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Georgian State Electrosystem JSC
Special Purpose Project Financial Statements
for the year ended 31 December 2016
TRANSMISSION GRID STRENGTHENING PROJECT
Loan No. 8377-GE dated 3 September 2014
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Georgian State Electrosystem JSC
Contents
Independent Auditors’ Report 3
Statement of Balance Sheet 6
Statement of Designated Account 7
Statement of Funds Received 8
Statement of Uses of Funds 9
Statement of Expenditures 11
Notes to the Special Purpose Project Financial Statements 13
KPMG Georgia LLC 2nd Floor, Besiki Business Centre 4, Besiki Street 0108 Tbilisi, Georgia Telephone +995 322 93 5713 Internet www.kpmg.ge
KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a
member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Independent Auditors’ Report on Special Purpose Project Financial Statements
To the Management Board of Georgian State Electrosystem JSC
Opinion
We have audited the special purpose project financial statements of the Transmission Grid Strengthening Project (the “Project”), financed under the International Bank for Reconstruction and Development (the “IBRD”) Loan Agreement No. 8377-GE dated 3 September 2014, implemented by Georgian State Electrosystem JSC (the “Company”), which comprise the Statement of Balance Sheet as at 31 December 2016 and the Statements of Designated Account, Funds Received, Uses of Funds, and Expenditures for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. The special purpose project financial statements have been prepared by management in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and in conformity with the World Bank’s Financial Management Sector Board’s “Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities” (the “World Bank Guidelines”) as described in Note 2 to the special purpose project financial statements.
In our opinion, the accompanying special purpose project financial statements present fairly, in all material respects, the financial position of the Project as at 31 December 2016, and its sources and uses of funds for the year then ended in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and the World Bank Guidelines.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing
(ISAs). Our responsibilities under those standards are further described in the
Auditors’ Responsibilities for the Audit of the Special Purpose Project Financial
Statements section of our report. We are independent of the Company in
accordance with the International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other
ethical responsibilities in accordance with the IESBA Code. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Emphasis of Matter - Basis of Accounting and Restriction on Use
We draw attention to Note 2 to the special purpose project financial statements, which describes the basis of accounting. The special purpose project financial statements are prepared to assist the Company to comply with the requirements of IBRD and for providing information to the Government of Georgia and IBRD to assist them in evaluating the Project implementation. As a result, the special purpose project financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter.
Georgian State Electrosystem JSC Transmission Grid Strengthening Project Loan No. 8377-GE dated 3 September 2014 Independent Auditors’ Report Page 2
Responsibilities of Management and Those Charged with Governance for the Special Purpose Project Financial Statements
Management is responsible for the preparation and fair presentation of these special purpose project financial statements in accordance with the International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and the World Bank Guidelines, for determining the acceptability of the basis of accounting and for such internal control as management determines is necessary to enable the preparation of special purpose project financial statements that are free from material misstatement, whether due to fraud or error.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Special Purpose Project Financial Statements
Our objectives are to obtain reasonable assurance about whether the special purpose project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these special purpose project financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the special purpose project financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Evaluate the overall presentation, structure and content of the special purpose project financial statements, including the disclosures, and whether the special purpose project financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Georgian State Electrosystem JSC Transmission Grid Strengthening Project Loan No. 8377-GE dated 3 September 2014
Independent Auditors' Report Page3
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
The engagement partner on the audit resulting in this independent auditors' report
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Statement of Balance Sheet as at 31 December 2016
The statement of balance sheet is to be read in conjunction with the notes to, and forming part of, the special
purpose project financial statements set out on pages 13 to 18.
6
In USD
Assets
Note 2016 2015
Project designated account 4 3,000,000 600,000
Total assets 3,000,000 600,000
Funds received
Funds received from IBRD 28,942,986 7,703,418
Co-financing 8,934 -
Total funds received 28,951,920 7,703,418
Project expenditures
Project expenditures financed by IBRD (25,951,920) (7,103,418)
Total project expenditures (25,951,920) (7,103,418)
Total project funds less expenditures 3,000,000 600,000
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Statement of Designated Account for the year ended 31 December 2016
The statement of designated account is to be read in conjunction with the notes to, and forming part of, the special
purpose project financial statements set out on pages 13 to 18.
