision Maker ("CODM") for the purposes of IFRS 8.

CQS Cayman Limited Partnership is responsible for decisions in relation to both asset allocation, asset selection and any investment adviser delegation. CQS Cayman Limited Partnership has been given authority to act on behalf of the Company, including the authority to purchase and sell securities and other investments on behalf of the Company and to carry out other actions as appropriate to give effect thereto. Any changes to the investment strategy outside of the Company's Admission Document must be approved by the Board and then the Company's shareholders in accordance with the terms of the Admission Document, the Company's Articles and the AIM Rules for Companies.

The Company sources and trades in a portfolio of secured debt instruments which are expected to be primarily issued to finance the construction, modification and/or refurbishment of rigs and other infrastructure and/or equipment used for the exploration of oil and natural gas. The Company operates a single operating segment under IFRS 8 with all investment cash and investment holdings being managed at a Company level. CQS Cayman Limited Partnership allocates decisions based on a single integrated investment strategy and the Company's performance is evaluated on an overall basis. Investment cash is allocated to CQS Cayman Limited Partnership who has discretionary authority to invest the Company's assets and is responsible for all investment decisions made on behalf of the Company, subject to the control and policies of the Board of Directors of the Company. CQS Cayman Limited Partnership has appointed an investment adviser, CQS (UK) LLP. The Investment Adviser is responsible for the management of and/or providing investment advice on the portfolio and also assists the Investment Manager with related ancillary services. The internal reporting provided to CQS Cayman Limited Partnership for the Company's assets and liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS. There were no changes in the reportable segments during the period ended 31 March 2012.

4.        Operating profit

 Six months ended
31 March 2012
Six months ended
31 March 2011
GBP
Unaudited
GBP
Unaudited
Interest income from financial instruments designated at fair value through profit or loss 1,772,945 2,405,112
Realised foreign exchange gain 1,029,579 350,203
Realised gain on financial instruments at fair value through profit and loss 1,407,165 869,261
Movement in unrealised gain/(loss) on financial instruments at fair value through profit or loss 2,654,418 (1,334,874)
Movement in unrealised loss on forward contracts (70,605) (223,546)
Movement in unrealised gain on swaps 19,001 -
Movement in unrealised foreign exchange (loss)/gain (32,461) 364,162
Total operating profit6,780,0422,430,318

5.                Other operating expenses       

 Six months ended
31 March 2012
Six months ended
31 March 2011
 NotesGBP
Unaudited
GBP
Unaudited
Investment management and administration fees
Investment management and performance fee 12 (234,321) (204,767)
Administration fee 12 (75,001) (60,515)
Other operating expenses
Audit and accounting fees (18,750) (24,932)
Directors' fees (43,750) (43,631)
Other expenses (114,698) (48,487)
Total other operating expenses(486,520)(382,332)

6.                Earnings per share

 31 March 201231 March 2011
 GBP
Unaudited
GBP
Unaudited
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders 6,293,522 1,807,404
Weighted average number of Ordinary Shares for the purposes of basic earnings per share97,410,00097,410,000

7.                Financial Instruments at fair value through profit or loss

31 March 201230 September 201131March 2011
 GBPGBPGBP
UnauditedAuditedUnaudited
Cost of financial instruments at start of period 58,517,981 85,207,323 85,207,322
Purchase of financial instruments 27,707,643 43,891,051 9,401,759
Sales proceeds on disposal of financial instruments (25,875,477) (58,384,164) (20,769,199)
Realised gain/(loss) on sale of financial instruments 1,407,165 (12,196,227) 869,261
Cost of financial instruments at end of period 61,757,312 58,517,983 74,709,143
Unrealised loss on financial instruments (31,803,472) (34,457,890) (47,687,847)
Financial instrumentsat end of period29,953,84024,060,09327,021,296

Split as follows:
Non-current assets
29,096,734 18,478,247 19,935,402
Current assets 1,823,108 5,581,846 7,085,894
Current liabilities (966,002) - -
Financial instrumentsat end of period29,953,84024,060,09327,021,296

8.         Fair value hierarchy

IFRS 7 requires disclosures surrounding the level in the fair value hierarchy in which fair value measurements are categorised for financial instruments measured in the statement of financial position. It requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The financial instruments are analysed between those whose fair value is based on:

  • Level 1 - Quoted market price in an active market for an identical instrument. 

  •    Level 2 - Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. 

  •    Level 3 - Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant impact on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. 

There were no significant transfers between levels of the fair value hierarchy from 30 September 2011 to 31 March 2012, nor from 30 September 2010 to 31 March 2011.

9.   Cash and cash equivalents

31 March 201230 September 201131 March 2011
GBPGBPGBP
UnauditedAuditedUnaudited
Sterling cash 3,983,522 3,954,149 7,201,966
Euro cash (228,117) (740,240) (10)
Norwegian Krone cash 3,056 41,829 (3,170,637)
US Dollar cash 74,217 (393,801) (1,823,670)
Cash and bank balances 3,832,6782,861,9372,207,649

The Company is in a net surplus cash position with its Prime Broker.  However, as detailed in the above table, the Company does borrow in several currencies against assets of the Company.

