UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
Amendment No. 1
OR
For the fiscal year ended
OR
For the transition period from ____________ to __________
OR
Date of event requiring this shell company report
Commission File Number:
(Exact name of Registrant as specified in its charter)
| Not applicable | ||
| (Translation of Registrant’s name into English) | (Jurisdiction of incorporation or organization) |
P.O. Box
+971 9 201 6666
(Address of Principal Executive Offices)
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| Warrants to purchase ordinary shares | BROGW | The Nasdaq Stock Market LLC |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each
of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. Yes ☐
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Non-accelerated filer ☐ | |
| Emerging growth company |
If an emerging growth company that prepares its
financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☐ | Other ☐ |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
EXPLANATORY NOTE TO AMENDMENT NO. 1
We are filing this Amendment No. 1 (this “Amendment”) to our Annual Report on Form 20-F for the year ended December 31, 2022, as filed with the SEC on April 26, 2023 (the “Original Form 20-F”), to (i) add additional exhibits outlined below to Item 19, (ii) correct administrative errors in Item 4D, Item 7A, and Item 10C, and (iii) add financial statements in Inline XBRL.
As noted in the Original Form 20-F, Exhibits 4.129 through 4.156 were to be filed by amendment. As such, Exhibits 4.129 through 4.140 are hereby filed. The remaining Exhibits will be filed by further amendments due to size restrictions. Other than as expressly set forth herein and minor wording changes necessary to properly refer to the Original Form 20-F, the Company has not modified or updated any other disclosures and has made no changes to the items or sections in the Company’s Original Form 20-F. Other than as expressly set forth herein, this Amendment does not, and does not purport to, amend, update or restate the information in any part of the Company’s Original Form 20-F or reflect any events that have occurred after the Original Form 20-F was filed on April 26, 2023. The Company’s Chief Executive Officer and Chief Financial Officer are providing currently dated revised certifications in connection with this Form 20-F/A; the certifications are filed as Exhibits 12.1, 12.2, 13.1 and 13.2.
BROOGE ENERGY LIMITED
TABLE OF CONTENTS
| Page | ||
| PART I | 1 | |
| PART III | 4 | |
| Item 17. | Financial Statements | 4 |
| Item 18. | Financial Statements | 4 |
| Item 19. | Exhibits | 4 |
i
PART I
The corrections are as follows:
| ● | The brackets in the following sentence in Item 4D are hereby removed: “The description of the Phase III Land Lease does not purport to summarize all of the provisions of the agreement and is qualified in its entirety by reference to the full text of the agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit [4.84] and the novation agreement relating thereto, a copy of which is attached hereto and incorporated by reference herein as Exhibit [4.95].” |
| ● | The brackets in the following sentence in Item 10C are hereby removed: “The description of the Phase III Land Lease does not purport to summarize all of the provisions of the agreement and is qualified in its entirety by reference to the full text of the agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.84 and the novation agreement relating thereto, a copy of which is attached hereto and incorporated by reference herein as Exhibit [4.95].” |
| ● | The brackets in the following sentence in Item 10C are hereby removed: “The description of the Term Loan Facility does not purport to summarize all of the provisions of the Term Loan Facility and is qualified in its entirety by reference to the full text of the Terms dated October 6, 2021, copy of which are attached hereto and incorporated by reference herein as Exhibits [2.7] and [2.8].” |
| ● | The beneficial ownership table set forth in Item 7A is hereby amended and restated with the following: |
| Name of Beneficial Owner | Number of Shares Beneficially Owned | % of Class(16) | ||||||
| Directors and Executive Officers of the Company | ||||||||
| Dr. Yousef Al Assaf | — | — | ||||||
| Saleh Yammout | — | — | ||||||
| Lina S. Saheb | — | — | ||||||
| Tony Boutros | — | — | ||||||
| Nariman Karbhari | — | — | ||||||
| Firoze Kapadia | — | — | ||||||
| Faisal Selim | — | — | ||||||
| Paul Thomas Ditchburn | — | — | ||||||
| All executive officers and directors as a group (8 individuals) | — | — | ||||||
| Five Percent Holders | ||||||||
| Nicolaas Paardenkooper(1) | 93,834,357 | (1) | 85.6 | % | ||||
| BPGIC Holdings Limited(2) | 93,834,357 | 85.6 | % | |||||
| Brooge Petroleum and Gas Investment Company (BPGIC) PLC(3) | 93,834,357 | 85.6 | % | |||||
| SBD International LP(4) | 49,497,947 | 45.2 | % | |||||
| SD Holding Limited(5) | 49,497,947 | 45.2 | % | |||||
| Salman Dawood Salman Al-Ameri(6) | 59,122,314 | 53.9 | % | |||||
| HBS Investments LP(7) | 9,624,367 | 8.8 | % | |||||
| O2 Investments Limited(8) | 9,624,367 | 8.8 | % | |||||
| H Capital International LP(9) | 8,991,043 | 8.2 | % | |||||
| Gyan Investments Limited(10) | 8,991,043 | 8.2 | % | |||||
| Hind Mohammed Muktar Ahmed(11) | 8,991,043 | 8.2 | % | |||||
| His Highness Sheikh Mohammad bin Khalifa bin Zayed Al Nayhan(12) | 25,721,000 | 23.5 | % | |||||
| MENA Energy Services Holdings Limited(13) | 8,333,333 | 7.6 | % | |||||
| IDB Infrastructure Fund II B.S.C(c)(14) | 8,333,333 | 7.6 | % | |||||
| ASMA Capital Partners B.S.C.(c). (15) | 8,333,333 | 7.6 | % | |||||
(1) Represents the shares held by BPGIC Holdings. Mr. Paardenkooper is the CEO of BPGIC Holdings, consequently, in accordance with US laws/regulations he may be deemed to be the beneficial owner of 100% of the shares held by BPGIC Holdings. Mr. Paardenkooper disclaims beneficial ownership of any shares other than to the extent he may have a pecuniary interest therein.
1
(2) 20,000,000 Ordinary Shares beneficially owned by BPGIC Holdings are held in escrow and subject to forfeiture until the Company satisfies certain milestones. MENA Energy holds convertible securities in BPGIC Holdings that entitle it to convert its securities in BPGIC Holdings into 8,333,333 of the Ordinary Shares of the Company owned by BPGIC Holdings. Accordingly, BPGIC Holdings has placed 8,333,333 Ordinary Shares into escrow for release to MENA Energy in the event it converts its securities in BPGIC Holdings. 1,500,000 Ordinary Shares beneficially owned by BPGIC Holdings have been placed in escrow as collateral for a guaranty by one of its shareholders, HBS Investments LP.
(3) Represents the shares held by BPGIC Holdings. Brooge Petroleum and Gas Investment Company (BPGIC) PLC is the sole shareholder of BPGIC Holdings, consequently, it may be deemed to be the beneficial owner of 100% of the shares held by BPGIC Holdings. MENA Energy holds convertible securities in BPGIC Holdings that entitle it to convert its securities in BPGIC Holdings into 8,333,333 of the Ordinary Shares of the Company owned by BPGIC Holdings. Accordingly, BPGIC Holdings has placed 8,333,333 Ordinary Shares into escrow for release to MENA Energy in the event it converts its securities in BPGIC Holdings. 1,500,000 Ordinary Shares beneficially owned by BPGIC Holdings have been placed in escrow as collateral for a guaranty by one of its shareholders, HBS Investments LP. Brooge Petroleum and Gas Investment Company (BPGIC) PLC disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
(4) SBD International LP holds a controlling interest in Brooge Petroleum and Gas Investment Company (BPGIC) PLC which is the sole shareholder of BPGIC Holdings. Its beneficial ownership of the Company’s Ordinary Shares held by BPGIC Holdings is 49,497,947 Ordinary Shares. SBD International LP’s pro rata portion of the Ordinary Shares held in escrow and subject to forfeiture until the Company satisfies certain milestones is 58.9%. SBD International LP disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
(5) Represents the interests of SBD International LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. SD Holding Limited is the general partner of SBD International LP, consequently, it may be deemed the beneficial owner of 49,497,947 Ordinary Shares held by BPGIC Holdings Limited. SD Holding Limited disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
(6) Represents the interest of SBD International LP and HBS Investments LP, as shareholders of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. Salman Dawood Salman Al-Ameri is the sole shareholder of SD Holding Limited (the general partner of SBD International LP) and the sole shareholder of O2 Investments Limited (the general partner of HBS Investments LP). Consequently, Mr. Al-Ameri may be deemed the beneficial owner of 59,122,314 of the Ordinary Shares held by BPGIC Holdings. Mr. Al-Ameri disclaims beneficial ownership of any Ordinary Shares other than to the extent he may have a pecuniary interest therein. 1,500,000 Ordinary Shares that may be deemed to be beneficially owned by Mr. Al-Ameri as the sole shareholder of O2 Investments Limited (the general partner of HBS Investments LP) have been placed in escrow as collateral for a guaranty by HBS Investments LP.
(7) Represents the interests of HBS Investments LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. HBS Investments LP’s pro rata portion of the Ordinary Shares held in escrow is 9.8%. HBS Investments LP disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein. 1,500,000 Ordinary Shares that may be deemed to be beneficially owned by HBS Investments LP have been placed in escrow as collateral for a guaranty by HBS Investments LP.
(8) Represents the interests of HBS Investments LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. O2 Investments Limited is the general partner of HBS Investments LP, consequently, it may be deemed the beneficial owner of 9,624,367 of the Ordinary Shares held by BPGIC Holdings. O2 Investments Limited disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein. 1,500,000 Ordinary Shares that may be deemed to be beneficially owned by O2 Investments Limited as the general partner of HBS Investments LP have been placed in escrow as collateral for a guaranty by HBS Investments LP.
(9) Represents the interests of H Capital International LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. H Capital International LP’s pro rata portion of the Ordinary Shares held in escrow is 9.1%. H Capital International LP disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
2
(10) Represents the interests of H Capital International LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. Gyan Investments Limited is the general partner of H Capital International LP, consequently, it may be deemed the beneficial owner of 8,991,043, of the Ordinary Shares held by BPGIC Holdings. Gyan Investments Limited disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
(11) Represents the interest of H Capital International LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the shares held by BPGIC Holdings. Mrs. Hind Mohammed Muktar Ahmed is the sole shareholder of Gyan Holdings Limited, the general partner of H Capital International LP, consequently, she may be deemed the beneficial owner of 8,991,043 of the Ordinary Shares held by BPGIC Holdings. Mrs. Hind Mohammed Muktar Ahmed disclaims beneficial ownership of any Ordinary Shares other than to the extent she may have a pecuniary interest therein.
(12) Represents the interests of Mohammad Bin Khalifa bin Zayed Al Nahyan, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. Mohammad bin Khalifa bin Zayed Al Nahyan’s pro rata portion of the Ordinary Shares held in escrow is 22.2%.
(13) MENA Energy holds convertible securities in BPGIC Holdings that entitle it to convert its securities in BPGIC Holdings into 8,333,333 of the Ordinary Shares of the Company owned by BPGIC Holdings. MENA Energy disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
(14) Represents the interest of MENA Energy in the Ordinary Shares held by BPGIC Holdings. IDB Infrastructure Fund II B.S.C(c) is the sole shareholder of MENA Energy, consequently it may be deemed the beneficial owner of the 8,333,333 Ordinary Shares of the Company that MENA Energy would receive upon conversion of its securities in BPGIC Holdings. IDB Infrastructure Fund II B.S.C(c) disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
(15) Represents the interest of MENA Energy in the Ordinary Shares held by BPGIC Holdings. ASMA Capital holds 99% of the equity of IDB Infrastructure Fund II B.S.C(c), the sole shareholder of MENA Energy, consequently it may be deemed the beneficial owner of the 8,333,333 Ordinary Shares of the Company that MENA Energy would receive upon conversion of its securities in BPGIC Holdings. ASMA Capital disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
(16) Based on 109,587,854 Ordinary Shares outstanding as of March 31, 2023. Does not reflect the 21,228,900 Ordinary Shares issuable upon exercise of the outstanding Warrants issued in exchange for Twelve Seas warrants.
Pursuant to certain letters from SBD International LP to nine individuals, BPGIC Holdings transferred an aggregate of 4,833,678 Ordinary Shares to such individuals in consideration of the valuable contributions they have made to the success of BPGIC.
As set forth above, BPGIC Holdings is the majority shareholder of the Company and holds 93,834,357 Ordinary Shares which is approximately 85.6% of the outstanding Ordinary Shares of the Company. BPGIC Holdings is wholly-owned by Brooge Petroleum and Gas Investment Company (BPGIC) PLC. SBD International LP is the majority owner of Brooge Petroleum and Gas Investment Company (BPGIC) PLC. As the Chief Executive Officer of BPGIC Holdings Nicolaas L. Paardenkooper may be deemed to have beneficial ownership of the 93,834,357 Ordinary Shares owned by BPGIC Holdings.
The Company is not aware of any existing arrangements that may result in a change of control of the Company.
3
PART III
ITEM 17. FINANCIAL STATEMENTS
See Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of the Company, together with the report of the independent registered public accounting firm are included as the “F” pages to this Amendment.
ITEM 19. EXHIBITS
EXHIBIT INDEX
4
| 4.149** | Commercial Storage Agreements dated August 04, 2022, between BPGIC and Cengeo New Energy FZ-LLC | |
| 4.150** | Commercial Storage Agreement dated November 21, 2022, between BPGIC and Sahra Oil FZE. | |
| 4.151** | Commercial Storage Agreements dated September 09, 2022, between BPGIC and Cengeo New Energy FZ-LLC | |
| 4.152** | Commercial Storage Agreement dated August 19, 2022, between BPGIC and Actirays Middle East Trading FZE | |
| 4.153** | Commercial Storage Agreement dated November 21, 2022, between BPGIC and Sahra Oil FZE. | |
| 4.154** | Commercial Storage Agreements dated December 13, 2022, between BPGIC and Cengeo New Energy FZ-LLC | |
| 4.155** | Commercial Storage Agreements dated February 01, 2023, between BPGIC and Atlantis Commodities Trading HK Limited. | |
| 4.156** | Commercial Storage Agreement dated August 23, 2022, between BPGIC and Petraco Oil Company | |
| 4.157** | Novation Agreement dated February 23, 2023, between Cengeo New Energy FZ-LLC and Atlantis Commodities Trading HK Limited | |
| 12.1 | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. | |
| 12.2 | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. | |
| 13.1 | Certification of the Principal Executive Officer pursuant to 18 U.S.C. 1350. | |
| 13.2 | Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| ** | To be filed by amendment. |
5
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| BROOGE ENERGY LIMITED | |||
| May 1, 2023 | By: | /s/ Lina Saheb | |
| Name: | Lina Saheb | ||
| Title: | Interim Chief Executive Officer | ||
6
Brooge Energy Limited
(Formerly Brooge Holdings Limited)
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2022
BROOGE ENERGY LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Brooge Energy Limited
Consolidated
Financial Statements
December 31, 2022
F-2
Brooge Energy Limited
Index to the Financial Statements
December 31, 2022
F-3
 |
Office 106, The Binary
[T] +971 4 557 8358 | |
|
Independent Auditor’s Report
To the Board of Directors and Shareholders of Brooge Energy Limited and its Subsidiaries
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprise of the consolidated statement of financial position as at December 31, 2022, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.
In our opinion, the accompanying consolidated financial statements, present fairly, in all material respects, the consolidated financial position of Brooge Energy Limited and its Subsidiaries as at December 31, 2022 and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group 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
a. We draw your attention to Note 19 wherein the Group has allocated funds received in prior years from M/s Brooge International Advisory LLC. Since the Group could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, the amount has been classified as Other payable in the consolidated financial statements for the year ended December 31, 2022. | ||
F-4
 |
Emphasis of Matter (Continued)
b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party. Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party.
c. We draw attention to consolidated statement of financial position in the consolidated financial statements, which indicates that the as of December 31, 2022, the Group’s current liabilities exceed current assets by USD 265,445,772. The shareholders have undertaken to provide continued financial support. Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined that there are no other key audit matters to communicate in our report.
Responsibility of the Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s 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 ISA’s 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 consolidated financial statements. |
F-5
| |
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;
● Identify and assess the risks of material misstatement of the consolidated 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 risks 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, misrepresentation or override of internal controls.
● Obtain an understanding of internal controls 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 Group’s internal controls.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
● Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.
We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters.
Dubai, April 24, 2023 |
F-6
Brooge Energy Limited
Consolidated Statement of Comprehensive Income
Year Ended December 31, 2022
| (Figures in USD) | Note | 2022 | 2021 | |||||||
| Revenue | 6 | |||||||||
| Direct costs | 7 | ( | ) | ( | ) | |||||
| Gross profit | ||||||||||
| Other income | 8 | |||||||||
| Change in estimated fair value of derivative warrant liability | 20 | |||||||||
| General and administration expenses | 9 | ( | ) | ( | ) | |||||
| Finance costs | 10 | ( | ) | ( | ) | |||||
| Changes in fair value of derivative financial instruments | 16 | |||||||||
| Profit for the year | ||||||||||
| Other comprehensive income | ||||||||||
| Total Comprehensive Income for the year | ||||||||||
| 28 | ||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-7
Brooge Energy Limited
Consolidated Statement of Financial Position
As at December 31, 2022
| (Figures in USD) | Note | 2022 | 2021 | |||||||
| ASSETS | ||||||||||
| Current Assets | ||||||||||
| Cash and cash equivalents | 11 | |||||||||
| Trade accounts receivables | 12 | |||||||||
| Inventories | 13 | |||||||||
| Other receivables and prepayments | 14 | |||||||||
| Total Current Assets | ||||||||||
| Non-Current Assets | ||||||||||
| Restricted bank balance | 11 | |||||||||
| Property, plant and equipment | 15 | |||||||||
| Derivative financial instrument | 16 | |||||||||
| Advances to contractor | 17 | |||||||||
| Total Non-Current Assets | ||||||||||
| Total Assets | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
| Current Liabilities | ||||||||||
| Trade and accounts payable | 18 | |||||||||
| Other payable | 19 | |||||||||
| Derivative warrant liability | 20 | |||||||||
| Borrowings | 21 | |||||||||
| Lease liabilities | 22 | |||||||||
| Total Current Liabilities | ||||||||||
| Non-Current Liabilities | ||||||||||
| Borrowings | 21 | |||||||||
| Lease liabilities | 22 | |||||||||
| Employees’ end of service benefits | 23 | |||||||||
| Asset retirement obligation | 24 | |||||||||
| Total Non-Current Liabilities | ||||||||||
| Equity | ||||||||||
| Share capital | 25 | |||||||||
| Share premium | 25 | |||||||||
| Statutory reserve | ||||||||||
| Accumulated losses | ( | ) | ( | ) | ||||||
| Shareholder’s account | ||||||||||
| Total Equity Attributable to the Shareholders | ||||||||||
| Total Liabilities and Equity | ||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-8
Brooge Energy Limited
Consolidated Statement of Changes in Equity
As at December 31, 2022
| (Figures in USD) | Share Capital | Share Premium | Statutory Reserve | Retained Earnings | Shareholder’s Account | Total | ||||||||||||||||||
| As at January 01, 2021 | ( | ) | ||||||||||||||||||||||
| Profit for the year | ||||||||||||||||||||||||
| Transferred to statutory reserve | ( | ) | ||||||||||||||||||||||
| Movements during the year | ||||||||||||||||||||||||
| As at December 31, 2021 | ( | ) | ||||||||||||||||||||||
| Profit for the year | ||||||||||||||||||||||||
| Movements during the year | ( | ) | ( | ) | ||||||||||||||||||||
| As at December 31, 2022 | ( | ) | ||||||||||||||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-9
Brooge Energy Limited
Consolidated Statement of Cash Flows
Year Ended December 31, 2022
| (Figures in USD) | 2022 | 2021 | ||||||
| Cash Flow from Operating Activities | ||||||||
| Profit for the year | ||||||||
| Adjustments for: | ||||||||
| Depreciation of property, plant and equipment | ||||||||
| Interest charged on lease liability | ||||||||
| Provision for employees’ end of services benefits | ||||||||
| Change in estimated fair value of derivative warrant liability | ( | ) | ( | ) | ||||
| Net changes in fair value of derivative financial instruments | ( | ) | ( | ) | ||||
| Rent waiver | ( | ) | ||||||
| Write back of accrued interest not settled | ||||||||
| Asset retirement obligation - accretion expense | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Increase in trade accounts and other receivable and prepayments | ( | ) | ( | ) | ||||
| (Increase) / Decrease in inventories | ( | ) | ||||||
| Increase in trade and accounts payable | ||||||||
| Increase in other payable | ||||||||
| Payment of employees’ end of services benefits | ( | ) | ( | ) | ||||
| Net cash generated from operating activities | ||||||||
| Cash Flow from Investing Activities | ||||||||
| Amount (deposited) / withdrawn in restricted bank account | ( | ) | ||||||
| Advance to contractors | ( | ) | ||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flow from Financing Activities | ||||||||
| Proceeds from term loan | ||||||||
| Repayment of bonds | ( | ) | ( | ) | ||||
| Payment of lease liability | ( | ) | ( | ) | ||||
| Movement in shareholder’s account | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of the year | ||||||||
| Cash and cash equivalents at end of the year | ||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-10
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 1 | Legal Status, Management and Business Activity |
The consolidated financial statements comprise of the financial statements of Brooge Energy Limited (“Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”.
The details of the Group are as follows:
a. Brooge Energy Limited (“Company”)
The Company, is a Company with limited liability registered as an exempted company in the Cayman Islands.
The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).
The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.