7
In USD
2016 2015
Balance at 1 January 600,000 -
IBRD advances and replenishments during the year 10,406,475 1,085,883
Project expenditures paid during the year (8,006,475) (485,883)
Balance at 31 December 3,000,000 600,000
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Statement of Funds Received for the year ended 31 December 2016
8 The statement of funds received is to be read in conjunction with the notes to, and forming part of, the special purpose project financial statements set out on pages 13 to 18.
In USD
Fund received by sources
Actual Planned Variance Total
Year ended
31 December
2016
Year ended
31 December
2015
Cumulative to
31 December
2016
Year ended
31 December
2016
Year ended
31 December
2015
Cumulative to
31 December
2016
Year ended
31 December
2016
Year ended
31 December
2015
Cumulative to
31 December
2016
Project
Cost
IBRD funds 21,239,568 7,553,418 28,942,986 16,160,330 7,567,209 23,877,539 5,079,238 (13,791) 5,065,447 60,000,000
Government funds 8,934 - 8,934 52,000 - 52,000 (43,066) - (43,066) 1,875,000
Total funds received 21,248,502 7,553,418 28,951,920 16,212,330 7,567,209 23,929,539 5,036,172 (13,791) 5,022,381 61,875,000
Total use of funds 18,848,502 6,953,418 25,951,920 13,812,330 6,967,209 20,929,539 5,036,172 (13,791) 5,022,381 61,875,000
Net flow of funds 2,400,000 600,000 3,000,000 2,400,000 600,000 3,000,000 - - - -
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Statement of Uses of Funds for the year ended 31 December 2016
9 The statement of uses of funds is to be read in conjunction with the notes to, and forming part of, the special purpose project financial statements set out on pages 13 to 18.
In USD
Project Activities
Actual Planned Variance Total
Year ended
31 December
2016
Year ended
31 December
2015
Cumulative to
31 December
2016
Year ended
31 December
2016
Year ended
31 December
2015
Cumulative to
31 December
2016
Year ended
31 December
2016
Year ended
31 December
2015
Cumulative to
31 December
2016
Project
Cost
Part A: Transmission System
Strengthening
18,803,662 6,953,418
25,757,080 12,980,330 6,967,209
19,947,539
5,823,332 (13,791)
5,809,541
52,350,000
1a: Procurement of plant design,
supply and installation of 220 kV
Akhaltsikhe-Batumi overhead
transmission line
12,424,546 6,330,000
18,754,546 7,481,050 6,330,000
13,811,050
4,943,496 -
4,943,496
36,650,000
1b: Consulting services for
supervision and management
683,315 461,093
1,144,408 800,000 467,584
1,267,584
(116,685) (6,491)
(123,176)
3,569,573
1c: Consulting services
- 162,325
162,325 - 169,625
169,625
- (7,300)
(7,300)
162,325
1d: Supply of TL equipment
5,695,801 -
5,695,801 4,699,280 -
4,699,280
996,521 -
996,521
8,920,000
1e: Contingencies
- -
- - -
-
- -
-
3,048,102
Part B: Wholesale Power
Exchange Platform
- -
- 490,000 -
490,000
(490,000) -
(490,000)
7,500,000
2a: Design, supply and
installation of the power
exchange platform
- -
- - -
-
- -
-
3,375,000
2b: Supervision of supply and
installation of the platform
- -
- 240,000 -
240,000
(240,000) -
(240,000)
1,000,000
2c: Design, supply and
installation of SCADA/EMS
upgrade
- -
- 250,000 -
250,000
(250,000) -
(250,000)
3,125,000
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Statement of Uses of Funds for the year ended 31 December 2016
10 The statement of uses of funds is to be read in conjunction with the notes to, and forming part of, the special purpose project financial statements set out on pages 13 to 18.
Project Activities
Actual Planned Variance Total
Year ended
31 December
2016
Year ended
31 December
2015
Cumulative to
31 December
2016
Year ended
31 December
2016
Year ended
31 December
2015
Cumulative to
31 December
2016
Year ended
31 December
2016
Year ended
31 December
2015
Cumulative to
31 December
2016
Project
Cost
Part C: Electricity Sector
Strategic Environmental and
Social Assessment
- -
- - -
-
- -
-
1,250,000
3a: Electricity sector strategic
environmental and social
assessment
- -
- - -
-
- -
-
1,250,000
Part D: Project Management and
Transmission Systems Studies
44,840
-
44,840 342,000 -
342,000
(297,160) -
(297,160)
625,000
4a: Feasibility study and
conceptual design
44,840 -
44,840 236,000 -
236,000
(191,160) -
(191,160)
500,000
4b: Environmental and social
impact assessment
- -
- 106,000 -
106,000
(106,000) -
(106,000)
125,000
Loan endorsement fee
- -
150,000 - -
150,000
- -
-
150,000
Total Project Expenditures
18,848,502 6,953,418
25,951,920 13,812,330 6,967,209
20,929,539
5,036,172 (13,791)
5,022,381
61,875,000
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Statement of Expenditures for the year ended 31 December 2016
11 The statement of expenditures is to be read in conjunction with the notes to, and forming part of, the special
purpose project financial statements set out on pages 13 to 18.