10.           Other liabilities and payables

 31 March 201230 September 201131 March 2011
 NotesGBPGBPGBP
 UnauditedAuditedUnaudited
Due to related parties
-Investment management fees 12 41,472 69,183 103,882
Interest payable 12,464 22,196 7,639
Accrued Expenses 70,774 71,448 113,358
Total payables 124,710162,827224,879

Other liabilities principally comprise amounts outstanding in respect of ongoing costs. The Directors consider the carrying amount of other liabilities to approximate their fair value.

Terms and conditions of the above other liabilities:

  • For terms and conditions relating to related parties, refer to note 12. 

  • Accrued expenses are non-interest bearing and have an average term of less than 3 months. 

11.           Share capital

Authorised share capital31 March 201230 September 201131 March 2011
GBPGBPGBP
UnauditedAuditedUnaudited
Number of
Ordinary Shares
Number of
Ordinary Shares
Number of
Ordinary Shares
Ordinary shares of no par value each Unlimited Unlimited Unlimited

Issued and fully paid31 March 201230 September 201131 March 2011
GBPGBPGBP
UnauditedAuditedUnaudited
Number of
Ordinary Shares
Number of
 Ordinary Shares
Number of
Ordinary Shares
Balance at start of the period/year 97,410,000 97,410,000 97,410,000
Issue of new Ordinary Shares with
no par value
- - -
Balance at the end of the period/year97,410,00097,410,00097,410,000

11.           Share capital (continued)

On incorporation, 2 ordinary shares were issued and fully paid to the subscribers to the Memorandum of Association of the Company. Those ordinary shares were made available under the initial placing.

Rights

The Company has the power to increase or reduce its share capital and to attach to any shares in the initial or increased or reduced capital any preferred deferred qualified or special rights, privileges and conditions or to subject the same to any restrictions or limitations and to consolidate or sub-divide all or any of its shares into shares of a larger or smaller denomination.

The holders of the ordinary shares have the following rights:

Dividends: Holders of ordinary shares are entitled to receive, and participate in, any dividends or other distributions out of the profits or otherwise of the Company available for dividend and resolved to be distributed in respect of any accounting period or other income or right to participate therein.  

Winding Up: Holders of ordinary shares shall be entitled to the surplus assets remaining after payment of all creditors of the Company.

Voting: Holders of ordinary shares shall have the right to receive notice of, and to attend and vote at general meetings of the Company and each shareholder being present in person or by proxy or by a duly authorised representative (if a corporation) at a meeting shall upon a show of hands have one vote and upon a poll each such shareholder shall have one vote in respect of each ordinary share held.

12.           Material agreements and related parties

Investment Manager
The Company is a party to an Investment Management Agreement with the Investment Manager, dated 8 November 2006, pursuant to which the Company has appointed the Investment Manager to manage their respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of their respective Boards of Directors.

The Company pays the Investment Manager a Management Fee and Performance Fee (see note 5).

Management fee
Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive from the Company a monthly management fee payable in arrears as at the last business day of each month that is equal to 0.125 per cent. (equivalent to 1.5 per cent. per annum) of the net asset value of the Company as at the first business day of the month. Management fees for the period were GBP234,321 (31 March 2011: GBP204,767) of which GBP41,472 was outstanding at 31 March 2012 (30 September 2011: GBP69,183, 31 March 2011: GBP103,882).

12.           Material agreements and related parties (continued)

Performance fee
The performance fee in respect of each performance year will be an amount equal to 20 per cent of the amount, if any, by which the total return for such performance year exceeds the performance hurdle. For the avoidance of doubt, the performance fee arrangements are subject to a minimum of zero and will not result in any repayment of performance fees in respect of previous performance periods. There was no performance fee for the period ended 31 March 2012 or 31 March 2011.

For these purposes performance year means each year corresponding to each accounting period of the Company.

Total return means in respect of each performance year the excess, if any, of:

  1.   the Company's net asset value on the last day of such performance year plus the aggregate of any capital return and/or dividends payable in respect of such performance year, over 

  2. the Company's net asset value on the first day of such performance year. 

Transactions
The Investment manager is also the Investment Manager for CQS Convertible and Quantitative Strategies Master Fund Limited ("CQS"). In March 2011 the Company purchased a corporate bond with a market value of USD581,000 from CQS. This 4 million notional size position was transferred at independent broker prices. There were no such related party transactions for the period ended 31 March 2012.

Administration fee
Under the terms of the Administration Agreement, the Administrator is entitled to receive from the Company an administration fee of 0.095 per cent of the net asset value of the Company with a minimum of USD14,200 per month. In addition, the Administrator is entitled to an annual company secretarial fee on a time charge basis with a minimum of USD50,400 per annum. Administration fees for the period were GBP75,001 (31 March 2011 GBP60,515) of which GBP7,975 was outstanding at 31 March 2012 (30 September 2011: GBP12,903, 31 March 2011: Nil).