The subsidiaries of the Company are as follows:
i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)
BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.
BPGIC FZE is a
ii. Brooge Petroleum and Gas Investment Company Phase III FZE (BPGIC Phase III FZE)
BPGIC Phase III FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 20-FZE-1972.
BPGIC Phase III FZE is a
iii. BPGIC International
BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.
BPGIC International is a
iv. Brooge Petroleum and Gas Management Company Limited (BPGMC Limited)
BPGMC Limited is a company with
limited liability registered in Dubai International Financial Centre (DIFC) with commercial license number CL3852. BPGMC Limited was a
As of December 21, 2022 BPGMC Limited has been officially dissolved (voluntary winding up ) and has ceased to exist as a DIFC entity.
v. BPGIC Phase 3 Limited (BPGIC Phase III Ltd)
BPGIC Phase 3 Limited is a Free Zone Company with limited liability formed in accordance with the provisions of Jebel Ali Free Zone Authority Offshore Companies Regulations 2018. The registration number of BPGIC Phase 3 Limited is 226933.
BPGIC Phase 3 Limited is a
F-11
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 1 | Legal Status, Management and Business Activity (Continued) |
The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The Group has commenced early preparation work for its phase III project where it intends to construct additional storage and refinery facilities.
The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.
On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.
The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”).
Under this method of accounting, Brooge Energy and Twelve Seas are treated as the “acquired” company. This determination was primarily based on BPGIC FZE comprising the ongoing operations of the combined company, BPGIC FZE’s senior management comprising the senior management of the combined company, and BPGIC FZE’s stockholders having a majority of the voting power of the combined company. For accounting purposes, BPGIC FZE is deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of BPGIC FZE. Accordingly, the consolidated assets, liabilities and results of operations of BPGIC FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.
As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve Seas changed its name to ‘BPGIC International’.
The consolidated financial statements are prepared as a continuation of the financial statements of BPGIC FZE, the acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited).
The reaudited consolidated financial statements were authorised for issue by the Board of Directors.
On Aug. 17, 2022 the Company announced that its majority shareholder, BPGIC Holdings Limited (“Holdings”), has expressed an interest to acquire all the shares of the Company that it does not currently own and to take the Company private. The Board of Directors of the Company is considering the proposal and will be entering into substantive negotiations. Any transaction, if entered into, will be subject to the receipt of a fairness opinion and approval of the Company’s shareholders and bondholders. There can be no assurance that a transaction will be entered into.
F-12
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 2 | Basis of Preparation of Consolidated Financial Statements |
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board “IASB”. These consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group.
All financial information presented in USD has been rounded to the whole numbers, unless otherwise stated. The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of derivative financial instruments and derivative liability.
(i) Subsidiaries
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2022. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
| ● | Exposure, or rights, to variable returns from its involvement with the investee; and | |
| ● | The ability to use its power over the investee to affect its returns |
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including
| ● | The contractual arrangement with the other vote holders of the investee; |
| ● | Rights arising from other contractual arrangements; and |
| ● | The Group’s voting rights and potential voting rights. |
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed off during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
| ● | Derecognises the assets (including goodwill) and liabilities of the subsidiary |
| ● | Derecognises the carrying amount of any non-controlling interests |
| ● | Derecognises the cumulative translation differences recorded in equity |
| ● | Recognises the fair value of the consideration received |
| ● | Recognises the fair value of any investment retained |
| ● | Recognises any surplus or deficit in profit or loss |
| ● | Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities |
Details of subsidiaries as at 31 December 2022 are stated in Note 1.
F-13
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
(i) Subsidiaries (Continued)
The financial statements of the subsidiary are prepared for the same reporting year as the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
The carrying amount of the Company’s investment in the subsidiary and the equity of the subsidiary is eliminated on consolidation. All significant intra-group balances, and income and expenses arising from intra-group transactions are also eliminated on consolidation.
(ii) Non-controlling interests (“NCI”)
NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(iii) Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any noncontrolling interests in the acquiree. For each business combination, the Group elects whether to measure the noncontrolling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with changes in fair value recognised either in profit or loss or as a change to other comprehensive income.
Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.
A ‘reverse acquisition’ is a business combination in which the legal acquirer - i.e. the entity that issues the securities (i.e. listed entity) becomes the acquiree for accounting purposes and the legal acquiree becomes the acquirer for accounting purposes. It is the application in accordance with IFRS 3 Business Combinations on identifying the acquirer, which results in the identification of the legal acquiree as the accounting acquirer in a reverse acquisition.
F-14
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
(iii) Business combinations (Continued)
Application in accordance with IFRS 3 Business Combinations on identifying the acquirer may result in identifying the listed entity as the accounting acquiree and the unlisted entity as the accounting acquirer. In this case, if the listed entity is:
| ● | A business, IFRS 3 Business Combinations applies; |
| ● | Not a business, IFRS 2 Share-based Payment applies to the transaction once the acquirer has been identified following the principles in accordance with IFRS 3 Business Combinations. Under this approach, the difference between the fair value of the consideration paid less the fair value of the net assets acquired, is recognized as a listing expense in profit or loss. |
| 2.1 | Going Concern |
During the year ended 31 December
2022, the Group earned a profit of USD
As of 31 December 2022, the Group
was in technical breach with leverage ratio and working capital financial covenant requirements. Even though the lender did not declare
an event of default under the bond agreement, these technical breaches constituted events of default and could have resulted in the lender
requiring immediate repayment of the bonds. Accordingly, as of 31 December 2022, the Group has classified its debt balance of USD
These financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards issued by International Accounting Standards Board (IASB). The validity of this assumption depends upon the continued financial support to the Group by its Shareholders. The financial statements do not include any adjustment that should result from a failure to obtain such combined financial support. The Management has no intention to discontinue the operations of the Group. The assets and liabilities are recorded on the basis that the Group will be able to realise its assets and discharge its liabilities in the normal course of business. This position does not impair the financial position of the Group.
F-15
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 3 | Changes in Accounting Policies And Disclosures |
New and Amended Standards and Interpretations.
The Group has adopted the following new and amended IFRS’s in these consolidated financial statements.
| ● | Annual Improvements to IFRS Standards 2018 – 2020 – Amendments to IFRS 1, IFRS 9, illustrative examples accompanying IFRS 16 and IAS 41. |
| ● | Property, Plant and Equipment - Proceeds before intended use - Amendments to IAS 16 | |
| ● | Reference to Conceptual Framework - Amendments to IFRS 3 |
| ● | Onerous Contracts - Cost of Fulfilling a Contract - Amendments to IAS 37 |
The adoption of above standards and amendments did not have any significant impact on the consolidated financial statements of the Group.
New Standards and Interpretations Not Yet Effective
The Group intends to adopt the following standards, if applicable, when they become effective.
| ● | IFRS 17 - Insurance contracts is effective for reporting periods beginning on or after 1 January 2023; |
| ● | Amendments to IAS 1: Classification of Liabilities as Current or Non-current, the amendments are effective for annual reporting periods beginning on or after 1 January 2024; |
| ● | Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of accounting policies, the amendments are effective for annual reporting periods beginning on or after 1 January 2023; |
| ● | Amendments to IAS 8: Definition of accounting estimates is effective for reporting periods beginning on or after 1 January 2023; |
| ● | Amendments to IAS 12: Deferred tax related to assets and liabilities arising from single transaction, the amendments are effective for annual reporting periods beginning on or after 1 January 2023; |
| ● | Amendments to IFRS 4: Insurance Contracts – Extension of temporary exemption from applying, the amendments are effective for annual reporting periods beginning on or after 1 January 2023; |
The Group does not expect these new standards and amendments to have any significant impact on the consolidated financial statements, when implemented in future periods.
| 4 | Significant Accounting Estimates and Judgements |
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. 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.
Estimation and Assumptions
The key assumptions concerning the future, and other key sources of estimation uncertainty at the date of statement of financial position, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
F-16
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 4 | Significant Accounting Estimates And Judgements (Continued) |
Asset Retirement Obligation
As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities. These assets can be used for an extended period of time as long as they are properly maintained and/or upgraded. It is the Group’s current intent to maintain its assets and continue making improvements to those assets based on technological advances.
The calculation of provision related to asset retirement obligation is most sensitive to following judgements and assumptions:
| ● | Discount rate of |
| ● | Inflation rate of |
Useful Life and Depreciation of Property, Plant and Equipment
The Group’s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear and the impact of expected residual value. Management reviews the useful lives annually and the future depreciation charge would be adjusted where management believes that the useful lives differ from previous estimates. The depreciation period of the right-of-use asset has been determined to be over the lease term on the basis that the land is expected to be used for the whole period of the lease considering the existing assets and future expansion on the land.
Impairment of Trade Receivables
The Group uses the simplified approach under IFRS 9 to assess impairment of its trade receivables and calculates expected credit losses (ECLs) based on lifetime expected credit losses. The Group calculates the ECL based on Group historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.
F-17
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 4 | Significant Accounting Estimates And Judgements (Continued) |
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements:
Operating lease commitments – Group as a lessee
Classification of warrants
In connection with the completion of the business combination on 20 December 2019 as described in Note 1 and Note 20 the Group issued warrants. The warrants agreement require the Group to issue a fixed number of shares for a fixed amount of cash, however it contains a clause that allows for cashless exercise (in the event that no effective registration is maintained), which may lead to the issuance of a variable number of shares. Management assessed that the maintenance of an effective registration statement is a matter not wholly within the control of the Group and as such classified the warrants as a financial liability at fair value through profit or loss.
| 5 | Summary of Significant Accounting Policies |
Revenue Recognition
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services or goods. Revenue is net of discounts and value added taxes. Monthly storage rates and prices for other services are contractually agreed before the services are rendered and do not contain material variable components. When it is probable that the future economic benefits will flow to the Group, the recognition in the consolidated statement of income is in proportion to the stage of the rendered performance as at the end of the reporting period. The Group has a right to a consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s services completed to date.
F-18
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Revenue Recognition (Continued)
Tank storage rentals, including minimum guaranteed throughputs, are recognized on a straight-line basis over the contractual period during which the services are rendered. Revenues from excess throughputs, heating/cooling, homogenization, product movements and other services are recognized when these services are rendered. Customers simultaneously consume and benefit from the services at the moment that these are rendered, resulting in a situation where revenue is recognized over time. Where substantially the entire storage capacity is leased to a single customer, the contract contains a lease and the entire storage revenue is presented as lease revenue.
Storage fees are invoiced upfront in the month preceding the month to which the storage fees relate. Handling and other services are invoiced afterwards, based on the actual usage.
Inventories
Inventories are valued at the lower of cost, determined on the basis of weighted average cost, and net realizable value. Costs are those expenses incurred in bringing each item to its present location and condition. Net realisable value is valued at selling prices net of selling costs.
Fair values
The fair value of the financial assets and liabilities at the date of consolidated statement of financial position approximate their carrying amounts in the consolidated statement of financial position.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
| ● | In the principal market for the asset or liability, or |
| ● | In the absence of a principal market, in the most advantageous market for the asset or liability. |
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
| ● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; |
| ● | Level 2 inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and |
| ● | Level 3 inputs are unobservable inputs for the asset or liability. |
F-19
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Current and Non-Current Classification
The Group presents assets and liabilities in the consolidated statement of financial position based on current / non-current classification.
An asset is current when it is:
| - | Expected to be realized or intended to be sold or consumed in normal operating cycle. |
| - | Held primarily for the purpose of trading. |
| - | Expected to be realised within twelve months after the reporting period, or |
| - | Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. |
All other assets are classified as non-current.
A liability is current when:
| - | It is expected to be settled in normal operating cycle. - It is held primarily for the purpose of trading. |
| - | It is due to be settled within twelve months after the reporting period, or |
| - | There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. |
The Group classifies all other liabilities as non-current.
Taxes
Value Added Tax:
Expenses and assets are recognized net of the amount of input tax, except:
| - | When the input tax is incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the input tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable; |
| - | The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statement of financial position, as applicable. |
Input VAT and Output VAT
Input VAT is recognized when the goods or services are supplied to the BPGIC FZE and the tax on which is paid/due to be paid by the BPGIC FZE to the Supplier.
Output VAT is recognized in respect of taxable supply of goods/services rendered by the BPGIC FZE on which tax is charged and due to be paid to the UAE Federal Tax Authority.
Borrowing Costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
F-20
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Borrowing Costs (Continued)
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated statement of comprehensive income (within profit and loss) in the period during which they are incurred.
Property, Plant and Equipment
Property, plant and equipment, is stated at historical costs less accumulated depreciation and any accumulated impairment losses. Historical costs includes expenditure that is directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Management.
The cost of replacing or addition to an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in the profit or loss as incurred.
Depreciation is charged to write off the cost of assets using the straight line method as follows:
| Buildings | ||||
| Tanks | ||||
| Installations | ||||
| Other Equipment | ||||
| Right of use asset – Land |
The useful lives and depreciation method are reviewed periodically to ensure that the year and method of depreciation are consistent with the pattern of economic benefits expected to flow to the Group through the use of items of property, plant and equipment.
The carrying amounts are reviewed at each reporting date to assess whether they are recorded in excess of their recoverable amounts, and where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised as profit or loss in the consolidated statement of comprehensive income.
Capital work in progress.
Capital work in progress is stated at cost, which represents costs for the design, development, procurement, construction and commissioning of the asset under development. Cost includes borrowing cost capitalised and depreciation of the right of use asset during the construction phase. When the asset is in the location and condition necessary to operate in the manner intended by management, capital work in progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with the Group’s policies.
F-21
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
For a contract that is, or contains, a lease, the Group accounts for each lease component within the contract as a lease separately from non-lease components of the contract.
The Group determines the lease term as the non-cancellable period of a lease, together with both:
a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, the Group considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Group revises the lease term if there is a change in the non cancellable period of a lease.
Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
Group as a lessee
For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
The relative stand-alone price of lease and non-lease components is determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the Group estimates the stand-alone price, maximising the use of observable information.
For determination of the lease term, the Group reassesses whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
a) is within the control of the Group; and b) affects whether the Group is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term.
F-22
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases (Continued)
At the commencement date, the Group recognises a right-of-use asset classified within property, plant and equipment and a lease liability classified separately on the consolidated statement of financial position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise
right-of-use assets and lease liabilities for short-term leases that have a lease of 12 months or less and leases of low-value assets
of USD
Right-of-use assets
The right-of-use asset is initially recognised at cost comprising of:
a) the amount of the initial measurement of the lease liability;
b) any lease payments made at or before the commencement date, less any lease incentives received;
c) any initial direct costs incurred by the Group; and
d) an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. These costs are recognised as part of the cost of the right-of-use asset when the Group incurs an obligation for these costs. The obligation for these costs is incurred either at the commencement date or as a consequence of having used the underlying asset during a particular period.
After initial recognition, the Group amortises the right-of-use asset over the term of the lease. In addition the right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability.
Lease liability
The lease liability is initially recognised at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses its incremental borrowing rate.
After initial recognition, the lease liability is measured by (a) increasing the carrying amount to reflect interest on the lease liability; (b) reducing the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
Where, (a) there is a change in the lease term as a result of the reassessment of certainty to exercise an option, or not to exercise a termination option as discussed above; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances in the context of a purchase option, the Group remeasures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The Group determines the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or its incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.
F-23
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases (Continued)
Where, (a) there is a change in the amounts expected to be payable under a residual value guarantee; or (b) there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments, including a change to reflect changes in market rental rates following a market rent review, the Group remeasures the lease liabilities by discounting the revised lease payments using an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In such case, the Group uses a revised discount rate that reflects changes in the interest rate.
The Group accounts for a lease modification as a separate lease if both:
a) the modification increases the scope of the lease by adding the right to use one or more underlying
b) the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.
Financial Instruments
Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Financial assets
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them.
Receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost include other receivables and due from related parties.
Financial assets at fair value through OCI, impairment losses or reversals are recognised in the statement of comprehensive income and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
F-24
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial Instruments (Continued)
Financial assets (Continued)
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.
The Group derecognizes a financial asset when the contractual rights to the cash flow from the assets cease and any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
Offsetting of Financial Instruments:
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Impairment of financial assets
Under IFRS 9, the Group records an allowance for Expected Credit Loss (ECL) for all loans and debt financial assets not held at FVPL.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate.
For trade and other receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group calculates the ECL based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group comprising of share capital, share premium and shareholders’ accounts are recorded at the proceeds received, net of direct issue costs.
Escrow shares issued as part of the reverse acquisition are subject to meeting certain financial milestones during the vesting period as disclosed in Note 28. The fair value of the shares in escrow is not materially different from that of the shares which are not in escrow as the rights of these shares are similar to those of “normal ordinary shares”.
F-25
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial Instruments (Continued)
Financial liabilities
Initial recognition
Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.
Financial liabilities are recognized initially at fair value and in the case of loans and borrowings fair value of the consideration received less directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, lease liability, warrants and borrowings. Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
Accounts payable
Liabilities are recognized for amounts to be paid in the future for goods and services received, whether billed by the supplier or not.
Loans and borrowings
All loans and borrowings are initially recognized at the fair values less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the consolidated statement of comprehensive income (within profit and loss) when liabilities are derecognized.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of comprehensive income (within profit and loss).
A non-substantial modification to a financial liability is not treated as a derecognition of the original liability. The difference between the carrying amount and the net present value of the modified terms discounted using the original effective interest rate is recognized in the consolidated statement of comprehensive income (within profit and loss)
Amortized cost of financial instruments
Amortized cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.
F-26
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Non-derivative financial assets and liabilities
Receivables
Receivables are those financial assets that have fixed or determinable payments and for which there is no active market are initially recognized at fair value plus any directly attributable transactions costs. Subsequent to initial recognition they are measured at amortized cost using the effective interest method. These comprise trade accounts and other receivables, receivables from related parties, bank balances including fixed and margin deposits with banks.
Receivables are carried at certified revenue less an estimate made for doubtful receivables based on a review of all outstanding amounts at the year-end. Bad debts are written off when identified.
Trade Accounts and Other Receivable
Receivable are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
The Management undertakes a periodic review of amounts recoverable from trade and other receivable, and determines recoverability based on various factors such as ageing of receivable, payment history, collateral available and other knowledge about the receivable.
Provision for bad and doubtful debts represents estimates of ultimate unrealizable debts. The estimates are judgmental and are based on case based evaluation by the management.
Provisions created during the year are reflected in the operating results of the year. Debts which are recognised as unrealizable are written off during the year.
Cash and Cash Equivalents
Cash and cash equivalents comprise of cash on hand, banks accounts and short term highly liquid deposits with a maturity date of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Statutory Reserve
As required by the Articles of
Association of BPGIC FZE,
Employees’ End of Service Benefits
The Group provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees’ final salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment.
Trade Accounts and Other Payable
Trade accounts and other payable are stated at nominal amounts payable for goods or services rendered.
F-27
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 5 | Summary of Significant Accounting Policies (Continued) |
Derivative Financial Instruments
The Group uses derivative financial instruments, interest rate swaps, to hedge its interest risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Warrants are accounted for as derivative financial instruments (a financial liability) as they give the holder the right to obtain a variable number of common (ordinary) shares in case an effective registration statement is not maintained, which is not fully within the control of the Group.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value through profit or loss. The warrants shall lapse and expire after five years from the closing of the business combination.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to the consolidated statement of comprehensive income (within profit and loss) as the Group has not designated derivative financial instruments under hedging arrangements.
Provisions
Provisions are recognised when the Group has a present obligation as a result of past event and it is probable that the outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at the present value of the amount expected to be required to settle the obligation and the risk specific to the obligation.
Foreign Currencies Translations
The consolidated financial statements are presented in US Dollars, which is the Group’s functional and presentation currency.
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of comprehensive income (within profit and loss). Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
Asset retirement obligation
As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities.
F-28
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 6 | Revenue |
Storage rental income Miscellaneous income (Note 6.1) Ancillary services
| (Figures in USD) | 2022 | 2021 | ||||||
| Storage rental income | ||||||||
| Miscellaneous income (Note 6.1) | ||||||||
| Ancillary services | ||||||||
Note 6.1
The Group has only
The commercial contracts with customers related to the Phase 1 and Phase 2 have been assigned as security against the borrowing obtained in 2020.
Miscellaneous income represents port
charges of USD
The revenues of the Group mainly comprise of fixed fees for storage and related services and variable fees for ancillary services provided under a contract with its customers. Accordingly, there is no cyclicality in the Group’s operations.
| 7 | Direct Costs |
| Depreciation on property, plant and equipment (Note 15) | ||||||||
| Employees’ costs | ||||||||
| Reimbursable port charges (Note 6.1) | ||||||||
| Spare parts and consumables used | ||||||||
| Insurance charges | ||||||||
| Maintenance charges | ||||||||
| Others | ||||||||
| 8 | Other Income |
| Rent- waiver (Note 22) | ||||||||
Miscellaneous | ||||||||
F-29
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 9 | General and Administration Expenses |
| (Figures in USD) | 2022 | 2021 | ||||||
| Employees’ cost | ||||||||
| Legal and professional | ||||||||
| Sales and marketing | ||||||||
| Insurance | ||||||||
| Rent | ||||||||
| Office expenses | ||||||||
| Board fees and expenses | ||||||||
| Travelling expenses | ||||||||
| Repairs and maintenance | ||||||||
| 10 | Finance Costs |
| Interest expense on borrowings | ||||||||
| Interest on lease liability | ||||||||
| Asset retirement obligation - accretion expenses | ||||||||
| Bank charges | ||||||||
| Exchange loss | ||||||||
| 11 | Cash and Cash Equivalents |
| Cash in hand | ||||||||
| Balances in current accounts | ||||||||
| The above consist of the following: | ||||||||
| Non-current | ||||||||
| Restricted bank balance | ||||||||
| Current | ||||||||
| Cash and Cash Equivalents | ||||||||
| Restricted bank balance | ||||||||
F-30
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 11 | Cash and Cash Equivalents (Continued) |
The cash and bank balances disclosed
above and in the consolidated statement of cash flows include USD
A first priority pledge over the balances in the Earnings account, Liquidity account, Construction Funding account and Debt Service Retention account is held as security under the Bond terms (Note 21).
| 12 | Trade Accounts Receivables |
| Trade accounts receivables | ||||||||
a) As of the date of approval of these
consolidated financial statements, the Group has realised amounts aggregating to USD
b) Credit Risk
On the basis of assessment of creditworthiness of customers judged by a combination of factors such as their conduct in the past and reputation, management’s trade experience and available market information, the credit period is extended up to 14 days of invoicing. The accounting staff monitor the outstanding amounts and follows up for recovery with periodic calls and also visits to the customers, if required.