In USD
2016
Expenditures Advances Total
Withdrawal
application
No.
Part A:
Transmission
system
strengthening
Part B:
Wholesale
power
exchange
platform
Part C:
Electricity
sector strategic
environmental
and social
assessment
Part D: Project
management
and
transmission
systems
studies:
Advance
payment
Total
disbursement
A007 - - - - 2,400,000 2,400,000
A008 1,612,078 - - - - 1,612,078
A009 875,861 - - - - 875,861
A010 984,885 - - - - 984,885
A011 839,415 - - - - 839,415
A012 1,435,426 - - - - 1,435,426
A013 2,885,703 - - - - 2,885,703
A014 1,123,309 - - - - 1,123,309
A015 2,143,494 - - - - 2,143,494
A016 1,018,682 - - - - 1,018,682
A017 847,619 - - - - 847,619
A018 1,748,842 - - - - 1,748,842
A019 1,661,360 - - - - 1,661,360
A020 1,222,837 - - - - 1,222,837
A021 404,151 - - 35,906 - 440,057
18,803,662 - - 35,906 2,400,000 21,239,568
/11 USD
2015
Expenditures
Part B: Part A:
Withdrawal Wholesale application
Transmission system
power No.
strengthening exchange platform
AOOl
A002 137,535
A003 6,330,000
A004 24,789
A005 297,14 1
A006 163,953
6,953,418
Georgian State Electrosystem JSC Transmission Grid Stre11gtlle11ing Project
Loan No. 8377-GE dated 3 September 2014 Statement of Expenditures for the year ended 31 December 2016
Advances Total
Part C: Part D: Project
Electricity management
sector strategic and
environmental and social
transmission
assessment systems studies:
Advance Total
disburse payment
ment
600,000 600,000
137,535
6,330,000
24,789
297,141
163,953
600,000 7,553,418
The special purpose R oject financial st ents were approved by the management of the Company on alfby:
Sulkh aun Int rnational Projects
and Reporting Department
12 The statement of expenditures is to be read in conjunction with the notes to, and forming part of, the special purpose project financial statements set out on pages 13 to 18.
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Notes to the Special Purpose Project Financial Statements for the year ended 31 December 2016
13
1. Background
Transmission Grid Strengthening Project is implemented by Georgian State Electrosystem JSC (parts
A, B and D) and the Ministry of Energy of Georgia (component C).
The Project will: (i) improve stability and security of supply of the south-western part of the
transmission grid by additional transmission connection; (ii) provide transmission services to the newly
constructed hydropower station; (iii) establish power exchange platform, and (iv) assess the
environmental impact of the sector strategy.
The purpose of these special purpose project financial statements is to provide information to the
Government of Georgia and International Bank for Reconstruction and Development (IBRD) to assist
them in evaluating the Project implementation.
(a) Company
Georgian State Electrosystem JSC (the “Company”) is a joint stock company established under the laws
of Georgia on 12 November 2002 by the means of the merger of Electrogadatsema JSC and
Electrodispetcherizatsia-2000 LLC and is their legal successor in title.
The Company’s registered office is 2 Baratashvili Street, Tbilisi 0105, Georgia.
The principle activities of the Company are electricity transmission and dispatching over the entire
territory of Georgia that are regulated by the law on Electricity and Natural Gas. EnergoTrans LLC, the
major subsidiary of the Company, was established as a state-owned enterprise in 2002. The principal
activity of EnergoTrans LLC is electricity transmission, including export and transit of electricity, via
the 500kV Vardzia and Zekari energy transmission lines and the 400kV Meskheti interconnection line
with Turkey constructed as part of the “Black Sea Transmission Network Project”.