Prime broker and custodian fee
The prime broker and custodian will receive such fees as may be agreed with the Company from time to time, reflecting normal commercial rates which may be based upon a combination of transaction charges and interest costs.

Investment by CQS Group Entities
CQS Group Entities held 14,049,027 shares as at 31 March 2012 (30 September 2011: 15,049,027, 31 March 2011: 11,538,836). There were redemptions of 1,000,000 shares during the period from 1 October 2011 to 31 March 2012, (redemptions of 1,072,250 in the period from 1 October 2010 to 31 March 2011).

Directors' Interests
Mr. Gavin Strachan held 59,482 shares as at 31 March 2012 (30 September 2011: 59,482, 31 March 2011: 59,482). A person closely connected to Mr. Michael Salter held 38,964 shares as at 31 March 2012 (30 September 2011: 38,964, 31 March 2011: 38,964). Mr. Bruce Appelbaum held 15,000 shares as at 31 March 2012 (30 September 2011: 15,000, 31 March 2011: 15,000).

12.        Material agreements and related parties (continued)

Directors' Remuneration
The Chairman receives an annual fee of GBP25, 000 and Mr Appelbaum, Mr Ash, Mr Gamble and Mr Strachan receives an annual fee of GBP15, 000 each. Mr Gamble as Chairman of the audit committee also receives an additional annual fee of GBP2, 500.

Total Directors fees paid: 31 March 201230 September 201131 March 2011
Michael Salter (Chairman) GBP
Unaudited
12,500
GBP
Audited
25,000
GBP
Unaudited
12,933
Bruce Appelbaum 7,500 15,000 7,567
Trevor Ash 7,500 15,000 5,483
Jonathan Gamble 8,750 17,500 8,817
Gavin Strachan 7,500 15,000 8,561
43,75087,50043,361

13.        Dividend policy and proposed dividends

The Company's policy is to pay semi-annual dividends to Shareholders. A dividend of 0.55 pence per ordinary share in respect of the year ended 30 September 2011 was approved by the Board of Directors on 9 September 2011 and paid to Shareholders on 7 November 2011.

A final dividend of 0.6 pence per share in respect of the financial year ended 30 September 2011 was approved at the AGM and paid on 11 April 2012.

On 14 February 2012 the Board of Directors announced that the Company intends to amend the dividend policy and increase the regular cash distributions in the form of semi-annual dividend payments to target dividends equivalent to an annual yield of 5 per cent of the Net Asset Value per share at the start of each financial year. This dividend policy will be applied to the current financial year and based on the opening Net Asset Value per share on 1 October 2011 of 27.59 pence.

On 19 June 2012, the Company declared an interim dividend of 0.69 pence per Ordinary Share in respect of the financial year ending 30 September 2012. The interim dividend will be payable on 8 August 2012 to Shareholders on the register on 13 July 2012.

14.           Exchange rates

The following foreign exchange rates were used:

Currency31 March 201230 September 201131 March 2011
Norwegian Krone 9.1136 9.1458 8.8612
United States Dollar 1.5978 1.5578 1.6029
Euro 1.1998 1.1611 1.1296

15.        Seasonal or cyclical changes

The Company is not subject to seasonal or cyclical changes.

16.        Comparatives

The comparatives in the Unaudited Condensed Statement of Cash Flows have been updated to reflect the disclosures as at 31 March 2012. This is a presentational change only which had no effect on the amounts disclosed.

17.        Significant events during the period

On 11 October 2011 Ramunia Holdings Berhad announced the completion of the acquisition of the deep producer vessel MT Laurita for USD82.5m in cash. The vessel formed the major part of the collateral for the FPS Ocean AS (formerly DP Producer AS) bonds. On 21 October 2011 Norsk Tillitsmann ASA as Trustee for the FPS Ocean AS bonds announced that the net payment due to bondholders following the sale of M/S Laurita will be 32 per cent of the outstanding notional. The Company received payment of USD6.5m on 28 October 2011 for its USD20.4m notional per holding. Legal fees of USD0.6m in respect of action taken to assist in the above outcome were returned to the Company on 24 October 2011.

Following completion of the acquisition by Westhouse Holdings Plc of Arbuthnot Securities Limited, the Company's Nominated Adviser and Broker has changed its registered name from Arbuthnot Securities Limited to Westhouse Securities Limited, as announced by the Company on 1 February 2012.

As announced on the 21 March 2012, Shareholders voted against the requisitioned resolution from Ironsides Partners Opportunity Master Fund LP at an extraordinary general meeting, details of which were set out in the notice of meeting posted to Shareholders on 29 February 2012.

18.        Significant events after the period end

There were no significant events affecting the Company since the period end that require disclosure within these condensed interim financial statements.

19.        Approval of the condensed interim financial statements

The condensed interim financial statements were approved by the Board of Directors on 19 June 2012.




This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: CQS Rig Finance Fund Ltd via Thomson Reuters ONE

HUG#1620855