At the end of the reporting period, there was no credit risk with respect to trade receivables outside the UAE as the Group’s customers are based in the UAE.
c) Currency Risk
The Group transacts its business in the local market. As such, it is not exposed to any exchange rate risk with respect to trade accounts receivables.
d) Impairment
The age analysis of trade accounts receivables as at the end of the reporting period was as follows:
| Neither past-due nor impaired (0-150 days) | ||||||||
| Past-due: | ||||||||
| - 151 –365 days* | ||||||||
| Total |
| * |
The overdue amounts mainly pertains to be collected from a UAE based customer. The customer and the group were parties to a commercial storage agreement, pursuant to which the group provided the customer with storage capacity and ancillary services for their products. The group has initiated successful legal proceedings against this customer and the management expects to recover all the outstanding amounts from this customer.
F-31
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 13 | Inventories |
| (Figures in USD) | 2022 | 2021 | ||||||
| Spare parts and consumables | ||||||||
Cost of inventories recognised during
the year amounted to USD
| 14 | Other Receivables and Prepayments |
| Due from shareholder | ||||||||
| Due from related parties | ||||||||
| Prepaid expenses | ||||||||
| Staff advances | ||||||||
| Deposits | ||||||||
| Other receivables | ||||||||
| 15 | Property, Plant and Equipment |
| a) | The movement schedule is set out on page 43. |
| 16 | Derivative Financial Instruments |
| Call option | ||||||||
On 24 September 2020, the Group issued
long term fixed interest rate senior secured bonds of USD
At 31 December 2022 management has
assessed the value of the call option of USD
| 17 | Advances to Contractor |
| Advances to contractor | ||||||||
The above amount mainly includes the advances paid towards Audex Fujairah LL FZE for the interconnectivity construction amounting USD 15Mn.
F-32
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 18 | Trade and Accounts Payable |
| (Figures in USD) | 2022 | 2021 | ||||||
| Trade accounts payable | ||||||||
| Accrued interest on borrowings | ||||||||
| Advances from customer | ||||||||
| Accrued expenses | ||||||||
| Due to a related party | ||||||||
| VAT payable | ||||||||
| 19 | Other Payable |
| M/s Brooge International Advisory LLC | ||||||||
As disclosed on May 27, 2022, the Group has not been able to file the 2021 Form 20-F due to an ongoing non-public examination being conducted by the U.S Securities and Exchange Commission (the “SEC”) regarding the consolidated financial statements of the Group. Subsequently, the Audit Committee of the Board of Directors (the “Audit Committee”), engaged independent counsel to conduct under its supervision, an internal examination into the Group’s revenue recognition practices and related matters. As a result of the findings from this internal examination, on August 12, 2022, the Audit Committee, in consultation with the Group’s management, concluded that the previously issued audited consolidated financial statements as of and for the periods ending December 31, 2020 and 2019, and the previously issued unaudited consolidated financial statements for interim periods therein and the six months ended June 30, 2021 should no longer be relied upon.
In connection with the internal examination,
the Group conducted a comprehensive review of the accounting policies, procedures, and internal controls related to revenue recognition.
All available customer contracts were assessed based on International Financial Reporting Standard (IFRS) 15 ‘Revenue from Contracts
with Customers’ and IFRS 16 ‘Leases’. This review identified that the funds received from a related party viz. M/s Al
Brooge International Advisory LLC do not qualify to be recognised as revenue. Due to the qualitative nature of the matters identified
in the Group’s internal examination, including the number of years over which the non-qualified revenue was recognized the Group
determined that it would be appropriate to rectify the misstatements in the previously issued consolidated financial statements by restating
such consolidated financial statements. Accordingly, an amount of USD
The Management do not expect to settle these amounts using any of it’s current assets or any existing resources in the foreseeable future. Pending its potential receipt of confirmation or adequate supporting documentation from the party, the Group has taken a conservative approach to recognise this as a liability. The Group continues to assess this liability and will evaluate whether there arises any obligation or it is discharged or cancelled or expires or is swapped out for one with significantly different terms or when the terms of are significantly modified, such an exchange or modification is recognized as a derecognition of the old liability and the recognition of a new liability or as equity contribution, as applicable and the difference in the respective carrying amounts will be recorded in the consolidated statement of either other comprehensive income or directly as equity as applicable.
F-33
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 19 | Other Payable (Continued) |
The above changes pertaining to reversal of Revenue and recognition of such amount under Other payable were accounted retrospectively in accordance with IAS 8.
| 20 | Derivative Warrant Liability |
| (Figures in USD) | 2022 | 2021 | ||||||
| Issuance of | ||||||||
| Fair value remeasurement of derivative warrant liability | ( | ) | ( | ) | ||||
In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised, or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.
In connection with the completion
of the business combination on 20 December 2019, each of Twelve Sea’s
At initial recognition on 20 December
2019, the Group recorded a derivative warrant liability of USD
On 14 May 2020, holders of
At 31 December 2022, the Group recorded
a derivative warrant liability of USD
F-34
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 21 | Borrowings |
| (Figures in USD) | 2022 | 2021 | ||||||
| Term loan | ||||||||
| Bonds | ||||||||
The current and non- current break up as below:
| Non- Current | Maturity | |||||||||
| Term loan | ||||||||||
| Current | ||||||||||
| Term loan | ||||||||||
| Bonds | ||||||||||
| Bonds | Coupon rate % | Effective interest rate % | Maturity date | 2022 USD | 2021 USD | |||||||||||||
| USD | % | % | ||||||||||||||||
On 24 September 2020, the Group issued
long term fixed interest rate senior secured bonds of USD
F-35
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 21 | Borrowings (Continued) |
The bonds are secured by:
| (i) | pledge over all the existing and future shares of BPGIC FZE; |
| (ii) | assignment of rights and pledge over the balance in the Earnings account; |
| (iii) | pledge over the balance in the Liquidity account, the Debt Service Retention account and the Construction Funding account; |
| (iv) | pledge over moveable assets of BPGIC FZE and its subsidiaries; |
| (v) | security assignment of commercial contracts related to phase I and phase II, land lease agreement, port facilities agreement and EPC construction contract; |
| (vi) | security assignment over insurance contracts for phase I terminal, phase II terminal and admin building; | |
| (vii) | security assignment over group and intercompany loans; and |
| (viii) | corporate guarantee from Brooge Energy Limited. |
The bond agreement also restricts BPGIC FZE from making any distributions other than in the form of an inter company loan for phase III construction.
Under the bond agreement, BPGIC FZE is subject to the following financial covenants during the term of the bonds.
| (ii) | Leverage Ratio: BPGIC FZE and its subsidiaries’ leverage ratio not to exceed: (A) 5.5x at 31 December 2020; (B) 3.5x at 31 December 2021; and (C) 3.0x anytime thereafter; and |
| (iii) | Working Capital: BPGIC FZE and its subsidiaries to maintain a positive working capital. |
The bond agreement requires the Group to comply with the following financial covenant: (i) Brooge Energy Limited to maintain a minimum equity ratio of 25%.
As of 31 December 2022, the Group was in technical breach of the requirements to comply with the leverage ratio and working capital thresholds. Even though the lenders did not declare an event of default under the bond agreement, these technical breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the bonds. Accordingly, the Group has classified the respective bonds as a current liability at the end of 31 December 2022. Subsequent to the year end, the lenders have confirmed their intention to not require immediate repayment of the outstanding amounts or alter the repayment pattern in the original bond agreement.
Bond Waiver letter
On April 27, 2022, the Group entered into an agreement with the Bondholders to implement following amendments to the Bond Financing Facility, effective immediately:
| (a) | Waiver of the Events of Defaults that are triggered by the technical breaches of the Leverage Ratio and positive Working Capital covenants until December 31, 2022. |
| (b) | The requirement to maintain a Leverage Ratio to not exceed certain thresholds is suspended (waived) for the results period from December 31, 2021 to and including December 30, 2022, and shall be tested again for the 12 months results period from (and including) January 1, 2022 to December 31, 2022 (inclusive) at 3.5x, stepping down to 3.0x anytime thereafter (as per the original terms of the Bond Financing Facility). For the avoidance of doubt, the costs associated with the amendments shall not be taken into consideration in EBITDA when calculating Leverage Ratio. |
F-36
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 21 | Borrowings (Continued) |
| (c) | The requirement to maintain a positive Working Capital is suspended (waived) for the period from December 31, 2021 to and including December 30, 2022, and shall be tested again starting from and including December 31, 2022. |
| (d) | Permitted Distribution: |
| (i) | No Permitted Distribution shall be made before BPGIC is in compliance with financial covenant requirements under the original terms of the Bond Facility Financing. |
| (ii) | Furthermore, BPGIC shall provide to the Bond Trustee a written statement signed by its chief executive officer and chief financial officer within three business days prior to any permitted distribution under the terms of the Bond Financing Facility that (A) states the amount being distributed as a permitted distribution, (B) confirms the conditions with respect to such distribution are satisfied, and (C) declares such distribution will not lead to an Event of Default on the next testing date. |
Term loan
During the year, the Group obtained
a new term loan facility from a commercial bank in the UAE amounting to USD
The term loan is secured by
| i. | Corporate Guarantee of M/s Brooge Energy Limited |
| ii. | BPGIC Phase III FZE grants in favor of the commercial bank a
First Rank Degree Mortgage for a total mortgage of AED |
| iii. | Rental Income generated by the corporate office to be automatically assigned to the commercial bank unless the parties agree otherwise in writing. |
| iv. | Authority to debit account no: |
| vi. | Security cheque covering the total facility limit drawn by the Group. |
F-37
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 22 | Lease Liabilities |
| (Figures in USD) | 2022 | 2021 | ||||||
| Balance at the beginning of the year | ||||||||
| Rent waiver | ( | ) | ||||||
| Interest charged during the year | ||||||||
| Repayment during the year | ( | ) | ( | ) | ||||
| Balance at the end of the year | ||||||||
| 1) The analysis of lease liability is as follows | ||||||||
| Current | ||||||||
| Non-Current | ||||||||
During 2013,
During 2020,
During the year 2021, the Group entered into an agreement with the lessor for an additional one-year rent free period in respect of the Phase III land The Group has treated this to be a partial extinguishment of the lease liability as per IFRS 16 and IFRS 9. The rent waiver is recognised as a gain in the income statement with a corresponding reduction in the lease liability.
| Lease payments | Present value of minimum lease payments | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Not later than one year | ||||||||||||||||
| Later than one year and not later than five years | ||||||||||||||||
| Later than five years | ||||||||||||||||
| Finance costs | ( | ) | ( | ) | ||||||||||||
| Present value of minimum lease payments | ||||||||||||||||
F-38
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 23 | Employees’ End of Service Benefits |
| (Figures in USD) | 2022 | 2021 | ||||||
| Balance at the beginning of the year | ||||||||
| Provision for the year | ||||||||
| Paid during the year | ( | ) | ( | ) | ||||
| Balance at the end of the year | ||||||||
| 24 | Asset Retirement Obligation |
| Asset retirement obligation | ||||||||
As part of the land lease agreement between the Fujairah Oil Industry Zone (“FOIZ”) and the Group, the Group has a legal obligation to remove the plant at the end of its useful life, or earlier, if the Group is unable to continue its operations, and restore the land. The Group has employed professional valuers to estimate the amount of liability.
| 25 | Share Capital & Share Premium |
| Authorized | No. of Shares | USD | ||||||
| Ordinary shares | ||||||||
| Share Capital | No. of Shares | USD | ||||||
| As at 31 December 2021 | ||||||||
| As at 31 December 2022 | ||||||||
Ordinary shares held in escrow (
One-half (½) of the Escrow
Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized
EBITDA (as defined in the Escrow Agreement) for any full fiscal quarter during the Escrow Period (beginning with the first full fiscal
quarter beginning after the Closing) (an “Escrow Quarter”) equals or exceeds USD
All Escrow Property remaining in the
Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the
Annualized EBITDA for any Escrow Quarter equals or exceeds $
F-39
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 25 | Share Capital & Share Premium (Continued) |
| (Figures in USD) | 2022 | 2021 | ||||||
| Share Premium | ||||||||
| As at January 01 | ||||||||
| As at December 31 | ||||||||
| 26 | Transactions with Related Parties |
The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with related parties are as under:
Transactions in shareholders’ account
| (Repayments to) / Contributions by the shareholders | ( | ) | ||||||
| ( | ) |
These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equity.
| Changes in shareholders’ account is as follows: | ||||||||
| At January 01 | ||||||||
| Net contributions (distributions) during the year | ( | ) | ||||||
| At December 31 | ||||||||
| Expense (reimbursed by) / paid on behalf of related parties | ||||||||
| Key management remuneration | ||||||||
Related party balances as at the year end are classified as under:
| Related Party | Classification | |||||||||
| Shareholder | Shareholder’s account (Equity) | |||||||||
| BPGIC Holdings | Due from shareholder (Note 14) | |||||||||
| HBS Investments LP | Due from related parties (Note 14) | |||||||||
| H Capital International LP | Due from related parties (Note 14) | |||||||||
| O2 Investments Limited as GP | Due from related parties (Note 14) | |||||||||
| SBD International LP | Due from related parties (Note 14) | |||||||||
| SD Holding Limited as GP | Due from related parties (Note 14) | |||||||||
| Gyan Investments Ltd | Due from related parties (Note 14) | |||||||||
| Shareholder | Due to a related party (Note 18) | |||||||||
F-40
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 27 | Contingent Liabilities |
| (Figures in USD) | 2022 | 2021 | ||||||
| Capital commitments within one year | ||||||||
Capital commitments relate to construction project for interconnection of pipelines between Phase I and Phase II with Phase III and early preparation work for Phase III
| 28 | Earnings Per Share |
Basic EPS is calculated by dividing the profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS calculations:
| Profit attributable to ordinary equity holders of the parent | ||||||||
| Weighted average number of ordinary shares |
As part of the business combination warrants and ordinary shares subjected to escrow have been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.
The number of contingently issuable
shares (
F-41
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 29 | Fair Value of Financial Instruments |
Management considers that the fair value of financial assets and financial liabilities in the consolidated financial statements approximate their carrying amounts at the reporting date.
Fair Value Hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
| Liabilities measured at fair value: | Level 1 USD | Level 2 USD | Level 3 USD | Total Fair Value USD | ||||||||||
| December 31, 2022 | ||||||||||||||
| Derivative warrant liability | ||||||||||||||
| Borrowings | ||||||||||||||
| Derivative financial instruments | ||||||||||||||
| Liabilities measured at fair value: | Level 1 USD | Level 2 USD | Level 3 USD | Total Fair Value USD | ||||||||||
| December 31, 2021 | ||||||||||||||
| Derivative warrant liability | ||||||||||||||
| Borrowings | ||||||||||||||
| Derivative financial instruments | ||||||||||||||
The fair value of level 1 financial liability have been determined in accordance with quoted price.
The fair value of level 2 financial liability have been determined by using generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.
During the year ended 31 December 2022 and 2021, there were no transfers between Level 1 and Level 2 fair value measurements.
| 30 | Subsequent Events |
On January 11, 2023, the Group received an additional notice of non-compliance from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) due to the Group not having been able to file interim financial statements for the period ended June 30, 2022 with the Securities and Exchange Commission (the “SEC”) by December 31, 2022, as required by Nasdaq Listing Rule 5250(c)(2) (the “Filing Rule”). The Staff stated that the additional filing delinquency could serve as an additional basis for the delisting of the Group’s securities from Nasdaq. The Group was provided with the opportunity to update the Nasdaq Hearings Panel (the “Panel”) regarding the status of its efforts to evidence compliance with the Filing Rule prior to the expiration of the extension previously granted by the Panel on April 26, 2023. The Group has updated to the Panel with respect to its compliance efforts.
F-42
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 30 | Subsequent Events (Continued) |
On February 15, 2023 the Group announced a partnership through the company’s subsidiary Brooge Renewable Energy (“BRE”) with Siemens Energy (“SE”), one of the world’s largest energy technology companies, to build a PV solar farm to supply BRE’s Green Hydrogen and Green Ammonia project in Abu Dhabi, United Arab Emirates. BRE and SE partnership is aimed to build up to 650 MW solar PV plant to supply BRE’s planned Phase 1 of the green ammonia project with renewable energy. Siemens Energy will serve as the Technical Partner to Brooge and exclusive provider of solutions including engineering, design procurement, and construction of up to a 650 MW solar PV plant including grid connection and operation and maintenance services. The two companies will partner to obtain the necessary project approvals from governmental agencies as a first step of the project.
| 31 | Financial Risk Management and Policies |
The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks. The Group’s borrowing are issued at fixed rate of interest.
Market Risk
The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.
At the reporting date, the exposure
to derivative warrant liability at fair value listed on the NASDAQ was USD
Currency Risk
The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2022 and 2021.
The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.
F-43
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 31 | Financial Risk Management and Policies (Continued) |
Liquidity Risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.
The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.
The table below summarizes the maturity profile of the Group’s financial liabilities at December 31, 2022 and December 31, 2021 based on contractual undiscounted payments.
| On Demand | Upto 1 Year | 1 to 5 Years | >5 Years | Total | ||||||||||||||||
| USD | USD | USD | USD | USD | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Borrowings (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Borrowings (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
F-44
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
| 31 | Financial Risk Management and Policies (Continued) |
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated losses) retained earnings.
| (Figures in USD) | 2022 | 2021 | ||||||
| Borrowing | ||||||||
| Lease liability | ||||||||
| Less: cash and cash equivalents | ( | ) | ( | ) | ||||
| Net debt | ||||||||
| Total capital | ||||||||
| Capital and net debt | ||||||||
| Gearing ratio | % | % |
| 32 | Rounding Off of Figures |
All figures have been rounded off to the nearest US Dollars.
| 33 | Comparative Figures |
Certain of the prior year figures have been regrouped to conform with the presentation of the current year.
F-45
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2022
(Figures in USD)
| Groupings of Property, Plant and Equipment |
| Buildings | Installations | Other Equipments | Tanks | Capital Work in Progress | Right of use Assets | Total | ||||||||||||||||||||||
| Cost: | ||||||||||||||||||||||||||||
| As at January 01, 2022 | ||||||||||||||||||||||||||||
| Additions during the year | ||||||||||||||||||||||||||||
| As at December 31, 2022 | ||||||||||||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||||||
| As at January 01, 2022 | ||||||||||||||||||||||||||||
| Charge for the year | ||||||||||||||||||||||||||||
| As at December 31, 2022 | ||||||||||||||||||||||||||||
| Net Carrying Value: | ||||||||||||||||||||||||||||
| As at December 31, 2022 | ||||||||||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||||||||||
Additions to buildings of USD
Capital work in progress at December 31, 2022 of USD
Land lease agreement and the moveable assets of BPGIC FZE are pledged as security against borrowings obtained in 2020 (Note 21)
The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows.
| 2022 | 2021 | |||||||
| Direct costs (Note 7) | ||||||||
| CWIP | ||||||||
F-46
Brooge
Energy Limited
(Formerly Brooge Holdings Limited)
Consolidated
Financial Statements
December 31, 2021
F-47
| Brooge Energy Limited | |
| Index to the Financial Statements December 31, 2021 |
|
F-48
 |
Office 106, The Binary Al Abraj Street Business Bay [E] mail@affiniax.com | |
|
Independent Auditor’s Report
To the Board of Directors and Shareholders of Brooge Energy Limited and its Subsidiaries Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprise of the consolidated statement of financial position as at December 31, 2021, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.
In our opinion, the accompanying consolidated financial statements, present fairly, in all material respects, the consolidated financial position of Brooge Energy Limited and its Subsidiaries as at December 31, 2021 and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of the Group 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.
Other Matter
Attention is invited to Note 32 Prior Year Restatement, the prior year consolidated financial statements of the Group are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable. Our opinion is not modified in respect of this matter. | ||
F-49
 |
Emphasis of Matter
a. We draw your attention to Note 19 wherein the Group has allocated funds received in prior years from M/s Brooge International Advisory LLC. Since the Group could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, the amount has been classified as Other payable in the consolidated financial statements for the year ended December 31, 2021.
b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party. Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party.
c. We draw attention to the consolidated statement of financial position in the consolidated financial statements, which indicates that as of December 31, 2021, the Group’s current liabilities exceed current assets by USD 283,342,631. Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined that there are no other key audit matters to communicate in our report.
Responsibility of the Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations or has no realistic alternative but to do so. |
F-50
|
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s 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 ISA’s 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 consolidated financial statements.
As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;
● Identify and assess the risks of material misstatement of the consolidated 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 risks 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, misrepresentation or override of internal controls.