At 31 December 2016 and 2015 the parent and ultimate parent of the Company was the Partnership
Fund JSC. The ultimate controlling party of the Company is the Government of Georgia.
(b) Project
The Project commenced in 2015 and is expected to be completed by 31 March 2019. The Project is
financed by IBRD under the loan agreement No. 8377-GE signed between the Government of Georgia
and IBRD on 3 September 2014 and assigned to the Company on 23 December 2014 (the Loan
Agreement).
According to the Loan Agreement Project implementation consists of the following categories:
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Notes to the Special Purpose Project Financial Statements for the year ended 31 December 2016
14
Project Categories Project cost
(USD million)
IBRD financing
(USD million)
IBRD financing as
% of project cost
(1) Goods, works, non-consulting
services, and consultant’s services
for Part A of the Project 52.35 52.35 100
(2) Goods, small works, non-consulting
services, and consultants’ services
for Part B and D of the Project 8.12 6.50 80
(3) Consultants’ services for Part C of
the Project 1.25 1.00 80
(4) Front-end fee 0.15 0.15 100
Total financing required 61.87 60.00 97
Part A: Transmission system strengthening (USD 52.35 million)
(1) Construction of a high voltage transmission line from Akhaltsikhe to Batumi, through: (a)
the supply and installation of a double –circuit, 220 kV transmission line from Akhaltsikhe
back-to-back and 500/400/220 kV substation (Akhaltsikhe station) to Batumi 220 kV
substation; and (b) the supervision of the supply and installation of the Akhaltsikhe Batumi
transmission line.
(2) Provision of equipment of high voltage transmission lines connecting substations
Tskhaltubo, Kutaisi and Zestafoni.
(3) Rehabilitation of the high voltage transmission line Kolkhida -1 connecting substations
Menji and Kutaisi.
Part B: Wholesale power exchange platform (USD 6 million)
(1) Design, Supply and installation of a power exchange platform including: (a) the provision
of hardware and software for metering, balancing, and trading systems; and (b) the supervision
of the supply and installation of the said platform.
(2) Updating of the Supervisory Control and Data Acquisition and Energy Management
Systems.
Part C: Electricity sector strategic environmental and social assessment (USD 1.0 million)
Preparation of an electricity sector strategic environmental and social assessment.
Part D: Project management and transmission systems studies (USD 0.5 million)
Provision of assistance to the Project Implementing Entity for the purposes of: (1) effective management
and implementation of Project activities; and (2) the preparation of: (a) a new transmission-system
expansion plan; (b) prospective transmission line feasibility studies; and (c) the preliminary designs for
the prospective transmission lines.
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Notes to the Special Purpose Project Financial Statements for the year ended 31 December 2016
15
(c) Georgian business environment
The Project’s operations are located in Georgia. Consequently, the Project is exposed to the economic
and financial markets of Georgia which display characteristics of an emerging market. The legal, tax
and regulatory frameworks continue development, but are subject to varying interpretations and
frequent changes which together with other legal and fiscal impediments contribute to the challenges
faced by the projects executed in Georgia.
2. Basis of preparation and significant accounting policies
(a) Statement of compliance
These special purpose project financial statements have been prepared in accordance with International
Public Sector Accounting Standard: Financial Reporting under the Cash Basis of Accounting and in
conformity with the World Bank’s Financial Management Sector Board’s “Guidelines: Annual
Financial Reporting and Auditing for World Bank-Financed Activities” (the “World Bank Guidelines”).
(b) Cash basis of accounting
The cash basis of accounting recognizes transactions and events only when cash is received or paid by
the Company.
(c) Presentation currency
The national currency of Georgia is the Georgian Lari (“GEL”). These special purpose project financial
statements are presented in United States Dollars (“USD”). All financial information presented in USD
has been rounded to the nearest USD unless otherwise stated.
(d) Transactions in other currencies
Transactions related to funds disbursed through direct payments by IBRD in currencies other than
presentation currency are converted in USD at the exchange rate prevailing at the date of the transaction
using the IBRD rate at the transaction date.
Transactions through designated account are converted in USD at the exchange rate prevailing at the
date of the transaction using the rate at the transaction date as determined by the Bank the accounted is
maintained.
(e) Cash
Cash comprises bank balances.
(f) Budget
The budget is developed on the cash basis, using the same classifications and periods as these special
purpose project financial statements.