● Obtain an understanding of internal controls 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 Group’s internal controls.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
● Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit. |
F-51
|
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters.
Affiniax A A S Auditors
Dubai, United Arab Emirates, April 24, 2023 |
F-52
Brooge Energy Limited
Consolidated Statement of Comprehensive Income
Year Ended December 31, 2021
| (Figures in USD) | Note | 2021 | 2020 | |||||||
| (Re-stated) | ||||||||||
| Revenue | 6 | |||||||||
| Direct costs | 7 | ( | ) | ( | ) | |||||
| Gross profit | ||||||||||
| Other income | 8 | |||||||||
| Change in estimated fair value of derivative warrant liability | 20 | |||||||||
| General and administration expenses | 9 | ( | ) | ( | ) | |||||
| Finance costs | 10 | ( | ) | ( | ) | |||||
| Changes in fair value of derivative financial instruments | 16 | ( | ) | |||||||
| Profit for the year | ||||||||||
| Other comprehensive income | ||||||||||
| Total Comprehensive Income for the year | ||||||||||
| 28 | ||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-53
Brooge Energy Limited
Consolidated Statement of Financial Position
As at December 31, 2021
| Figures in USD) | Note | 2021 | 2020 | |||||||
| (Re-stated) | ||||||||||
| ASSETS | ||||||||||
| Current Assets | ||||||||||
| Cash and cash equivalents | 11 | |||||||||
| Trade accounts receivable | 12 | |||||||||
| Inventories | 13 | |||||||||
| Other receivable and prepayments | 14 | |||||||||
| Total Current Assets | ||||||||||
| Non-Current Assets | ||||||||||
| Restricted bank balance | 11 | |||||||||
| Property, plant and equipment | 15 | |||||||||
| Derivative financial instrument | 16 | |||||||||
| Advances to contractor | 17 | |||||||||
| Total Non-Current Assets | ||||||||||
| Total Assets | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
| Current Liabilities | ||||||||||
| Trade and accounts payable | 18 | |||||||||
| Other payable | 19 | |||||||||
| Derivative warrant liability | 20 | |||||||||
| Borrowings | 21 | |||||||||
| Lease liabilities | 22 | |||||||||
| Total Current Liabilities | ||||||||||
| Non-Current Liabilities | ||||||||||
| Borrowings | 21 | |||||||||
| Lease liabilities | 22 | |||||||||
| Employees’ end of service benefits | 23 | |||||||||
| Asset retirement obligation | 24 | |||||||||
| Total Non-Current Liabilities | ||||||||||
| Equity | ||||||||||
| Share capital | 25 | |||||||||
| Share premium | 25 | |||||||||
| Statutory reserve | ||||||||||
| Accumulated losses | ( | ) | ( | ) | ||||||
| Shareholder’s account | ||||||||||
| Total Equity Attributable to the Shareholders | ||||||||||
| Total Liabilities and Equity | ||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-54
Brooge Energy Limited
Consolidated Statement of Changes in Equity
Year Ended December 31, 2021
| (Figures in USD) | Share Capital | Share Premium | Statutory Reserve | accumulated Losses | Shareholder’s Account | Total | ||||||||||||||||||
| As at January 01, 2020 (Restated) | ( | ) | ||||||||||||||||||||||
| Exercise of | ||||||||||||||||||||||||
| Profit for the year | ||||||||||||||||||||||||
| Transferred to statutory reserve | ( | ) | ||||||||||||||||||||||
| Movements during the year | ( | ) | ( | ) | ||||||||||||||||||||
| As at December 31, 2020 (Restated) | ( | ) | ||||||||||||||||||||||
| Profit for the year | ||||||||||||||||||||||||
| Transferred to statutory reserve | ( | ) | ||||||||||||||||||||||
| Movements during the year | ||||||||||||||||||||||||
| As at December 31, 2021 | ( | ) | ||||||||||||||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-55
Brooge Energy Limited
Consolidated Statement of Cash Flows
Year Ended December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| Cash Flow from Operating Activities | ||||||||
| Profit for the year | ||||||||
| Adjustments for: | ||||||||
| Depreciation of property, plant and equipment | ||||||||
| Interest charged on lease liability | ||||||||
| Provision for employees’ end of services benefits | ||||||||
| Change in estimated fair value of derivative warrant liability | ( | ) | ( | ) | ||||
| Net changes in fair value of derivative financial instruments | ( | ) | ||||||
| Rent waiver | ( | ) | ||||||
| Write back of accrued interest not settled | ( | ) | ||||||
| Asset retirement obligation - accretion expense | ||||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) / Decrease in trade accounts and other receivable and prepayments | ( | ) | ||||||
| Decrease / (Increase) in inventories | ( | ) | ||||||
| Increase / (Decrease) in trade and accounts payable | ( | ) | ||||||
| Increase in other payable | ||||||||
| Payment of employees’ end of services benefits | ( | ) | ( | ) | ||||
| Net cash generated from / (used in) operating activities | ( | ) | ||||||
| Cash Flow from Investing Activities | ||||||||
| Amount withdrawn / (deposited) in restricted bank account | ( | ) | ||||||
| Advance to contractors | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flow from Financing Activities | ||||||||
| Net of repayment from term loan | ( | ) | ||||||
| Repayment of / (Proceeds from) bonds | ( | ) | ||||||
| Payment of lease liability | ( | ) | ( | ) | ||||
| Payment of derivative financial instrument | ( | ) | ||||||
| Movement in shareholder’s account | ( | ) | ||||||
| Exercise of 100 warrants in 100 ordinary shares | ||||||||
| Net cash (used in) / generated from financing activities | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of the year | ||||||||
| Cash and cash equivalents at end of the year | ||||||||
The accompanying notes form an integral part of the consolidated financial statements
F-56
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2021
| 1 | Legal Status, Management and Business Activity |
The consolidated financial statements comprise of the financial statements of Brooge Energy Limited (“Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”. The details of the Group are as follows:
a. Brooge Energy Limited (“Company”)
The Company (formerly known as Brooge Holdings Limited), is a Company with limited liability registered as an exempted company in the Cayman Islands.
The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).
The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.
The subsidiaries of the Company are as follows:
i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)
BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.
BPGIC FZE is a
ii. Brooge Petroleum and Gas Investment Company Phase III FZE (BPGIC Phase III FZE)
BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 20-FZE-1972.
BPGIC Phase III FZE is a
iii. BPGIC International
BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.
BPGIC International is a
iv. Brooge Petroleum and Gas Management Company Limited (BPGMC Limited)
BPGMC Limited is a company with limited liability registered in Dubai International Financial Centre with commercial license number CL3852.
BPGMC Limited is a
v. BPGIC Phase 3 Limited (BPGIC Phase III Ltd)
BPGIC Phase 3 Limited is a Free Zone Company with limited liability formed in accordance with the provisions of Jebel Ali Free Zone Authority Offshore Companies Regulations 2018. The registration number of BPGIC Phase 3 Limited is 226933.
BPGIC Phase 3 Limited is a
F-57
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 1 | Legal Status, Management and Business Activity (Continued) |
The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The construction of the Company’s phase II, with a total capacity of 602,064 cbm was completed in September 2021.The Group has commenced early preparation work for its phase 3 project where it intends to construct additional storage and refinery facilities. The Group’s has commenced preconstruction work for its phase 3. The Group intends to construct additional storage and refinery facility as part of the phase 3.
The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.
On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.
The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) as disclosed in Note 31.
Under this method of accounting, Brooge Energy and Twelve Seas are treated as the “acquired” company. This determination was primarily based on BPGIC FZE comprising the ongoing operations of the combined company, BPGIC FZE’s senior management comprising the senior management of the combined company, and BPGIC FZE’s stockholders having a majority of the voting power of the combined company. For accounting purposes, BPGIC FZE is deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of BPGIC FZE. Accordingly, the consolidated assets, liabilities and results of operations of BPGIC FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.
As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve seas changed its name to ‘BPGIC International’.
The consolidated financial statements are prepared as a continuation of the financial statements of BPGIC FZE, the acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited).
The reaudited consolidated financial statements were authorised for issue by the Board of Directors.
| 2 | Basis of Preparation of Consolidated Financial Statements |
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board “IASB”. These consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group.
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Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
All financial information presented in USD has been rounded to the nearest thousand, unless otherwise stated. The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of derivative financial instruments and derivative liability.
(i) Subsidiaries
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2021. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
| ● | Exposure, or rights, to variable returns from its involvement with the investee; and |
| ● | The ability to use its power over the investee to affect its returns |
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including
| ● | The contractual arrangement with the other vote holders of the investee; |
| ● | Rights arising from other contractual arrangements; and |
| ● | The Group’s voting rights and potential voting rights. |
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed off during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
| ● | Derecognises the assets (including goodwill) and liabilities of the subsidiary |
| ● | Derecognises the carrying amount of any non-controlling interests |
| ● | Derecognises the cumulative translation differences recorded in equity |
| ● | Recognises the fair value of the consideration received |
| ● | Recognises the fair value of any investment retained |
| ● | Recognises any surplus or deficit in profit or loss |
| ● | Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained Details of subsidiaries as at 31 December 2021 are stated in Note 1. |
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Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
(i) Subsidiaries (Continued)
The financial statements of the subsidiary are prepared for the same reporting year as the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
The carrying amount of the Company’s investment in the subsidiary and the equity of the subsidiary is eliminated on consolidation. All significant intra-group balances, and income and expenses arising from intra-group transactions are also eliminated on consolidation.
(ii) Non-controlling interests (“NCI”)
NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(iii) Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any noncontrolling interests in the acquiree. For each business combination, the Group elects whether to measure the noncontrolling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with changes in fair value recognised either in profit or loss or as a change to other comprehensive income.
Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.
A ‘reverse acquisition’ is a business combination in which the legal acquirer - i.e. the entity that issues the securities (i.e. listed entity) becomes the acquiree for accounting purposes and the legal acquiree becomes the acquirer for accounting purposes. It is the application in accordance with IFRS 3 Business Combinations on identifying the acquirer, which results in the identification of the legal acquiree as the accounting acquirer in a reverse acquisition.
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Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
(iii) Business combinations (Continued)
Application in accordance with IFRS 3 Business Combinations on identifying the acquirer may result in identifying the listed entity as the accounting acquiree and the unlisted entity as the accounting acquirer.
| ● | A business, IFRS 3 Business Combinations applies; |
| ● | Not a business, IFRS 2 Share-based Payment applies to the transaction once the acquirer has been identified following the principles in accordance with IFRS 3 Business Combinations. Under this approach, the difference between the fair value of the consideration paid less the fair value of the net assets acquired, is recognized as a listing expense in profit or loss. |
| 2.1 | Going Concern |
During the year ended 31 December
2021, the Group earned a profit of USD
As of 31 December 2021, due to
delay in construction of Phase II because of COVID, the Group was in technical breach with leverage ratio and working capital financial
covenant requirements. Even though the lender did not declare an event of default under the bond agreement, these technical breaches constituted
events of default and could have resulted in the lender requiring immediate repayment of the bonds. Accordingly, as of 31 December 2021,
the Group has classified its debt balance of USD
Except for above, the Group is in compliance with the repayment schedule and other underlying covenants. Further, in April 2022, the Group has entered into an agreement with its lender to waive off the requirement for the Group to comply with leverage ratio and working capital financial covenant (note 21) for 31 December 2021 and 30 June 2022. As Phase II also started operating from September 2021. Management forecasts that the existing cash balances as well as cash generated from ongoing operations provide sufficient liquidity to the Group to continue in operations for the foreseeable future. Management is currently evaluating various options regarding funding of its phase III project.
These financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards issued by International Accounting Standards Board (IASB). The validity of this assumption depends upon the continued financial support to the Group by its Shareholders. The financial statements do not include any adjustment that should result from a failure to obtain such combined financial support. The Management has no intention to discontinue the operations of the Group. The assets and liabilities are recorded on the basis that the Group will be able to realise its assets and discharge its liabilities in the normal course of business. This position does not impair the financial position of the Group.
F-61
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 3 | Changes in Accounting Policies And Disclosures |
New and amended standards and interpretations.
The accounting policies applied in the preparation of the consolidated financial statements are consistent with those of the previous year, except for the adoption of amendments to the existing standards and interpretations effective as of 1 January 2021 and early adoption of amendments to IAS 16 – Property, Plant and Equipment, as described below.
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
Amendments to IFRS 16: Covid-19-Related Rent Concessions beyond 30 June 2021;
Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform - Phase II.
The adoption of above standards and amendments did not have any significant impact on the consolidated financial statements of the Group.
Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use
In May 2020, the IASB issued the amendments to IAS 16 - Property, Plant and Equipment — Proceeds before Intended Use that are effective for annual reporting periods beginning on or after 1 January 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment.
The amendment prohibits an entity from deducting from the cost of an item of property, plant and equipment any proceeds received from selling items produced while the entity is preparing the asset for its intended use. It also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it assesses the technical and physical performance of the asset. The financial performance of the asset is not relevant to this assessment.
New Standards and Interpretations Not Yet Effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s consolidated financial statements are disclosed below.
| ● | IFRS 17 Insurance contracts, IFRS 17 is effective for reporting periods beginning on or after 1 January 2023; |
| ● | Amendments to IAS 1: Classification of Liabilities as Current or Non-current, the amendments are effective for annual reporting periods beginning on or after 1 January 2023; |
| ● | Reference to the Conceptual Framework – Amendments to IFRS 3, the amendments are effective for annual reporting periods beginning on or after 1 January 2022; |
| ● | Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37, the amendments are effective for annual reporting periods beginning on or after 1 January 2022; |
F-62
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 3 | Changes In Accounting Policies And Disclosures New Standards and Interpretations Not Yet Effective |
| ● | IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter, the amendment is effective for annual reporting periods beginning on or after 1 January 2022; |
| ● | IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities, the amendment is effective for annual reporting periods beginning on or after 1 January 2022; and |
| ● | IAS 41 Agriculture – Taxation in fair value measurements, the amendment is effective for annual reporting periods beginning on or after 1 January 2022 |
| ● | Amendments to IAS 8 - Definition of Accounting Estimates, the amendment is effective for annual reporting periods beginning on or after 1 January 2023. |
| ● | Amendments to IAS 1 and IFRS Practice Statement 2- Disclosure of Accounting Policies, the amendment is effective for annual reporting periods beginning on or after 1 January 2023. |
The Group does not expect these new standards and amendments to have any significant impact on the consolidated financial statements, when implemented in future periods.
| 4 | Significant Accounting Estimates And Judgements |
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. 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.
Estimation and assumptions
The key assumptions concerning the future, and other key sources of estimation uncertainty at the date of statement of financial position, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
Useful Life and Depreciation of Property, Plant and Equipment
The Group’s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear and the impact of expected residual value. Management reviews the useful lives annually and the future depreciation charge would be adjusted where management believes that the useful lives differ from previous estimates. The depreciation period of the right-of-use asset has been determined to be over the lease term on the basis that the land is expected to be used for the whole period of the lease considering the existing assets and future expansion on the land.
F-63
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 4 | Key Sources of Estimation Uncertainty (Continued) |
Asset retirement obligation
As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities. These assets can be used for an extended period of time as long as they are properly maintained and/or upgraded. It is the Group’s current intent to maintain its assets and continue making improvements to those assets based on technological advances.
The calculation of provision related to asset retirement obligation is most sensitive to following judgements and assumptions:
| ● | Discount rate of |
| ● | Inflation rate of |
Impairment of trade receivables
The Company uses the simplified approach under IFRS 9 to assess impairment of its trade receivables and calculates expected credit losses (ECLs) based on lifetime expected credit losses. The Company calculates the ECL based on Company historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements:
Operating lease commitments – Group as a lessee
The Group has entered into a land
lease agreement (the “Phase III Land Lease Agreement”), dated as of 2 February 2020 (the “lease inception date”),
by and between the Group and the Fujairah Oil Industry Zone (“FOIZ”) to lease an additional plot of land that has a total
area of approximately
F-64
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 4 | Key Sources of Estimation Uncertainty (Continued) |
Classification of warrants
In connection with the completion of the business combination on 20 December 2019 as described in Note 1, Note 20 and Note 31 the Group issued warrants. The warrants agreement require the Group to issue a fixed number of shares for a fixed amount of cash, however it contains a clause that allows for cashless exercise (in the event that no effective registration is maintained), which may lead to the issuance of a variable number of shares. Management assessed that the maintenance of an effective registration statement is a matter not wholly within the control of the Group and as such classified the warrants as a financial liability at fair value through profit or loss.
| 5 | Summary of Significant Accounting Policies |
Revenue Recognition
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services or goods. Revenue is net of discounts and value added taxes. Monthly storage rates and prices for other services are contractually agreed before the services are rendered and do not contain material variable components. When it is probable that the future economic benefits will flow to the Group, the recognition in the consolidated statement of income is in proportion to the stage of the rendered performance as at the end of the reporting period. The Group has a right to a consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s services completed to date.
Tank storage rentals, including minimum guaranteed throughputs, are recognized on a straight-line basis over the contractual period during which the services are rendered. Revenues from excess throughputs, heating/cooling, homogenization, product movements and other services are recognized when these services are rendered. Customers simultaneously consume and benefit from the services at the moment that these are rendered, resulting in a situation where revenue is recognized over time. Where substantially the entire storage capacity is leased to a single customer, the contract contains a lease and the entire storage revenue is presented as lease revenue.
Storage fees are invoiced upfront in the month preceding the month to which the storage fees relate. Handling and other services are invoiced afterwards, based on the actual usage.
Inventories
Inventories are valued at the lower of cost, determined on the basis of weighted average cost, and net realizable value. Costs are those expenses incurred in bringing each item to its present location and condition. Net realisable value is valued at selling prices net of selling costs.
F-65
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
Fair values
The fair value of the financial assets and liabilities at the date of statement of financial position approximate their carrying amounts in the statement of financial position.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
| ● | In the principal market for the asset or liability, or | |
| ● | In the absence of a principal market, in the most advantageous market for the asset or liability |
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
| ● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; | |
| ● | Level 2 inputs, other than quoted prices included within Level 1 that are observable for the asset or either directly or indirectly; and | |
| ● | Level 3 inputs are unobservable inputs for the asset or liability. |
Current and Non-Current Classification
The Group presents assets and liabilities in the statement of financial position based on current / non-current classification.
An asset is current when it is:
- Expected to be realized or intended to be sold or consumed in normal operating cycle.
- Held primarily for the purpose of trading.
- Expected to be realised within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle.
- It is held primarily for the purpose of trading.
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Group classifies all other liabilities as non-current.
F-66
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
Taxes
Value Added Tax:
Expenses and assets are recognized net of the amount of input tax, except:
- When the input tax is incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the input tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable;
- The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position, as applicable.
Input VAT and Output VAT
Input VAT is recognized when the goods or services are supplied to the BPGIC FZE and the tax on which is paid/due to be paid by the BPGIC FZE to the Supplier.
Output VAT is recognized in respect of taxable supply of goods/services rendered by the BPGIC FZE on which tax is charged and due to be paid to the UAE Federal Tax Authority.
Borrowing Costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated statement of comprehensive income (within profit and loss) in the period during which they are incurred.
Property, Plant and Equipment
Property, plant and equipment, is stated at historical costs less accumulated depreciation and any accumulated impairment losses. Historical costs includes expenditure that is directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Management.
The cost of replacing or addition to an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in the profit or loss as incurred.
Depreciation is charged to write off the cost of assets using the straight line method as follows:
| Buildings | 25 years | |
| Tanks | 50 years | |
| Installations | 20 - 25 years | |
| Other Equipment | 5 years | |
| Right of use asset - Land | 60 years |
F-67
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
The useful lives and depreciation method are reviewed periodically to ensure that the year and method of depreciation are consistent with the pattern of economic benefits expected to flow to the Group through the use of items of property, plant and equipment.
The carrying amounts are reviewed at each reporting date to assess whether they are recorded in excess of their recoverable amounts, and where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised as profit or loss in the statement of comprehensive income.
Capital work in progress
Capital work in progress is stated at cost, which represents costs for the design, development, procurement, construction and commissioning of the asset under development. Cost includes borrowing cost capitalised and depreciation of the right of use asset during the construction phase. When the asset is in the location and condition necessary to operate in the manner intended by management, capital work in progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with the Group’s policies.
Leases
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
For a contract that is, or contains, a lease, the Group accounts for each lease component within the contract as a lease separately from non-lease components of the contract.
The Group determines the lease term as the non-cancellable period of a lease, together with both:
a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, the Company considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Company revises the lease term if there is a change in the non cancellable period of a lease.
Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
F-68
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases (Continued)
Group as a lessee
For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
The relative stand-alone price of lease and non-lease components is determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the Group estimates the stand-alone price, maximising the use of observable information.
For determination of the lease term, the Group reassesses whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
a) is within the control of the Group; and
b) affects whether the Group is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term.
At the commencement date, the Group recognises a right-of-use asset classified within property, plant and equipment and a lease liability classified separately on the consolidated statement of financial position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise
right-of-use assets and lease liabilities for short-term leases that have a lease of 12 months or less and leases of low-value assets
of USD
Right-of-use assets
The right-of-use asset is initially recognised at cost comprising of:
a) the amount of the initial measurement of the lease liability;
b) any lease payments made at or before the commencement date, less any lease incentives received;
c) any initial direct costs incurred by the Group; and
d) an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. These costs are recognised as part of the cost of the right-of-use asset when the Group incurs an obligation for these costs. The obligation for these costs is incurred either at the commencement date or as a consequence of having used the underlying asset during a particular period.
After initial recognition, the Group amortises the right-of-use asset over the term of the lease. In addition the right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability.
F-69
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases (Continued)
Lease liability
The lease liability is initially recognised at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses its incremental borrowing rate.
After initial recognition, the lease liability is measured by (a) increasing the carrying amount to reflect interest on the lease liability; (b) reducing the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
Where, (a) there is a change in the lease term as a result of the reassessment of certainty to exercise an option, or not to exercise a termination option as discussed above; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances in the context of a purchase option, the Group remeasures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The Group determines the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or its incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.
Where, (a) there is a change in the amounts expected to be payable under a residual value guarantee; or (b) there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments, including a change to reflect changes in market rental rates following a market rent review, the Group remeasures the lease liabilities by discounting the revised lease payments using an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In such case, the Group uses a revised discount rate that reflects changes in the interest rate.
The Group accounts for a lease modification as a separate lease if both:
a) the modification increases the scope of the lease by adding the right to use one or more underlying
b) the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.
Financial Instruments
Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
F-70
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial Instruments (Continued)
Financial assets
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them.
Receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost include other receivables and due from related parties.
Financial assets at fair value through OCI, impairment losses or reversals are recognised in the statement of comprehensive income and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.
The Group derecognizes a financial asset when the contractual rights to the cash flow from the assets cease and any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
Offsetting of Financial Instruments:
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Impairment of financial assets
Under IFRS 9, the Group records an allowance for Expected Credit Loss (ECL) for all loans and debt financial assets not held at FVPL.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate.
For trade and other receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group calculates the ECL based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.
F-71
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial liabilities (Continued)
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group comprising of share capital, share premium and shareholders’ accounts are recorded at the proceeds received, net of direct issue costs.
Escrow shares issued as part of the reverse acquisition are subject to meeting certain financial milestones during the vesting period as disclosed in Note 29. The fair value of the shares in escrow is not materially different from that of the shares which are not in escrow as the rights of these shares are similar to those of “normal ordinary shares”.
Financial liabilities
Initial recognition
Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.
Financial liabilities are recognized initially at fair value and in the case of loans and borrowings fair value of the consideration received less directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, lease liability, warrants and borrowings.
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
Accounts payable
Liabilities are recognized for amounts to be paid in the future for goods and services received, whether billed by the supplier or not.
Loans and borrowings
All loans and borrowings are initially recognized at the fair values less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the consolidated statement of comprehensive income (within profit and loss) when liabilities are derecognized.
F-72
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial liabilities (Continued)
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of comprehensive income (within profit and loss).
A non-substantial modification to a financial liability is not treated as a derecognition of the original liability. The difference between the carrying amount and the net present value of the modified terms discounted using the original effective interest rate is recognized in the consolidated statement of comprehensive income (within profit and loss)
Amortized cost of financial instruments
Amortized cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.
Non-derivative financial assets and liabilities
Receivables
Receivables are those financial assets that have fixed or determinable payments and for which there is no active market are initially recognized at fair value plus any directly attributable transactions costs. Subsequent to initial recognition they are measured at amortized cost using the effective interest method. These comprise trade accounts and other receivables, receivables from related parties, bank balances including fixed and margin deposits with banks.
Receivables are carried at certified revenue less an estimate made for doubtful receivables based on a review of all outstanding amounts at the year-end. Bad debts are written off when identified.
Trade Accounts and Other Receivable
Receivable are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
The Management undertakes a periodic review of amounts recoverable from trade and other receivable, and determines recoverability based on various factors such as ageing of receivable, payment history, collateral available and other knowledge about the receivable.
Provision for bad and doubtful debts represents estimates of ultimate unrealizable debts. The estimates are judgmental and are based on case based evaluation by the management.
Provisions created during the year are reflected in the operating results of the year. Debts which are recognised as unrealizable are written off during the year.
F-73
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
Cash and Cash Equivalents
Cash and cash equivalents comprise of cash on hand, banks accounts and short term highly liquid deposits with a maturity date of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Statutory Reserve
As required by the Articles of Association of
BPGIC FZE,
Employees’ End of Service Benefits
The Group provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees’ final salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment.
Trade Accounts and Other Payable
Trade accounts and other payable are stated at nominal amounts payable for goods or services rendered.
Derivative Financial Instruments
The Group uses derivative financial instruments, interest rate swaps, to hedge its interest risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Warrants are accounted for as derivative financial instruments (a financial liability) as they give the holder the right to obtain a variable number of common (ordinary) shares in case an effective registration statement is not maintained, which is not fully within the control of the Group.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value through profit or loss. The warrants shall lapse and expire after five years from the closing of the business combination (Note 31).
Any gains or losses arising from changes in the fair value of derivatives are taken directly to the consolidated statement of comprehensive income (within profit and loss) as the Group has not designated derivative financial instruments under hedging arrangements.
Provisions
Provisions are recognised when the Group has a present obligation as a result of past event and it is probable that the outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at the present value of the amount expected to be required to settle the obligation and the risk specific to the obligation.
F-74
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 5 | Summary of Significant Accounting Policies (Continued) |
Foreign Currencies Translations
The consolidated financial statements are presented in US Dollars, which is the Group’s functional and presentation currency.
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of comprehensive income (within profit and loss). Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
Asset Retirement Obligation
As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities.
F-75
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 6 | Revenue |
| Storage rental income (Note 32) | ||||||||
| Miscellaneous income (Note 6.1) | ||||||||
| Ancillary services | ||||||||
Note 6.1
The Group has only
The commercial contracts with customers related to the Phase 1 and Phase 2 have been assigned as security against the borrowing obtained in 2020.
Miscellaneous income includes port
charges of USD
The revenues of the Group mainly comprise of fixed fees for storage and related services and variable fees for ancillary services provided under a contract with its customers. Accordingly, there is no cyclicality in the Group’s operations.
| 7 | Direct Costs |
| Depreciation on property, plant and equipment (Note 15) | ||||||||
| Employees’ costs | ||||||||
| Reimbursable port charges (Note 6.1) | ||||||||
| Spare parts and consumables used | ||||||||
| Insurance charges | ||||||||
| Others | ||||||||
| 8 | Other Income |
| Rent- waiver (Note 22) | ||||||||
| Write back of accrued interest not settled | ||||||||
| Miscellaneous | ||||||||
F-76
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 9 | General and Administration Expenses |
| Employees’ cost | ||||||||
| Legal and professional | ||||||||
| Insurance | ||||||||
| Board fees and expenses | ||||||||
| Office expenses | ||||||||
| Repairs and maintenance | ||||||||
| Sales and marketing | ||||||||
| Rent | ||||||||
| Travelling expenses | ||||||||
| 10 | Finance Costs |
| Interest expense on borrowings | ||||||||
| Interest on lease liability | ||||||||
| Early settlement charges | ||||||||
| Asset retirement obligation - accretion expenses | ||||||||
| Bank charges | ||||||||
| Exchange loss | ||||||||
| 11 | Cash and Cash Equivalents |
| Cash in hand | ||||||||
| Balances in current accounts | ||||||||
| The above consist of the following: | ||||||||
| Non-current | ||||||||
| Restricted bank balance | ||||||||
| Current | ||||||||
| Cash and Cash Equivalents | ||||||||
| Restricted bank balance | ||||||||
F-77
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 11 | Cash and Cash Equivalents (Continued) |
The cash and bank balances disclosed above and
in the consolidated statement of cash flows include USD
A first priority pledge over the balances in the Earnings account, Liquidity account, Construction Funding account and Debt Service Retention account is held as security under the Bond terms (Note 21).
| 12 | Trade Accounts Receivable |
| Accounts receivables | ||||||
At 31 December 2021, all trade receivables were neither past due nor impaired.
Receivables are due within 14 days of invoicing.
Unimpaired trade receivables are expected to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables and the vast majority is, therefore, unsecured.
As of the date of approval of these
consolidated financial statements, the Group has realised amounts aggregating to USD
The age analysis of trade receivables as at the end of the reporting period was as follows:
| Neither past-due nor impaired (0-150 days) | ||||||
| Past-due: | ||||||
| - 151 - 365 days | ||||||
| - Over 365 days | ||||||
| Total |
| 13 | Inventories |
| Spare parts and consumables | ||||||||
Cost of inventories recognised during the year amounted
to USD
F-78
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 14 | Other Receivable and Prepayments |
| Due from shareholder | ||||||||
| Due from related parties | ||||||||
| Prepaid expenses | ||||||||
| Staff advances | ||||||||
| VAT receivable | ||||||||
| Deposits | ||||||||
| 15 | Property, Plant and Equipment |
| a) | The movement schedule is set out on page 45. |
| 16 | Derivative Financial Instruments |
| Call option | ||||||
On 24 September 2020, the Group issued
long term fixed interest rate senior secured bonds of USD
At 31 December 2021 management has assessed
the value of the call option of USD
| 17 | Advances to Contractor |
| Advances to contractor | ||||||||
The above amount represents the advances paid for the purchase of new office space. Subsequent to the year end, the capital advances have been transferred to property, plant and equipment on handed over and transfer of title to the Group.
| 18 | Trade and Accounts Payable |
| Trade accounts payable | ||||||||
| Accrued interest on borrowings | ||||||||
| Advances from customer | ||||||||
| Due to a related party | ||||||||
| Accrued expenses | ||||||||
| VAT payable | ||||||||
| Capital accruals | ||||||||
F-79
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 19 | Other Payable |
| M/s Brooge International Advisory LLC (Note 32) | ||||||||
| 20 | Derivative Warrant Liability |
| Issuance of | ||||||||
| Fair value remeasurement of derivative warrant liability | ( | ) | ( | ) | ||||
In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised, or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.
In connection with the completion
of the business combination on 20 December 2019, each of Twelve Sea’s
At initial recognition on 20 December
2019, the Group recorded a derivative warrant liability of USD
On 14 May 2020, holders of
At 31 December 2021, the Group recorded
a derivative warrant liability of USD
F-80
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 21 | Borrowings |
| Bonds | ||||||||
The current and non- current break up as below:
| Non- Current | Maturity | |||||||||||
| Bonds | ||||||||||||
| Current | ||||||||||||
| Bonds | ||||||||||||
| Coupon | Effective | 2021 | 2020 | |||||||||||||||
| Bonds | rate % | interest rate % | Maturity date | USD | USD | |||||||||||||
| USD 200,000,000 bond net of transaction costs | % | % | ||||||||||||||||
On 24 September 2020, the Group issued long term fixed interest
rate senior secured bonds of USD
The bonds will be repaid in semi-annual
payments of USD
F-81
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 21 | Borrowings (Continued) |
Bonds (Continued)
The bonds are secured by:
(i) pledge over all the existing and future shares of BPGIC FZE;
(ii) assignment of rights and pledge over the balance in the Earnings account;
(iii) pledge over the balance in the Liquidity account, the Debt Service Retention account and the Construction Funding account;
(iv) pledge over moveable assets of BPGIC FZE and its subsidiaries;
(v) security assignment of commercial contracts related to phase I and phase II, land lease agreement, port facilities agreement and EPC construction contract;
(vi) security assignment over insurance contracts for phase I terminal, phase II terminal and admin building; (vii) security assignment over group and intercompany loans; and
(viii) corporate guarantee from Brooge Energy Limited.
The bond agreement also restricts BPGIC FZE from making any distributions other than in the form of an inter company loan for phase III construction.
Under the bond agreement, BPGIC FZE is subject to the following financial covenants during the term of the bonds:
(i) Minimum Liquidity: BPGIC FZE to maintain $8.5 million in the Liquidity account;
(ii) Leverage Ratio: BPGIC FZE and its subsidiaries’ leverage ratio not to exceed: (A) 5.5x at 31 December 2020; (B) 3.5x at 31 December 2021; and (C) 3.0x anytime thereafter; and
(iii) Working Capital: BPGIC FZE and its subsidiaries to maintain a positive working capital.
The bond agreement requires the Group to comply with the following financial covenant:
(i) Brooge Energy Limited to maintain a minimum equity ratio of 25%.
As of 31 December 2021, the Group was in technical breach of the requirements to comply with the leverage ratio and working capital thresholds. Even though the lenders did not declare an event of default under the bond agreement, these technical breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the bonds. Accordingly, the Group has classified the respective bonds as a current liability at the end of 31 December 2021. Subsequent to the year end, the lenders have confirmed their intention to not require immediate repayment of the outstanding amounts or alter the repayment pattern in the original bond agreement.
Term loan
During the year, the Group obtained
a new term loan facility from a commercial bank in the UAE amounting to USD
F-82
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 22 | Lease Liabilities |
| Balance at the beginning of the year | ||||||||
| Additions during the year | ||||||||
| Rent waiver | ( | ) | ||||||
| Interest charged during the year | ||||||||
| Repayment during the year | ( | ) | ( | ) | ||||
| Balance at the end of the year | ||||||||
| 1) The analysis of lease liability is as follows: | ||||||||
| Current | ||||||||
| Non-Current |
During 2013,
During 2020,
During the year, the Group entered into an agreement with the lessor for an additional one-year rent free period in respect of the Phase III land The Group has treated this to be a partial extinguishment of the lease liability as per IFRS 16 and IFRS 9. The rent waiver is recognised as a gain in the income statement, with a corresponding reduction in the lease liability.
| Lease payments | Present value of minimum lease payments | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Not later than one year | ||||||||||||||||
| Later than one year and not later than five years | ||||||||||||||||
| Later than five years | ||||||||||||||||
| Finance costs | ( | ) | ( | ) | ||||||||||||
| Present value of minimum lease payments | ||||||||||||||||
F-83
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 23 | Employees’ End of Service Benefits |
| Balance at the beginning of the year | ||||||||
| Provision for the year | ||||||||
| Paid during the year | ( | ) | ( | ) | ||||
| Balance at the end of the year |
| 24 | Asset Retirement Obligation |
| Asset retirement obligation | ||||||||
As part of the land lease agreement between the Fujairah Oil Industry Zone (“FOIZ”) and the Group, the Group has a legal obligation to remove the plant at the end of its useful life, or earlier, if the Group is unable to continue its operations, and restore the land. The Group has employed professional valuers to estimate the amount of liability.
| 25 | Share Capital & Share Premium |
| No. of Shares | USD | |||||||
| Ordinary shares | ||||||||
| Share Capital | ||||||||
| As at January 01, 2020 | ||||||||
| Conversion of 100 warrants into ordinary shares at 1 for 1 | ||||||||
| As at 31 December 2020 | ||||||||
| As at 31 December 2021 | ||||||||
Ordinary shares held in escrow
(
One-half (½) of the Escrow
Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized
EBITDA (as defined in the Escrow Agreement) for any full fiscal quarter during the Escrow Period (beginning with the first full fiscal
quarter beginning after the Closing) (an “Escrow Quarter”) equals or exceeds USD
F-84
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 25 | Share Capital & Share Premium (Continued) |
Share Capital (Continued)
All Escrow Property remaining
in the Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either:
(a) the Annualized EBITDA for any Escrow Quarter equals or exceeds $
Share Premium
| As at January 01 | ||||||||
| Conversion of 100 warrants in ordinary shares at 1 for 1 | ||||||||
| As at December 31 |
| 26 | Transactions with Related Parties |
The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with related parties are as under:
Transactions in shareholders’ account
| Contributions by the shareholders | ( | ) | ||||||
| ( | ) |
These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equality.
| Changes in shareholders’ account is as follows: | ||||||||
| At January 01 | ||||||||
| Net contributions (distributions) during the year | ( | ) | ||||||
| At December 31 | ||||||||
| Expense paid on behalf of related parties | ||||||||
| Key management remuneration | ||||||||
F-85
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| 26 | Transactions with Related Parties (Continued) |
Related party balances as at the year end are classified as under:
| Related Party | Classification | |||||||||
| Shareholder | Shareholder’s account (Equity) | |||||||||
| BPGIC Holdings | Due from shareholder (Note 14) | |||||||||
| HBS Investments LP | Due from related parties (Note 14) | |||||||||
| H Capital International LP | Due from related parties (Note 14) | |||||||||
| O2 Investments Limited as GP | Due from related parties (Note 14) | |||||||||
| SBD International LP | Due from related parties (Note 14) | |||||||||
| SD Holding Limited as GP | Due from related parties (Note 14) | |||||||||
| Gyan Investments Ltd | Due from related parties (Note 14) | |||||||||
| Shareholder | Due to a related party (Note 18) | |||||||||
| 27 | Contingent Liabilities |
| Capital commitments within one year | ||||||||
Capital commitments relate to construction of phase 2 which is expected to be completed by the end of third quarter of 2021.
Except for the above and ongoing purchase commitments in the normal course of business against which no loss is expected, there are no other known contingent liabilities existing at the balance sheet date.
| 28 | Earnings Per Share |
Basic EPS is calculated by dividing the profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS calculations:
| (Figures in USD) | 2021 | 2020 | ||||||
| (Re-stated) | ||||||||
| Profit attributable to ordinary equity holders of the parent | ||||||||
| Weighted average number of ordinary shares | ||||||||
As part of the business combination warrants and ordinary shares subjected to escrow have been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.
F-86
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 28 | Earnings Per Share (Continued) |
The number of contingently issuable
shares (
| 29 | Fair Value of Financial Instruments |
Management considers that the fair value of financial assets and financial liabilities in the consolidated financial statements approximate their carrying amounts at the reporting date.
Fair Value Hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
| Liabilities measured at fair value: | Level 1 USD | Level 2 USD | Level 3 USD | Total Fair Value USD | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Derivative warrant liability | ||||||||||||||||
| Borrowings | ||||||||||||||||
| Derivative financial instruments | ||||||||||||||||
| Liabilities measured at fair value: | Level 1 USD | Level 2 USD | Level 3 USD | Total Fair Value USD | ||||||||||||
| December 31, 2020 | ||||||||||||||||
| Derivative warrant liability | ||||||||||||||||
| Borrowings | ||||||||||||||||
The fair value of level 1 financial liability have been determined in accordance with quoted price.
The fair value of level 2 financial liability have been determined by using generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.
During the year ended 31 December 2021 and 2020, there were no transfers between Level 1 and Level 2 fair value measurements.
| 30 | Subsequent Events |
| ● | In February 2022, the Group made a withdrawal of the term
loan facility obtained in September 2021 of USD |
F-87
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 30 | Subsequent Events (Continued) |
| ● | The Company had received a letter from The Nasdaq Stock Market dated May 23, 2022 (the “Notice”), stating that the Company is not in compliance with Listing Rule 5250(c)(1). The Notice does not impact the Company’s listing on the Nasdaq Capital Market at this time, provided that the Company cures the deficiency under Nasdaq Listing Rule 5250(c)(1) within the time period specified by the applicable rule. |
| ● | On Nov. 22, 2022, the Company was notified that the Nasdaq Hearings Panel (the “Panel”) had granted its request to continue trading of Brooge Energy’s securities on Nasdaq at least through the completion of the Company’s hearing before the Panel and the expiration of any extension that may be granted by the Panel to the Company following the hearing. |
| ● | The Company on Aug. 17, 2022 the Company announced that its majority shareholder, BPGIC Holdings Limited (“Holdings”), has expressed an interest to acquire all the shares of the Company that it does not currently own and to take the Company private. The Board of Directors of the Company is considering the proposal and will be entering into substantive negotiations. Any transaction, if entered into, will be subject to the receipt of a fairness opinion and approval of the Company’s shareholders and bondholders. There can be no assurance that a transaction will be entered into. |
Bond Waiver letter
On April 27, 2022, the Group entered into an agreement with the Bondholders to implement following amendments to the Bond Financing Facility, effective immediately:
| (a) | Waiver of the Events of Defaults that are triggered by the technical breaches of the Leverage Ratio and positive Working Capital covenants until December 31, 2022. |
| (b) | The requirement to maintain a Leverage Ratio to not exceed certain thresholds is suspended (waived) for the results period from December 31, 2021 to and including December 30, 2022, and shall be tested again for the 12 months results period from (and including) January 1, 2022 to December 31, 2022 (inclusive) at 3.5x, stepping down to 3.0x anytime thereafter (as per the original terms of the Bond Financing Facility). For the avoidance of doubt, the costs associated with the amendments shall not be taken into consideration in EBITDA when calculating Leverage Ratio. |
| (c) | The requirement to maintain a positive Working Capital is suspended (waived) for the period from December 31, 2021 to and including December 30, 2022, and shall be tested again starting from and including December 31, 2022. |
| (d) | Permitted Distribution: |
| (i) | No Permitted Distribution shall be made before BPGIC is in compliance with financial covenant requirements under the original terms of the Bond Facility Financing. |
| (ii) | Furthermore, BPGIC shall provide to the Bond Trustee a written statement signed by its chief executive officer and chief financial officer within three business days prior to any permitted distribution under the terms of the Bond Financing Facility that (A) states the amount being distributed as a permitted distribution, (B) confirms the conditions with respect to such distribution are satisfied, and (C) declares such distribution will not lead to an Event of Default on the next testing date. |
F-88
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 31 | Financial Risk Management and Policies |
The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks. The Group’s borrowing are issued at fixed rate of interest.
Market Risk
The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.
At the reporting date, the exposure
to derivative warrant liability at fair value listed on the NASDAQ was USD
Currency Risk
The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.
F-89
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| (Figures in USD) | 2021 | 2020 | ||||||
| 31 | Financial Risk Management And Policies (Continued) |
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2021 and 2020.
The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.
Liquidity Risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.
The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.