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Notes to the Special Purpose Project Financial Statements for the year ended 31 December 2016
16
(g) Categories of expenditures
The categories of expenditures incurred are presented in line with the categories specified in the Loan
Agreement.
3. Reconciliation between the amounts received by the Project from IBRD and
disbursed by IBRD
USD Company IBRD Variance
2016
Withdrawal application No: A007 2,400,000
2,400,000
-
Withdrawal application No: A008 1,612,078
1,612,078
-
Withdrawal application No: A009 875,861
875,861
-
Withdrawal application No: A010 984,885
984,885
-
Withdrawal application No: A011 839,415
839,415
-
Withdrawal application No: A012 1,435,426
1,435,426
-
Withdrawal application No: A013 2,885,702
2,885,702
-
Withdrawal application No: A014 1,123,309
1,123,309
-
Withdrawal application No: A015 2,143,494
2,143,494
-
Withdrawal application No: A016 1,018,682
1,018,682
-
Withdrawal application No: A017 847,619
847,619
-
Withdrawal application No: A018 1,748,842
1,748,842
-
Withdrawal application No: A019 1,661,360
1,661,360
-
Withdrawal application No: A020 1,222,837
1,222,837
-
Withdrawal application No: A021 440,057
440,057
-
21,239,568 21,239,568 -
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Notes to the Special Purpose Project Financial Statements for the year ended 31 December 2016
17
USD Company IBRD Variance
2015
Withdrawal application No: A001 600,000 600,000 -
Withdrawal application No: A002 137,535 137,535 -
Withdrawal application No: A003 6,330,000 6,330,000 -
Withdrawal application No: A004 24,789 24,789 -
Withdrawal application No: A005 297,141 297,141 -
Withdrawal application No: A006 163,953 163,953 -
7,553,418 7,553,418 -
4. Project designated account
2016 2015
Opening balance at 1 January 600,000 -
Closing balance at 31 December 2,999,980 603,244
Interest earned - (3,254)
Wire transfer fee 20 10
Total 3,000,000 600,000
The Company transfers the interest earned on designated account to the Company general bank account
at the beginning of every month.
5. Financial covenants
According to Section IV of the Project Agreement (part of the Loan Agreement), the Company should
maintain a ratio of current assets to current liabilities of not less than 1.
Under the Project Agreement current assets means, all assets, which could, in the ordinary course of
business, be converted into cash within twelve months, including accounts receivable, marketable
securities, inventories and prepaid expenses properly chargeable to operating expenses within the next
fiscal year. The current liabilities means all liabilities which will become due and payable or could
under circumstances then existing be called for payment within twelve months, including accounts
payable, customer advance, debts service requirements, taxes and payments in lieu of taxes, and
dividends.
The management calculates the above financial covenant at the end of each year based on both, stand-
alone financial information of the Company and consolidated financial statements of the Company and
its subsidiaries (the “Group”) prepared in accordance with IFRSs.
Georgian State Electrosystem JSC
Transmission Grid Strengthening Project
Loan No. 8377-GE dated 3 September 2014
Notes to the Special Purpose Project Financial Statements for the year ended 31 December 2016
18
As at 31 December 2016 the Company and the Group were in breach of the above financial covenant
as the ratio of current assets to current liabilities based on both, stand-alone financial information of the
Company and consolidated financial statements of the Group prepared in accordance with IFRSs was
less than 1 (as at 31 December 2015 the Company and the Group were also in breach of the above
financial covenant).
The Group management assessed that the main reason for the breach of the covenant is related to the
fact that current liabilities also includes payables in relation to construction activities financed by IBRD
and other creditors. Without considering that part of payables related to construction activities, the
current ratio would have been above 1 (i.e. in compliance with the covenant) for the Company
standalone financial information but would have been below 1 (i.e. in breach of the covenant) for the
Group consolidated financial statements as at 31 December 2016.
In case of breach of the covenant the loan agreement does not prescribe explicitly any change in the
loan disbursement or repayment schedule. The management of the Group obtained clarification from
the IBRD that in general, the remedial measures in case of breaching a financial covenant such as
acceleration, suspension, and cancellation is applied in extreme cases when the risk, which the
respective financial covenant is aimed to address, is materialized. Such risks include many factors and
are not limited to the financial covenants only.
Therefore, the Company management does not expect that the above breach of financial covenant as at
31 December 2016 will affect the loan repayment schedule.
The Company and the Group were in compliance with other covenants as at 31 December 2016.