The table below summarizes the maturity profile of the Group’s financial liabilities at December 31, 2021 and December 31, 2020 based on contractual undiscounted payments.
| December 31, 2021 | On Demand USD | Upto 1 Year USD | 1 to 5 Years USD | > 5 Years USD | Total USD | |||||||||||||||
| Bonds (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||
| Term loans (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
F-90
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 31 | Financial Risk Management And Policies (Continued) |
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated losses) retained earnings.
| Borrowing | ||||||||
| Lease liability | ||||||||
| Less: cash and cash equivalents | ( | ) | ( | ) | ||||
| Net debt | ||||||||
| Total capital | ||||||||
| Capital and net debt | ||||||||
| Gearing ratio | % | % |
| 32 | Prior Year Restatement |
i) The comparative figures for 2020 were restated previously on account of errors identified by the management subsequent to the issuance of the 2020 consolidated financial statements. In year 2022, subsequent to the issuance of the Group’s 2020 financial statements, the Group identified errors in the consolidated financial statements for the year ended 31 December 2020 and determined that the 2020 consolidated financial statements should be restated. The basis of such error and restatement is given as below:
Restatement Background
As disclosed on May 27, 2022, the Group has not been able to file the 2021 Form 20-F due to an ongoing non- public examination being conducted by the U.S. Securities and Exchange Commission (the “SEC”) regarding the consolidated financial statements of the Group. Subsequently, the Audit Committee of the Board of Directors (the “Audit Committee”), engaged independent counsel to conduct under its supervision an internal examination into the Group’s revenue recognition practices and related matters. As a result of the findings from this internal examination, on August 12, 2022, the Audit Committee, in consultation with the Group’s management, concluded that the previously issued audited consolidated financial statements as of and for the periods ending December 31, 2020 and 2019 and the previously issued unaudited consolidated financial statements for interim periods therein and the six months ended June 30, 2021 should no longer be relied upon.
F-91
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 32 | Prior Year Restatement (Continued) |
In connection with the internal
examination, the Group conducted a comprehensive review of the accounting policies, procedures, and internal controls related to revenue
recognition. All available customer contracts were assessed based on International Financial Reporting Standard (IFRS) 15 ‘Revenue
from Contracts with Customers’ and IFRS 16 ‘Leases’. This review identified that the funds received from a related party
BIA do not qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in the Company’s internal
examination, including the number of years over which the non-qualified revenue was recognized, the Company determined that it would be
appropriate to rectify the misstatements in the previously issued financial statements by restating such financial statements. Accordingly,
for the year 2021 there were no restatement. In 2020 the Company reversed revenue amounting to USD
The Management does not expect to settle these amounts using any of it’s current assets or any existing resources in the foreseeable future. Pending its potential receipt of confirmation or adequate supporting documentation from the party. The Group has taken a conservative approach to recognize this as a liability. The Group continues to assess this liability and will evaluate whether there arises any obligation or it is discharged or cancelled or expires or is swapped out for one with significantly different terms or when the terms of are significantly modified, such an exchange or modification is recognized as a derecognition of the old liability and the recognition of a new liability or as equity contribution, as applicable and the difference in the respective carrying amounts will be recorded in the consolidated statement of either other comprehensive income or directly as equity as applicable.
The above changes pertaining to reversal of Revenue and recognition of such amount under Other payable were accounted retrospectively in accordance with IAS 8 and, accordingly the prior years’ consolidated financial statements have been restated as disclosed in Page 46:
| 33 | Rounding Off of Figures |
All figures have been rounded off to the nearest US Dollars.
| 34 | Comparative Figures |
Certain of the prior year figures have been regrouped to conform with the presentation of the current year.
F-92
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
| 34 | Comparative Figures (Continued) |
| Groupings for Property, Plant and Equipment | Buildings | Installations | Other Equipments | Tanks | Capital Work in Progress | Right of use Assets | (Figures in USD) Total | |||||||||||||||||||||
| Cost: | ||||||||||||||||||||||||||||
| As at January 01, 2021 | ||||||||||||||||||||||||||||
| Additions during the year | ||||||||||||||||||||||||||||
| Transfers during the year | ( | ) | ||||||||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||||||
| As at January 01, 2021 | ||||||||||||||||||||||||||||
| Charge for the year | ||||||||||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||||||||||
| Net Carrying Value: | ||||||||||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||||||||||
| As at December 31, 2020 | ||||||||||||||||||||||||||||
During the year, in September 2021, ramp up of storage
in Phase II tanks started and the hand over of the facility was completed in November 2021, when all the tanks were commissioned into
operations. Accordingly, an amount of USD
Total amount capitalised includes an amount of USD
Capital work in progress at December 31, 2021 of USD
Land lease agreement and the moveable assets of BPGIC FZE are pledged as security against borrowings obtained in 2020 (Note 21).
The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows:
| 2021 | 2020 | |||||||
| Direct costs (Note 7) | ||||||||
| CWIP | ||||||||
F-93
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2021
(Figures in USD)
| 34 | Comparative Figures (Continued) |
| As previously reported | Restatement adjustments | As per the restate Financial Statement | ||||||||||
| Prior Year Restatement | 31-12-20 | 31-12-20 | 31-12-20 | |||||||||
| Consolidated Statement of Comprehensive Income | ||||||||||||
| Revenue | ( | ) | ||||||||||
| Direct costs | ( | ) | ( | ) | ||||||||
| Gross Profit / (Loss) | ( | ) | ||||||||||
| Other income | ||||||||||||
| General and administration expenses | ( | ) | ( | ) | ( | ) | ||||||
| Change in estimated fair value of derivative warrant liability | ||||||||||||
| Finance costs | ( | ) | ( | ) | ( | ) | ||||||
| Profit for the year | ( | ) | ||||||||||
| Consolidated Statement of Financial Position | ||||||||||||
| ASSETS | ||||||||||||
| Current Assets | ||||||||||||
| Trade receivables | ||||||||||||
| Other receivable and prepayments | ( | ) | ||||||||||
| Total Current Assets | ( | ) | ||||||||||
| Non-Current Assets | ||||||||||||
| Advances to contractor | ||||||||||||
| Total Non-Current Assets | ||||||||||||
| Total Assets | ( | ) | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| Current Liabilities | ||||||||||||
| Trade and accounts payable | ||||||||||||
| Other payable | ||||||||||||
| Lease liabilities | ( | ) | ||||||||||
| Total current liabilities | ||||||||||||
| Non-current liabilities | ||||||||||||
| Lease liabilities | ||||||||||||
| Total Non-Current Liabilities | ||||||||||||
| Equity | ||||||||||||
| Share capital | ||||||||||||
| Retained earnings | ( | ) | ( | ) | ( | ) | ||||||
| Statutory reserve | ( | ) | ||||||||||
| Shareholders’ account | ( | ) | ||||||||||
| Total Equity | ( | ) | ||||||||||
| Total Equity & Liabilities | ( | ) | ||||||||||
F-94
Brooge Energy Limited
(Formerly Brooge Holdings Limited)
Consolidated
Financial Statements
December 31, 2020
F-95
| Brooge Energy Limited |
| Index to the Financial Statements December 31, 2020 |
F-96
 |
Office 106, The Binary
[T] +971 4 557 8358 [E] mail@affiniax.com | |
| Independent Auditor’s Report | ||
|
To the Board of Directors and Shareholders of Brooge Energy Limited and its Subsidiaries
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprise of the consolidated statement of financial position as at December 31, 2020, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.
In our opinion, the accompanying consolidated financial statements, present fairly, in all material respects, the consolidated financial position of Brooge Energy Limited and its Subsidiaries as at December 31, 2020 and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group 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
a. We draw your attention to Note no. 34 where the Group has reversed the revenue amounting to USD 14,640,361 which mainly represents funds received from M/s Brooge International Advisory LLC (BIA) which was earlier accounted as the revenue. Since the Group could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, an amount of USD 15,659,111 representing the funds received from BIA has been classified as Other payable in the financial statements for the year ended December 31, 2020.
b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party. Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party.
c. We draw attention to consolidated statement of financial position in the consolidated financial statements, which indicates that the as of December 31, 2020, the Group’s current liabilities exceed current assets by USD 73,867,983. Our opinion is not modified in respect of this matter. | ||
F-97
 |
Reaudit of Consolidated Financial Statements for the Year Ended December 31, 2020
Attention is invited to Note 35 Reaudit of the consolidated financial statements. The consolidated financial statements of the Group are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable, which were recorded erroneously due to the inadequate documents.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined that there are no other key audit matters to communicate in our report.
Responsibility of the Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Reaudit of Consolidated Financial Statements for the Year Ended December 31, 2020
Attention is invited to Note 35 Reaudit of the consolidated financial statements. The consolidated financial statements of the Group are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable, which were recorded erroneously due to the inadequate documents.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined that there are no other key audit matters to communicate in our report.
Responsibility of the Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
|
F-98
|
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s 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 ISA’s 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 consolidated financial statements.
As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;
● Identify and assess the risks of material misstatement of the consolidated 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 risks 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, misrepresentation or override of internal controls.
● Obtain an understanding of internal controls 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 Group’s internal controls.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
● Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.
We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters.
Affiniax A A S Auditors
Dubai, United Arab Emirates April 24, 2023 |
F-99
| Brooge Energy Limited |
| Consolidated Statement of Comprehensive Income Year Ended December 31, 2020 |
| (Figures in USD) | Note | 2020 (Re-stated) | 2019 (Re-stated) | |||||||
| Revenue | 6 | |||||||||
| Direct costs | 7 | ( | ) | ( | ) | |||||
| Gross profit | ||||||||||
| Other income | ||||||||||
| Change in estimated fair value of derivative warrant liability | 8 | |||||||||
| Listing expenses | 20 | ( | ) | |||||||
| General and administration expenses | 9 | ( | ) | ( | ) | |||||
| Finance costs | 10 | ( | ) | ( | ) | |||||
| Changes in fair value of derivative financial instruments | 11 | ( | ) | ( | ) | |||||
| Profit / (Loss) for the year | 21 | ( | ) | |||||||
| Other comprehensive income | ||||||||||
| Total Comprehensive Income / (Loss) for the year | ( | ) | ||||||||
| 29 | ( | ) | ||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-100
| Brooge Energy Limited |
| Consolidated Statement of Financial Position As at December 31, 2020 |
| (Figures in USD) | Note | 2020 (Re-stated) | 2019 (Re-stated) | |||||||
| ASSETS | ||||||||||
| Current Assets | ||||||||||
| Cash and cash equivalents | 12 | |||||||||
| Trade accounts receivable | 13 | |||||||||
| Inventories | 14 | |||||||||
| Other receivable and prepayments | 15 | |||||||||
| Total Current Assets | ||||||||||
| Non-Current Assets | ||||||||||
| Property, plant and equipment | 16 | |||||||||
| Advances to contractor | 17 | |||||||||
| Restricted bank balance | 12 | |||||||||
| Total Non-Current Assets | ||||||||||
| Total Assets | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
| Current Liabilities | ||||||||||
| Trade and accounts payable | 18 | |||||||||
| Other payables | 19 | |||||||||
| Derivative warrant liability | 20 | |||||||||
| Derivative financial instruments | 21 | |||||||||
| Borrowings | 22 | |||||||||
| Lease liabilities | 23 | |||||||||
| Total Current Liabilities | ||||||||||
| Non-Current Liabilities | ||||||||||
| Borrowings | 22 | |||||||||
| Lease liabilities | 23 | |||||||||
| Employees’ end of service benefits | 24 | |||||||||
| Asset retirement obligation | 25 | |||||||||
| Total Non-Current Liabilities | ||||||||||
| Equity | ||||||||||
| Share capital | 26 | |||||||||
| Share premium | 26 | |||||||||
| Statutory reserve | ||||||||||
| Accumulated losses | ( | ) | ( | ) | ||||||
| Shareholder’s account | ||||||||||
| Total Equity Attributable to the Shareholders | ||||||||||
| Total Liabilities and Equity | ||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-101
| Brooge Energy Limited |
Consolidated Statement of Changes in Equity Year Ended December 31, 2020
|
| (Figures in USD) | Share Capital | Share Premium | Statutory Reserve | Accumulated Losses | Shareholder’s Account | Total | ||||||||||||||||||
| As at January 01, 2019 (Restated) | ( | ) | ||||||||||||||||||||||
| Shares issuance in connection with a merger (Note 31) | ||||||||||||||||||||||||
| Cash election in lieu of shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Loss for the year | ( | ) | ( | ) | ||||||||||||||||||||
| Movements during the year | ||||||||||||||||||||||||
| As at December 31, 2019 (Restated) | ( | ) | ||||||||||||||||||||||
| Exercise of 100 warrants in 100 ordinary shares | ||||||||||||||||||||||||
| Profit for the year | ||||||||||||||||||||||||
| Transferred to statutory reserve | ( | ) | ||||||||||||||||||||||
| Movements during the year | ( | ) | ( | ) | ||||||||||||||||||||
| As at December 31, 2020 (Restated) | ( | ) | ||||||||||||||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-102
| Brooge Energy Limited |
Consolidated Statement of Cash Flows |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| Cash Flow from Operating Activities | ||||||||
| Profit / (Loss) for the year | ( | ) | ||||||
| Adjustments for: | ||||||||
| Shares issuance in connection with a merger | ||||||||
| Depreciation of property, plant and equipment | ||||||||
| Interest charged on lease liability | ||||||||
| Provision for employees’ end of services benefits | ||||||||
| Change in estimated fair value of derivative warrant liability | ( | ) | ( | ) | ||||
| Net changes in fair value of derivative financial instruments | ||||||||
| Written back of accrued interest not settled | ( | ) | ||||||
| Asset retirement obligation - accretion expense | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Decrease / (Increase) in trade accounts and other receivable and prepayments | ( | ) | ||||||
| Increase in inventories | ( | ) | ( | ) | ||||
| (Decrease) / Increase in Trade and accounts payable | ( | ) | ||||||
| Increase in other payable | ||||||||
| Payment of employees’ end of services benefits | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ||||||
| Cash Flow from Investing Activities | ||||||||
| Amount deposited in restricted bank account | ( | ) | ||||||
| Advance to contractors | ( | ) | ||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flow from Financing Activities | ||||||||
| Issuance of 21,229,000 warrants in connection with merger | ||||||||
| Net of repayment from term loan | ( | ) | ( | ) | ||||
| Proceeds from bonds | ||||||||
| Payment of lease liability | ( | ) | ( | ) | ||||
| Payment of derivative financial instruments | ( | ) | ||||||
| Movement in shareholder’s account | ( | ) | ||||||
| Exercise of 100 warrants in 100 ordinary shares | ||||||||
| Cash election in lieu of shares | ( | ) | ||||||
| Net cash generated from financing activities | ||||||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of the year | ||||||||
| Cash and cash equivalents at end of the year | ||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-103
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 1 | Legal Status, Management and Business Activity |
The consolidated financial statements comprise of the financial statements of Brooge Energy Limited (“Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”. The details of the Group are as follows:
a. Brooge Energy Limited
The Company (formerly known as Brooge Holdings Limited) is a Company with limited liability registered as an exempted company in the Cayman Islands.
The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).
The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.
The subsidiaries of the Company are as follows:
i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)
BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.
BPGIC FZE is a
ii. Brooge Petroleum and Gas Investment Company Phase III FZE (BPGIC Phase III FZE)
BPGIC Phase III FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 20-FZE-1972.
BPGIC Phase III FZE is a
iii. BPGIC International
BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.
BPGIC International is a
iv. Brooge Petroleum and Gas Management Company Limited (BPGMC Limited)
BPGMC Limited is a company with limited liability registered in Dubai International Financial Centre with commercial license number CL3852.
BPGMC Limited is a
v. BPGIC Phase 3 Limited (BPGIC Phase III Ltd)
BPGIC Phase 3 Limited is a Free Zone Company with limited liability formed in accordance with the provisions of Jebel Ali Free Zone Authority Offshore Companies Regulations 2018. The registration number of BPGIC Phase 3 Limited is 226933.
BPGIC Phase 3 Limited is a
F-104
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 1 | Legal Status, Management and Business Activity (Continued) |
The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The construction of the Company’s phase II, with a total capacity of 602,064 cbm was completed in September 2021.The Group has commenced early preparation work for its phase 3 project where it intends to construct additional storage and refinery facilities. The Group’s has commenced preconstruction work for its phase 3 project where it intends to construct additional storage and refinery facilities.
The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.
On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.
The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) as disclosed in Note 31.
Under this method of accounting, Brooge Energy and Twelve Seas are treated as the “acquired” company. This determination was primarily based on BPGIC FZE comprising the ongoing operations of the combined company, BPGIC FZE’s senior management comprising the senior management of the combined company, and BPGIC FZE’s stockholders having a majority of the voting power of the combined company. For accounting purposes, BPGIC FZE is deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of BPGIC FZE. Accordingly, the consolidated assets, liabilities and results of operations of BPGIC FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.
As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve Seas changed its name to ‘BPGIC International’.
The consolidated financial statements are prepared as a continuation of the financial statements of BPGIC FZE, the acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited).
The reaudited consolidated financial statements were authorised for issue by the Board of Directors.
| 2 | Basis of Preparation of Consolidated Financial Statements |
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board “IASB”. These consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group.
F-105
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
All financial information presented in USD has been rounded to the nearest thousand, unless otherwise stated. The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of derivative financial instruments and derivative liability.
(i) Subsidiaries
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2020. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
| ● | Exposure, or rights, to variable returns from its involvement with the investee; and |
| ● | The ability to use its power over the investee to affect its returns |
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including
| ● | The contractual arrangement with the other vote holders of the investee; |
| ● | Rights arising from other contractual arrangements; and |
| ● | The Group’s voting rights and potential voting rights. |
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed off during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
| ● | Derecognises the assets (including goodwill) and liabilities of the subsidiary |
| ● | Derecognises the carrying amount of any non-controlling interests |
| ● | Derecognises the cumulative translation differences recorded in equity |
| ● | Recognises the fair value of the consideration received |
| ● | Recognises the fair value of any investment retained |
| ● | Recognises any surplus or deficit in profit or loss |
| ● | Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities. |
Details of subsidiaries as at 31 December 2020 are stated in Note 1.
F-106
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
(i) Subsidiaries (Continued)
The financial statements of the subsidiary are prepared for the same reporting year as the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
The carrying amount of the Company’s investment in the subsidiary and the equity of the subsidiary is eliminated on consolidation. All significant intra-group balances, and income and expenses arising from intra-group transactions are also eliminated on consolidation.
(ii) Non-controlling interests (“NCI”)
NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(iii) Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any noncontrolling interests in the acquiree. For each business combination, the Group elects whether to measure the noncontrolling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with changes in fair value recognised either in profit or loss or as a change to other comprehensive income.
Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.
A ‘reverse acquisition’ is a business combination in which the legal acquirer - i.e. the entity that issues the securities (i.e. listed entity) becomes the acquiree for accounting purposes and the legal acquiree becomes the acquirer for accounting purposes. It is the application in accordance with IFRS 3 Business Combinations on identifying the acquirer, which results in the identification of the legal acquiree as the accounting acquirer in a reverse acquisition.
F-107
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
(iii) Business combinations (Continued)
Application in accordance with IFRS 3 Business Combinations on identifying the acquirer may result in identifying the listed entity as the accounting acquiree and the unlisted entity as the accounting acquirer. In this case, if the listed entity is:
| ● | A business, IFRS 3 Business Combinations applies; |
| ● | Not a business, IFRS 2 Share-based Payment applies to the transaction once the acquirer has been identified following the principles in accordance with IFRS 3 Business Combinations. Under this approach, the difference between the fair value of the consideration paid less the fair value of the net assets acquired, is recognized as a listing expense in Consolidated statement of comprehensive income. |
| 2.1 | Going Concern |
During the year ended 31 December
2020, the Group earned a profit of USD
In September 2020, BPGIC FZE issued
bonds of USD
In view of the above, management has prepared the consolidated financial statements assuming that the Group will continue as a going concern. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Group is unable to continue as a going concern.
These financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards issued by International Accounting Standards Board (IASB). The validity of this assumption depends upon the continued financial support to the Group by its Shareholders. The financial statements do not include any adjustment that should result from a failure to obtain such combined financial support. The Management has no intention to discontinue the operations of the Group. The assets and liabilities are recorded on the basis that the Group will be able to realise its assets and discharge its liabilities in the normal course of business. This position does not impair the financial position of the Group.
F-108
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 3 | Changes In Accounting Policies And Disclosures |
New and amended standards and interpretations.
New and amended standards and interpretations adopted by the Group.
The Group applied certain standards, interpretations and amendments for the first time, which are effective for annual periods beginning on or after 1 January 2020.
| ● | Amendments to IFRS 3: Definition of a Business; |
| ● | Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform; |
| ● | Amendments to IAS 1 and IAS 8 Definition of Material; |
| ● | Amendments to IFRS 16 Covid-19 Related Rent Concessions. |
The adoption of above standards and amendments did not have any significant impact on the consolidated financial statements of the Group.
| 4 | Significant Accounting Estimates and Judgements |
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. 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.
Estimation and assumptions
The key assumptions concerning the future, and other key sources of estimation uncertainty at the date of statement of financial position, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
Useful Life and Depreciation of Property, Plant and Equipment
The Group’s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear and the impact of expected residual value. Management reviews the useful lives annually and the future depreciation charge would be adjusted where management believes that the useful lives differ from previous estimates. The depreciation period of the right-of-use asset has been determined to be over the lease term on the basis that the land is expected to be used for the whole period of the lease considering the existing assets and future expansion on the land.
F-109
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 4 | Key Sources of Estimation Uncertainty (Continued) |
Asset retirement obligation
As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities. These assets can be used for an extended period of time as long as they are properly maintained and/or upgraded. It is the Group’s current intent to maintain its assets and continue making improvements to those assets based on technological advances.
The calculation of provision related to asset retirement obligation is most sensitive to following judgements and assumptions:
| ● | Discount rate of |
| ● | Inflation rate of |
Discount rate used for initial measurement of lease liability
The Group, as a lessee, measures
the lease liability at the present value of the unpaid lease payments at the commencement date. The lease payments are discounted using
the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group
on initial recognition of the lease uses its incremental borrowing rate. Incremental borrowing rate is the rate of interest that the Group
would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value
to the right-of-use assets in similar economic environment. The Group determined its incremental borrowing rate at
Impairment of trade receivables
The Group uses the simplified approach under IFRS 9 to assess impairment of its trade receivables and calculates expected credit losses (ECLs) based on lifetime expected credit losses. The Group calculates the ECL based on Group historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.
F-110
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 4 | Key Sources of Estimation Uncertainty (Continued) |
Valuation of derivative financial instruments
The Group has entered into derivative financial instruments (interest rate swaps) with a financial institution with investment grade credit rating. Interest rate swaps are valued using valuation techniques, which employ the use of market observable inputs. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The changes in counterparty credit risk had no material effect on the derivative financial instruments recognised at fair value.
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements:
Operating lease commitments – Group as a lessee
Classification of warrants
In connection with the completion of the business combination on 20 December 2019 as described in Note 1, Note 20 and Note 31 the Group issued warrants. The warrants agreement require the Group to issue a fixed number of shares for a fixed amount of cash, however it contains a clause that allows for cashless exercise (in the event that no effective registration is maintained), which may lead to the issuance of a variable number of shares. Management assessed that the maintenance of an effective registration statement is a matter not wholly within the control of the Group and as such classified the warrants as a financial liability at fair value through profit or loss.
Business combination (reverse acquisition)
As the reverse acquisition of Brooge Energy did not constitute a business combination, the transaction was accounted for as an asset acquisition by the issuance of shares of the BPGIC FZE, for the net assets of Twelve Seas and its public listing. Accordingly, the transaction had been accounted for at the fair value of the equity instruments granted to the shareholders and warrant holders of Twelve Seas.
F-111
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 4 | Key Sources of Estimation Uncertainty (Continued) |
Business combination (reverse acquisition) (Continued)
Management applied the following primary judgments in accounting for the reverse acquisition:
1. BPGIC FZE was assessed as the accounting acquirer due to majority shareholding and representatives on the board of directors.
2. The accounting acquiree is not a business and not in scope of IFRS 3.
3. The acquisition has been accounted for in terms of IFRS 2 which is aligned to guidance issued by the IFRIC. The difference between the fair value of the consideration paid and the fair value of the net assets acquired has been recognised in profit and loss.
4. Fair value of ordinary shares issued: Refer to Note 31.
5. The fair value of the shares in escrow was not materially different from that of the shares which were not in escrow as the rights of these shares are similar to those of “normal ordinary shares”. Fair value of the shares in escrow: Refer to Note 26.
6. Fair value of warrants issued: Refer to Note 20.
7. Deemed share issue has been presented in the financing activities in the Statement of Cash Flows.
| 5 | Summary of Significant Accounting Policies |
Revenue Recognition
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services or goods. Revenue is net of discounts and value added taxes. Monthly storage rates and prices for other services are contractually agreed before the services are rendered and do not contain material variable components. When it is probable that the future economic benefits will flow to the Group, the recognition in the consolidated statement of income is in proportion to the stage of the rendered performance as at the end of the reporting period. The Group has a right to a consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s services completed to date.
Tank storage rentals, including minimum guaranteed throughputs, are recognized on a straight-line basis over the contractual period during which the services are rendered. Revenues from excess throughputs, heating/cooling, homogenization, product movements and other services are recognized when these services are rendered. Customers simultaneously consume and benefit from the services at the moment that these are rendered, resulting in a situation where revenue is recognized over time. Where substantially the entire storage capacity is leased to a single customer, the contract contains a lease and the entire storage revenue is presented as lease revenue.
Storage fees are invoiced upfront in the month preceding the month to which the storage fees relate. Handling and other services are invoiced afterwards, based on the actual usage.
F-112
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Inventories
Inventories are valued at the lower of cost, determined on the basis of weighted average cost, and net realizable value. Costs are those expenses incurred in bringing each item to its present location and condition. Net realisable value is valued at selling prices net of selling costs.
Fair values
The fair value of the financial assets and liabilities at the date of statement of financial position approximate their carrying amounts in the statement of financial position.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
| ● | In the principal market for the asset or liability, or |
| ● | In the absence of a principal market, in the most advantageous market for the asset or liability |
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
| ● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; |
| ● | Level 2 inputs, other than quoted prices included within Level 1 that are observable for the asset or either directly or indirectly; and |
| ● | Level 3 inputs are unobservable inputs for the asset or liability. |
Current and Non-Current Classification
The Group presents assets and liabilities in the statement of financial position based on current / non-current classification.
An asset is current when it is:
- Expected to be realized or intended to be sold or consumed in normal operating cycle.
- Held primarily for the purpose of trading.
- Expected to be realised within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle.
F-113
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Fair values (Continued)
- It is held primarily for the purpose of trading.
- It is due to be settled within twelve months after the reporting period.or
There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Group classifies all other liabilities as non-current.
Taxes
Value Added Tax:
Expenses and assets are recognized net of the amount of input tax, except:
- When the input tax is incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the input tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable;
- The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position, as applicable.
Input VAT and Output VAT
Input VAT is recognized when the goods or services are supplied to the BPGIC FZE and the tax on which is paid/due to be paid by the BPGIC FZE to the Supplier.
Output VAT is recognized in respect of taxable supply of goods/services rendered by the BPGIC FZE on which tax is charged and due to be paid to the UAE Federal Tax Authority.
Borrowing Costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated statement of comprehensive income (within profit and loss) in the period during which they are incurred.
F-114
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Property, Plant and Equipment
Property, plant and equipment, is stated at historical costs less accumulated depreciation and any accumulated impairment losses. Historical costs includes expenditure that is directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Management.
The cost of replacing or addition to an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in the profit or loss as incurred.
Depreciation is charged to write off the cost of assets using the straight line method as follows:
| Buildings | ||
| Tanks | ||
| Installations | ||
| Other Equipment | ||
| Right of use asset - Land |
The useful lives and depreciation method are reviewed periodically to ensure that the year and method of depreciation are consistent with the pattern of economic benefits expected to flow to the Group through the use of items of property, plant and equipment.
The carrying amounts are reviewed at each reporting date to assess whether they are recorded in excess of their recoverable amounts, and where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised as profit or loss in the statement of comprehensive income.
Capital work in progress
Capital work in progress is stated at cost, which represents costs for the design, development, procurement, construction and commissioning of the asset under development. Cost includes borrowing cost capitalised and depreciation of the right of use asset during the construction phase. When the asset is in the location and condition necessary to operate in the manner intended by management, capital work in progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with the Group’s policies.
F-115
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
For a contract that is, or contains, a lease, the Group accounts for each lease component within the contract as a lease separately from non-lease components of the contract.
The Group determines the lease term as the non-cancellable period of a lease, together with both:
a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, the Group considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Group revises the lease term if there is a change in the noncancellable period of a lease.
Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
Group as a lessee
For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
The relative stand-alone price of lease and non-lease components is determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the Group estimates the stand-alone price, maximising the use of observable information.
For determination of the lease term, the Group reassesses whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
a) is within the control of the Group; and b) affects whether the Group is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term.
F-116
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases (Continued)
At the commencement date, the Group recognises a right-of-use asset classified within property, plant and equipment and a lease liability classified separately on the consolidated statement of financial position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise
right-of-use assets and lease liabilities for short-term leases that have a lease of 12 months or less and leases of low-value assets
of USD
Right-of-use assets
The right-of-use asset is initially recognised at cost comprising of:
a) the amount of the initial measurement of the lease liability;
b) any lease payments made at or before the commencement date, less any lease incentives received;
c) any initial direct costs incurred by the Group; and
d) an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. These costs are recognised as part of the cost of the right-of-use asset when the Group incurs an obligation for these costs. The obligation for these costs is incurred either at the commencement date or as a consequence of having used the underlying asset during a particular period.
After initial recognition, the Group amortises the right-of-use asset over the term of the lease. In addition the right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability.
Lease liability
The lease liability is initially recognised at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses its incremental borrowing rate.
After initial recognition, the lease liability is measured by (a) increasing the carrying amount to reflect interest on the lease liability; (b) reducing the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
F-117
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases (Continued)
Where, (a) there is a change in the lease term as a result of the reassessment of certainty to exercise an option, or not to exercise a termination option as discussed above; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances in the context of a purchase option, the Group remeasures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The Group determines the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or its incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.
Where, (a) there is a change in the amounts expected to be payable under a residual value guarantee; or (b) there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments, including a change to reflect changes in market rental rates following a market rent review, the Group remeasures the lease liabilities by discounting the revised lease payments using an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In such case, the Group uses a revised discount rate that reflects changes in the interest rate.
The Group accounts for a lease modification as a separate lease if both:
a) the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
b) the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.
Financial Instruments
Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Financial assets
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them.
Receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
F-118
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial Instruments (Continued)
The Group’s financial assets at amortised cost include other receivables and due from related parties.
Financial assets at fair value through OCI, impairment losses or reversals are recognised in the statement of comprehensive income and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.
The Group derecognizes a financial asset when the contractual rights to the cash flow from the assets cease and any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
Offsetting of Financial Instruments:
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Impairment of financial assets
Under IFRS 9, the Group records an allowance for Expected Credit Loss (ECL) for all loans and debt financial assets not held at Fair value through profit & loss (FVPL).
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate.
For trade and other receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group calculates the ECL based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
F-119
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial liabilities (Continued)
Equity instruments.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group comprising of share capital, share premium and shareholders’ accounts are recorded at the proceeds received, net of direct issue costs.
Financial liabilities
Initial recognition
Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.
Financial liabilities are recognized initially at fair value and in the case of loans and borrowings fair value of the consideration received less directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, lease liability, warrants and borrowings.
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
Accounts payable
Liabilities are recognized for amounts to be paid in the future for goods and services received, whether billed by the supplier or not.
Loans and borrowings
All loans and borrowings are initially recognized at the fair values less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the consolidated statement of comprehensive income (within profit and loss) when liabilities are derecognized.
F-120
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial liabilities (Continued)
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of comprehensive income (within profit and loss).
A non-substantial modification to a financial liability is not treated as a derecognition of the original liability. The difference between the carrying amount and the net present value of the modified terms discounted using the original effective interest rate is recognized in the consolidated statement of comprehensive income (within profit and loss)
Amortized cost of financial instruments
Amortized cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.
Non-derivative financial assets and liabilities
Receivables
Receivables are those financial assets that have fixed or determinable payments and for which there is no active market are initially recognized at fair value plus any directly attributable transactions costs. Subsequent to initial recognition they are measured at amortized cost using the effective interest method. These comprise trade accounts and other receivables, receivables from related parties, bank balances including fixed and margin deposits with banks.
Trade Accounts and Other Receivable
Receivable are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
The Management undertakes a periodic review of amounts recoverable from trade and other receivable, and determines recoverability based on various factors such as ageing of receivable, payment history, collateral available and other knowledge about the receivable.
Provision for bad and doubtful debts represents estimates of ultimate unrealizable debts. The estimates are judgmental and are based on case based evaluation by the management.
Provisions created during the year are reflected in the operating results of the year. Debts which are recognised as unrealizable are written off during the year.
F-121
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Cash and Cash Equivalents
Cash and cash equivalents comprise of cash on hand, banks accounts and short term highly liquid deposits with a maturity date of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Statutory Reserve
As required by the Articles of
Association of BPGIC FZE,
Employees’ End of Service Benefits
The Group provides end of service benefits to its employees. The ion of a minimum service period. The expected costs of these benefits are accrued over the period of employment.
Trade Accounts and Other Payable
Trade accounts and other payable are stated at nominal amounts payable for goods or services rendered.
Derivative Financial Instruments
The Group uses derivative financial instruments, interest rate swaps, to hedge its interest risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Warrants are accounted for as derivative financial instruments (a financial liability) as they give the holder the right to obtain a variable number of common (ordinary) shares in case an effective registration statement is not maintained, which is not fully within the control of the Group.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value through profit or loss. The warrants shall lapse and expire after five years from the closing of the business combination (Note 31).
Any gains or losses arising from changes in the fair value of derivatives are taken directly to the consolidated statement of comprehensive income (within profit and loss) as the Group has not designated derivative financial instruments under hedging arrangements.
Provisions
Provisions are recognised when the Group has a present obligation as a result of past event and it is probable that the outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at the present value of the amount expected to be required to settle the obligation and the risk specific to the obligation.
F-122
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 5 | Summary of Significant Accounting Policies (Continued) |
Foreign Currencies Translations
The financial statements are presented in US Dollars, which is the Group’s functional and presentation currency.
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of comprehensive income (within profit and loss). Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
Asset retirement obligation
As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities.
F-123
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| 6 | Revenue |
| Storage rental income (Note 34) | ||||||||
| Miscellaneous income (Note 6.1) | ||||||||
| Ancillary services | ||||||||
The Group has only
The commercial contracts with customers related to the Phase 1 and Phase 2 have been assigned as security against the borrowing obtained in 2020.
Miscellaneous income represents port
charges of USD
The revenues of the Group mainly comprise of fixed fees for storage and related services and variable fees for ancillary services provided under a contract with its customers. Accordingly, there is no cyclicality in the Group’s operations.
| 7 | Direct Costs |
| Depreciation on property, plant and equipment (Note 16) | ||||||||
| Employees’ costs | ||||||||
| Reimbursable port charges (Note 6.1) | ||||||||
| Spare parts and consumables used | ||||||||
| Insurance charges | ||||||||
| Others | ||||||||
| 8 | Other Income |
| Written back of accrued interest | ||||||||
| Miscellaneous | ||||||||
| 9 | Listing Expenses |
| IFRS 2 listing expense | ||||||||
| Other listing expenses (Note 9.1) | ||||||||
| 9.1 | Other listing expenses represents promissory note of USD |
F-124
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| 10 | General and Administration Expenses |
| Employees’ cost | ||||||||
| Legal and professional | ||||||||
| Insurance | ||||||||
| Board fees and expenses | ||||||||
| Office expenses | ||||||||
| Repairs and maintenance | ||||||||
| Sales and marketing | ||||||||
| Rent | ||||||||
| Travelling expenses | ||||||||
| 11 | Finance Costs |
| Interest expense on borrowings | ||||||||
| Interest on lease liability | ||||||||
| Early settlement charges | ||||||||
| Asset retirement obligation - accretion expenses | ||||||||
| Bank charges | ||||||||
| Exchange loss | ||||||||
| 12 | Cash and Cash Equivalents |
| Cash in hand | ||||||||
| Balances in current accounts | ||||||||
| The above consist of the following: | ||||||||
| Non-current. | ||||||||
| Restricted bank balance | ||||||||
| Current | ||||||||
| Cash and Cash Equivalents | ||||||||
| Restricted bank balance | ||||||||
The cash and bank balances disclosed
above and in the consolidated statement of cash flows include USD
F-125
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| 12 | Cash and Cash Equivalents (Continued) |
A first priority pledge over the balances in the Earnings account, Liquidity account, Construction Funding account and Debt Service Retention account is held as security under the Bond terms (Note 22).
| 13 | Trade Accounts Receivables |
| Accounts receivables | ||||||||
Receivables are due within 14 days of invoicing.
Unimpaired trade receivables are expected to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables and the vast majority is, therefore, unsecured.
| 14 | Inventories |
| Spare parts and consumables | ||||||||
Cost of inventories recognised during
the year amounted to USD
| 15 | Other Receivables and Prepayments |
| Prepaid expenses | ||||||||
| Due from related parties (Note 27) | ||||||||
| VAT receivable | ||||||||
| Deposits | ||||||||
| Staff advances | ||||||||
| Advance paid to suppliers and contractors | ||||||||
| 16 | Property, Plant and Equipment |
| a) | The movement schedule is set out on page 48. |
| 17 | Advances to Contractor |
| Advances to contractor | ||||||||
F-126
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| 18 | Trade and Accounts Payable |
| Trade accounts payable | ||||||||
| Capital accruals | ||||||||
| Accrued interest on term loans | ||||||||
| Due to a related party (Note 27) | ||||||||
| Advances from customer | ||||||||
| Accrued expenses | ||||||||
| Payables to third parties | ||||||||
| 19 | Other Payable |
| M/s Brooge International Advisory LLC | ||||||||
Please refer Note 34 for more details.
| 20 | Derivative Warrant Liability |
| Issuance of | ||||||||
| Fair value remeasurement of derivative warrant liability | ( | ) | ( | ) | ||||
In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.
In connection with the completion
of the business combination on 20 December 2019, each of Twelve Sea’s
At initial recognition on 20 December
2019, the Group recorded a derivative warrant liability of USD
F-127
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| 20 | Derivative Warrant Liability (Continued) |
On 14 May 2020, holders of 100 warrants have exercised their rights through cash exercise and converted the warrants into ordinary shares.
At 31 December 2020, the Group recorded
a derivative warrant liability of USD
| 21 | Derivative Financial Instruments |
| Interest rate swaps | ||||||||
In 2018, the Group entered into an interest rate swap with a commercial bank exchanging variable interest for fixed interest at specified dates on its term loan 1. The interest rate swap matures in June 2023.
The Group is exposed to variability in future interest cash flows on terms loan and Islamic ijara loan which bears interest at a variable rate.
During the year, the Group fully settled
the term loans as well as the interest rate swaps. The Group have repaid USD
The details of these derivative financial instruments are as follows:
| Notional | Fair value | Fair value | ||||||||||
| Amount (USD) | asset (USD) | liability (USD) | ||||||||||
| 31 December 2020 | ||||||||||||
| Designated at FVTPL | ||||||||||||
| Interest rate swaps | ||||||||||||
| 31 December 2019 | ||||||||||||
| Designated at FVTPL | ||||||||||||
| Interest rate swaps | ||||||||||||
| 22 | Borrowings |
| Bonds | ||||||||||||
| Secured term loans | ||||||||||||
| Promissory notes | ||||||||||||
The current and non- current break up as below:
| Non- Current | Maturity 2025 | |||||||||||
| Bonds | ||||||||||||
| Term loan 1 | ||||||||||||
| Term loan 2 | ||||||||||||
F-128
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| 22 | Borrowings (Continued) |
| Current | ||||||||
| Bonds | ||||||||
| Term loan 1 | ||||||||
| Term loan 2 | ||||||||
| Term loan 3 | ||||||||
| Promissory notes | ||||||||
| Coupon | Effective interest | 2020 | 2019 | |||||||||||||||
| Bonds | rate % | rate % | Maturity date | USD | USD | |||||||||||||
| USD | % | % | 2015 | |||||||||||||||
On 24 September 2020, the Group issued
long term fixed interest rate senior secured bonds of USD
The bonds will be repaid in semi-annual
payments of USD
The bonds are secured by:
(i) pledge over all the existing and future shares of BPGIC FZE;
(ii) assignment of rights and pledge over the balance in the Earnings account;
(iii) pledge over the balance in the Liquidity account, the Debt Service Retention account and the Construction Funding account;
(iv) pledge over moveable assets of BPGIC FZE and its subsidiaries;
(v) security assignment of commercial contracts related to phase I and phase II, land lease agreement, port facilities agreement and EPC construction contract;
(vi) security assignment over insurance contracts for phase I terminal, phase II terminal and admin building; (vii) security assignment over group and intercompany loans; and
(viii) corporate guarantee from Brooge Energy Limited.
F-129
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 22 | Borrowings (Continued) |
Bonds (Continued)
The bond agreement also restricts BPGIC FZE from making any distributions other than in the form of an inter-company loan for phase III construction.
Under the bond agreement, BPGIC FZE is subject to the following financial covenants during the term of the bonds:
(i) Minimum Liquidity: BPGIC FZE to maintain $8.5 million in the Liquidity account;
(ii) Leverage Ratio: BPGIC FZE and its subsidiaries’ leverage ratio not to exceed: (A) 5.5x at 31 December 2020; (B) 3.5x at 31 December 2021; and (C) 3.0x anytime thereafter; and
(iii) Working Capital: BPGIC FZE and its subsidiaries to maintain a positive working capital.
The bond agreement requires the Group to comply with the following financial covenant: (i) Brooge Energy Limited to maintain a minimum equity ratio of 25%.
As of 31 December 2020, BPGIC FZE and the Group was in compliance with its commitments under the bond agreement.
Included in secured loans are the below term loans:
Term loan 1
In 2014, the Group obtained term loan
facility (1) amounting to USD
In 2018, the Group entered into an agreement
to amend term loan facility (1). As a result of this amendment the loan was repayable in 48 quarterly instalments starting October 2018
with final maturity in July 2030. The loan carries interest at 3 month EIBOR +
On 10 September 2019, the Group entered
into an agreement with the bank to again amend term loan facility (1). The loan was payable in 45 instalments starting 31 October 2019
with final maturity on 30 July 2030. One of the instalments included a one-time lump sum repayment of USD
F-130
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 22 | Borrowings (Continued) |
Term loan 1 (Continued)
On 30 December 2019, the Group entered
into an amendment for term loan facility (1). The loan was payable in 44 instalments starting 31 January 2020 with final maturity on 30
July 2030. One of the instalments included a one-time lump sum repayment of USD
On 15 June 2020, the Group entered
into another amendment for term loan facility (1). The new payment terms comprised of 46 instalments starting 30 June 2020 with final
maturity on 31 July 2030. The loan carried interest at 6 month EIBOR +
In November 2020, the Group fully
settled the term loan facility (1) using the proceeds of the Bond issue. The Group paid USD
Term loan 2
During 2017, the Group obtained an
additional term loan facility (2) of USD
During the year 2018, the Group has
entered in to an agreement to amend term loan facility (2). The loan was repayable in 20 quarterly instalments starting October 2018 with
final maturity in July 2023.The loan carried interest at 3 month EIBOR +
On 15 June 2020, the Group entered
into another amendment by revoking the previous amendment for term loan facility (2). The loan was payable in 16 instalments starting
30 June 2020 with final maturity on 31 July 2030. The loan carried interest at 3 month EIBOR +
In November 2020, the Group fully
settled the term loan facility (2) using the proceeds of the Bond issue. The Group paid USD
F-131
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 | 2019 | ||||||
| 22 | Borrowings (Continued) |
Term loan 2 (Continued)
The term loans 1 and 2 were secured by a mortgage on the tanks and the office/administration building, step-in right to the leased land and assignment of insurance policies. The security was released upon the settlement of loans.
Term Loan 3
In 2018, the Group obtained a new
facility from a commercial bank in the UAE amounting to USD
The Group did not make any drawdowns on the term loan facility (4). In 2020, the Group has cancelled the facility subsequent to the issuance of the bonds.
Promissory notes
Pursuant to the Business Combination
Agreement, on December 20, 2019, Twelve Seas, Early Bird Capital (EBC), and the Company entered into the Business Combination Marketing
Agreement Fee Amendment (the “BCMA Fee Amendment”) whereby the Company became party to the Business Combination Marketing
Agreement solely with respect to the provision relating to EBC’s fees and EBC’s fees were amended. Pursuant to the Business
Combination Marketing Agreement, as amended by the BCMA Fee Amendment, EBC received as full payment for any and all fees under the Business
Combination Marketing Agreement, a cash fee equal to USD
There is an additional promissory
note of USD
| 23 | Lease Liabilities |
| Balance at the beginning of the year | ||||||||
| Additions during the year | ||||||||
| Interest charged during the year | ||||||||
| Lease rentals during the year | ( | ) | ( | ) | ||||
| Balance at the end of the year |
1) The analysis of lease liability is as follows:
| Current | ||||||||
| Non-Current |
F-132
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 | 2019 | ||||||
| 23 | Lease Liabilities (Continued) |
During 2013,
During the year,
| Lease payments | Present value of minimum lease payments | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Not later than one year | ||||||||||||||||
| Later than one year and not later than five years | ||||||||||||||||
| Later than five years | ||||||||||||||||
| Finance costs | ( | ) | ( | ) | ||||||||||||
| Present value of minimum lease payments | ||||||||||||||||
| 24 | Employees’ End of Service Benefits |
| Balance at the beginning of the year | ||||||||
| Provision for the year | ||||||||
| Paid during the year | ( | ) | ( | ) | ||||
| Balance at the end of the year |
| 25 | Asset Retirement Obligation |
| Asset retirement obligation | ||||||
As part of the land lease agreement between the Fujairah Oil Industry Zone (“FOIZ”) and the Group, the Group has a legal obligation to remove the plant at the end of its useful life, or earlier, if the Group is unable to continue its operations, and restore the land. The Group has employed professional valuers to estimate the amount of liability.
F-133
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
(Figures in USD)
| 26 | Share Capital & Share Premium |
| No. of Shares | USD | |||||||
| Ordinary shares | ||||||||
Share Capital
| Conversion of 100 BPGIZ FZE ordinary shares at 1 for 1 million to the legal acquirer, Brooge Energy (Note 1) | ||||||||
| Cash election | ||||||||
| Changes in share capital due to business combination (Note 31) | ( | ) | ( | ) | ||||
| As at December 31, 2019 | ||||||||
| Changes in share capital due to reverse acquisition transaction | ||||||||
| ( | ) | ( | ) | |||||
| Conversion of 100 warrants into ordinary shares at 1 for 1 | ||||||||
| As at 31 December 2020 | ||||||||
Note 1: Ordinary shares held in escrow (
| 2020 | 2019 | |||||||
| Share Premium | (Re-stated) | (Re-stated) | ||||||
| As at January 01 | ||||||||
| Conversion of 100 warrants in ordinary shares at 1 for 1 | ||||||||
| Ordinary shares issued on merger with Twelve Seas | ||||||||
| Cash election | ( | ) | ||||||
| As at December 31 | ||||||||
| 27 | Transactions with Related Parties |
The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with
related parties are as under:
| Transactions in shareholders’ account | ||||||||
| Contributions/ (distributions) by/to the shareholders | ( | ) | ||||||
| Amounts paid on behalf of the Group by the shareholders* | ||||||||
| Amounts paid by the Group on behalf of the shareholders | ( | ) | ||||||
| Distributions to shareholders | ( | ) | ||||||
| ( | ) | |||||||
These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equity.
| * |
F-134
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| 27 | Transactions with Related Parties (Continued) |
Changes in shareholders’ account is as follows:
| At January 01 | ||||||||
| Net contributions (distributions) during the year | ( | ) | ||||||
| At December 31 | ||||||||
| Expense paid on behalf of related parties | ||||||||
| Key management remuneration |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| At January 01 | 70,995,455 | 47,717,763 | ||||||
| Net contributions (distributions) during the year | (233,457 | ) | 23,277,692 | |||||
| At December 31 | 70,761,998 | 70,995,455 | ||||||
| Expense paid on behalf of related parties | 23,463 | 57,550 | ||||||
| Key management remuneration | 1,417,266 | 1,160,293 | ||||||
Related party balances as at the year end are classified as under:
| Related Party | Classification | |||||||||
| Shareholder | Shareholder’s account (Equity) | |||||||||
| HBS Investments LP | Due from related parties (Note 15) | |||||||||
| H Capital International LP | Due from related parties (Note 15) | |||||||||
| O2 Investments Limited as GP | Due from related parties (Note 15) | |||||||||
| SBD International LP | Due from related parties (Note 15) | |||||||||
| SD Holding Limited as GP | Due from related parties (Note 15) | |||||||||
| Gyan Investments Ltd | Due from related parties (Note 15) | |||||||||
| Shareholder | Due to a related party (Note 18) | |||||||||
| 28 | Contingent Liabilities |
| Capital commitments within one year | ||||||||
Capital commitments relate to construction of phase 2 which is expected to be completed by the end of third quarter of 2021.
Except for the above and ongoing purchase commitments in the normal course of business against which no loss is expected, there are no other known contingent liabilities existing at the balance sheet date.
| 29 | Earnings Per Share |
Basic EPS is calculated by dividing the profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
F-135
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| 29 | Earnings Per Share (Continued) |
The following table reflects the income and share data used in the basic and diluted EPS calculations:
| Profit / (Loss) attributable to ordinary equity holders of the parent | ( | ) | ||||||
| Weighted average number of ordinary shares |
As part of the business combination (Note 31) warrants and ordinary shares subjected to escrow has been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.
The number of contingently issuable shares (escrow shares) to be included in the diluted earnings per shares calculation is based on the number of shares that would be issuable if the end of the period were the end of the contingency period. No ordinary shares would have been issuable on 31 December 2020 as the conditions attached to the escrow shares have not been met at reporting date. As a result, the escrow shares have been excluded from the calculation of diluted earnings per share for 31 December 2020 and the weighted average number of ordinary shares for basic earnings per share and diluted earnings per shares are the same.
On 14 May 2020, holders of
| 30 | Fair Value of Financial Instruments |
Management considers that the fair value of financial assets and financial liabilities in the consolidated financial statements approximate their carrying amounts at the reporting date.
Fair Value Hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
| Liabilities measured at fair value: | Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
| USD | USD | USD | USD | |||||||||||||
| December 31, 2020 | ||||||||||||||||
| Derivative financial instruments | ||||||||||||||||
| December 31, 2019 | ||||||||||||||||
| Derivative financial instruments | ||||||||||||||||
The fair values of the financial liabilities measured at fair value included in the Level 1 and Level 2 category above, have been determined in accordance with quoted price and generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.
During the year ended 31 December 2020 and 2019, there were no transfers between Level 1 and Level 2 fair value measurements.
F-136
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 31 | Business Combination |
In connection with the Business Combination as described in Note 1, the following occurred:
Twelve Seas:
(i) Each outstanding ordinary share of Twelve Seas has been exchanged for one (1) ordinary share of Brooge Energy.
(ii) Each outstanding warrant of Twelve Seas has been exchanged for one warrant of Brooge Energy.
(iii) As part of the Business Combination,
(iv) In connection with the closing
of the Business Combination, holders of
Brooge Petroleum and Gas Investment Company FZE:
Twelve Seas issued a total of 100 million shares (inclusive of 20 million of escrowed shares) to BPGIC in exchange for 100 ordinary shares of BPGIC. All 100 million shares were simultaneously replaced with Brooge Energy shares at the ratio of 1:1.
The fair value of the shares that were
swapped between the parties above was based on the closing share price of Brooge Energy’s as traded on NASDAQ on December 20, 2019
which was USD
The fair value of the warrants that
were swapped between the parties above was based on the closing price of Brooge Energy’s as traded on NASDAQ on December 20, 2019
which was USD
As part of the above-mentioned
business combination, Twelve Seas’ net assets of USD
The net assets of USD
| Cash and cash equivalent | ||||
| Current assets | ||||
| Accounts payable | ( | ) | ||
F-137
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 31 | Business Combination (Continued) |
The total shares issued by Brooge
Energy to BGPIC was
(i) One-half (½) of the Escrow
Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either:
(ii) All Escrow Property remaining
in the Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either:
The same conditions mentioned above applied for the escrow founder shares.
| 32 | Subsequent Events |
| ● | On September 21, 2022 the Group announced that its wholly owned subsidiary, Brooge Petroleum and Gas Investment Company FZE inaugurated its Phase II storage facility. The new Phase II facility was built utilizing state-of-the-art technology to maximize performance and efficiency and can store not only crude and fuel oils but also clean petroleum products which is a competitive edge the company is able to provide to its customers. Additionally, the Company is also able to provide is customers with ancillary services including product blending and heating. |
F-138
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 33 | Financial Risk Management and Policies |
The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks. The Group’s borrowing are issued at fixed rate of interest.
Market Risk
The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.
At the reporting date, the exposure
to derivative warrant liability at fair value listed on the NASDAQ was USD
Currency Risk
The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2020 and 2019.
The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.
Liquidity Risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.
F-139
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 33 | Financial Risk Management And Policies (Continued) |
Liquidity Risk (Continued)
The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.
The table below summarizes the maturity profile of the Group’s financial liabilities at December 31, 2020 and December 31, 2019 based on contractual undiscounted payments.
| On | Upto | 1 to 5 | > 5 | |||||||||||||||||
| Demand | 1 Year | Years | Years | Total | ||||||||||||||||
| USD | USD | USD | USD | USD | ||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||
| Bonds (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Derivative financial instruments | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||
| Term loans (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Derivative financial instruments | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
F-140
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| (Figures in USD) | 2020 (Re-stated) | 2019 (Re-stated) | ||||||
| 33 | Financial Risk Management And Policies (Continued) |
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated losses) retained earnings.
| Borrowings | ||||||||
| Lease liability | ||||||||
| Less: Cash and cash | ( | ) | ( | ) | ||||
| equivalents | ||||||||
| Net debt | ||||||||
| Total capital | ||||||||
| Capital and net debt | % | % | ||||||
| Gearing ratio |
| 34 | Current Year and Prior Year Restatement |
i) The comparative figures for 2019 were restated previously on account of errors identified by the management subsequent to the issuance of the 2019 audited consolidated financial statements.
ii) In year 2022, subsequent to the issuance of the Group’s 2020 financial statements, the Group identified errors in the consolidated financial statements for the year ended 31 December 2020 and determined that the year 2020 consolidated financial statements should be restated. The basis of such error and restatement is given as below:
Restatement Background
As disclosed on May 27, 2022, the Group has not been able to file the 2021 Form 20-F due to an ongoing non-public examination being conducted by the U.S. Securities and Exchange Commission (the “SEC”) regarding the financial statements of the Group. Subsequently, the Audit Committee of the Board of Directors (the “Audit Committee”), engaged independent counsel to conduct under its supervision an internal examination into the Group’s revenue recognition practices and related matters. As a result of the findings from this internal examination, on August 12, 2022, the Audit Committee, in consultation with the Group’s management, concluded that the previously issued audited consolidated financial statements as of and for the periods ending December 31, 2020 and 2019 the previously issued unaudited financial statements for interim periods therein and the six months ended June 30, 2021 should no longer be relied upon.
F-141
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 34 | Current Year and Prior Year Restatement (Continued) |
In connection with the internal examination,
the Company conducted a comprehensive review of the accounting policies, procedures, and internal controls related to revenue recognition.
All available customer contracts were assessed based on International Financial Reporting Standard (IFRS) 15 ‘Revenue from Contracts
with Customers’ and IFRS 16 ‘Leases’. This review identified that the funds received from a related party BIA do not
qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in the Company’s internal examination,
including the number of years over which the non-qualified revenue was recognized, the Company determined that it would be appropriate
to rectify the misstatements in the previously issued financial statements by restating such financial statements. Accordingly, for the
year 2020 the Company reversed revenue amounting to USD
The Management does not expect to settle these amounts using any of it’s current assets or any existing resources in the foreseeable future. Pending its potential receipt of confirmation or adequate supporting documentation from the party. The Group has taken a conservative approach to recognise this as a liability. The Group continues to assess this liability and will evaluate whether there arises any obligation or it is discharged or cancelled or expires or is swapped out for one with significantly different terms or when the terms of are significantly modified, such an exchange or modification is recognized as a derecognition of the old liability and the recognition of a new liability or as equity contribution, as applicable and the difference in the respective carrying amounts will be recorded in the consolidated statement of either other comprehensive income or directly as equity as applicable.
The above changes pertaining to reversal of Revenue and recognition of such amount under Other payable were accounted retrospectively in accordance with IAS 8 and, accordingly the prior years’ financial statements have been restated as disclosed in Page 49.
| 35 | Reaudit of the Consolidated Financial Statements |
The consolidated financial statements are re-audited as the Group has undertaken a restatement of its consolidated financial statement for the year ended December 31, 2018, the details of which are mentioned in Note 34. The restatement mainly pertains to revenue, other payable and trade account receivable.
| 36 | Rounding Off of Figures |
All figures have been rounded off to the US Dollars.
| 37 | Comparative Figures |
Certain of the prior year figures have been regrouped to conform with the presentation of the current year.
F-142
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 37 | Comparative Figures (Continued) |
| Groupings for Property, Plant and Equipment | ||||||||||||||||||||||||||||
| Buildings | Installations | Other Equipments | Tanks | Capital Work in Progress | Right of
use Assets | (Figures in USD) Total | ||||||||||||||||||||||
| Cost: | ||||||||||||||||||||||||||||
| As at January 01, 2020 | ||||||||||||||||||||||||||||
| Additions during the year | ||||||||||||||||||||||||||||
| As at December 31, 2020 | ||||||||||||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||||||
| As at January 01, 2020 | ||||||||||||||||||||||||||||
| Charge for the year | ||||||||||||||||||||||||||||
| As at December 31, 2020 | ||||||||||||||||||||||||||||
| Net Carrying Value: | ||||||||||||||||||||||||||||
| As at December 31, 2020 | ||||||||||||||||||||||||||||
| As at December 31, 2019 | ||||||||||||||||||||||||||||
Capital work in progress at December
31, 2020 includes total amount of USD
The capitalized borrowing costs of
phase 2 amounting to USD
Land lease agreement and the moveable assets of BPGIC FZE are pledged as security against borrowing obtained in 2020 (Note 22).
The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows:
| 2020 | 2019 | |||||||
| Direct costs (Note 7) | ||||||||
| CWIP | ||||||||
F-143
| Brooge Energy Limited |
| Notes to the Consolidated Financial Statements December 31, 2020 |
| 37 | Comparative Figures (Continued) |
| (Figures in USD) | As previously reported | Restatement adjustments | As per the restated Financial Statement | |||||||||||||||||||||
| 31-12-20 | 31-12-19 | 31-12-20 | 31-12-19 | 31-12-20 | 31-12-19 | |||||||||||||||||||
| Consolidated Statement of Comprehensive Income | ||||||||||||||||||||||||
| Revenue | ( | ) | ( | ) | ||||||||||||||||||||
| Direct costs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Gross Profit / (Loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Other income | ||||||||||||||||||||||||
| General and administration expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Change in estimated fair value of derivative warrant liability | ||||||||||||||||||||||||
| Finance costs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Profit for the year | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Consolidated Statement of Financial Position | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current Assets | ||||||||||||||||||||||||
| Trade receivables | ( | ) | ||||||||||||||||||||||
| Other receivable and prepayments | ( | ) | ( | ) | ||||||||||||||||||||
| Total Current Assets | ( | ) | ( | ) | ||||||||||||||||||||
| Non-Current Assets | ||||||||||||||||||||||||
| Advances to contractor | ||||||||||||||||||||||||
| Total Non-Current Assets | ||||||||||||||||||||||||
| Total Assets | ( | ) | ( | ) | ||||||||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||||||
| Trade and accounts payable | ||||||||||||||||||||||||
| Other payable | ||||||||||||||||||||||||
| Lease liabilities | ( | ) | ||||||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||||||
| Non-current liabilities | ||||||||||||||||||||||||
| Lease liabilities | ||||||||||||||||||||||||
| Total Non-Current Liabilities | ||||||||||||||||||||||||
| Equity | ||||||||||||||||||||||||
| Share capital | ||||||||||||||||||||||||
| Retained earnings | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Statutory reserve | ( | ) | ( | ) | ||||||||||||||||||||
| Shareholders’ account | ( | ) | ( | ) | ||||||||||||||||||||
| Total Equity | ( | ) | ( | ) | ||||||||||||||||||||
| Total Equity & Liabilities | ( | ) | ( | ) | ||||||||||||||||||||
F-144
Brooge Energy Limited
(Formerly Brooge Holdings Limited)
Consolidated Financial Statements
December 31, 2019
F-145
Brooke Energy Limited
Index to the Financial Statements
December 31, 2019
F-146
 |
Office 106, The Binary [T] +971 4 557 8358 | |
|
Independent Auditor’s Report
To the Board of Directors and Shareholders of Brooge Energy Limited and its Subsidiaries
Report on the Audit of the Consolidated Financial statements
Opinion
We have audited the consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprises of the consolidated statement of financial position as at December 31, 2019, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.
In our opinion, the accompanying consolidated financial statements, present fairly, in all material respects, the consolidated financial position of Brooge Energy Limited and its Subsidiaries as at December 31, 2019 and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the and the PCAOB.
We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of the Group 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
a. We draw your attention to Note no. 33 where the Group has reversed the revenue amounting to USD 28,200,155 which mainly represents funds received from M/s Brooge International Advisory LLC (BIA) which was earlier accounted as the revenue. Since the Group could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, an amount of USD 29,939,548 representing the funds received from BIA has been classified as Other payable in the financial statements for the year ended December 31, 2019. | ||
F-147
 |
Emphasis of Matter (Continued)
b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party. Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party.
c. We draw attention to consolidated statement of comprehensive income in the consolidated financial statements, which indicates that the Group incurred a net loss of USD 104,689,000 during the year ended December 31, 2019 and, as of that date, the Group’s current liabilities exceed current assets by USD 131,835,583. Our opinion is not modified in respect of this matter.
Reaudit of Consolidated Financial Statements for the Year Ended December 31, 2019
Attention is invited to Note 34 Reaudit of the consolidated financial statements. The consolidated financial statements of the Group are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable, which were recorded erroneously due to the inadequate documents.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined that there are no other key audit matters to communicate in our report.
Responsibility of the Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations or has no realistic alternative but to do so. |
F-148
|
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s 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 ISA’s 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 consolidated financial statements.
As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;
● Identify and assess the risks of material misstatement of the consolidated 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 risks 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, misrepresentation or override of internal controls.
● Obtain an understanding of internal controls 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 Group’s internal controls.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
● Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.
|
F-149
|
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters.
Affiniax A A S Auditors
Dubai, United Arab Emirates, April 24, 2023
|
F-150
Brooge Energy Limited
Consolidated Statement of Comprehensive Income
Year Ended December 31, 2019
| (Figures in USD) | Note | 2019 | 2018 | |||||||
| (Re-stated) | (Re-stated) | |||||||||
| Revenue | 6 | |||||||||
| Direct costs | 7 | ( | ) | ( | ) | |||||
| Gross profit / (loss) | ( | ) | ||||||||
| Other income | 8 | |||||||||
| Change in estimated fair value of derivative warrant liability | 20 | |||||||||
| Listing expenses | 9 | ( | ) | |||||||
| General and administration expenses | 10 | ( | ) | ( | ) | |||||
| Finance costs | 11 | ( | ) | ( | ) | |||||
| Changes in fair value of derivative financial instruments | 21 | ( | ) | ( | ) | |||||
| Loss for the year | ( | ) | ( | ) | ||||||
| Other comprehensive income | ||||||||||
| Total Comprehensive Loss for the year | ( | ) | ( | ) | ||||||
| 28 | ( | ) | ( | ) | ||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-151
Brooge Energy Limited
Consolidated Statement of Financial Position
As
at December 31, 2019
| (Figures in USD) | Note | 2019 | 2018 | |||||||
| (Re-stated) | (Re-stated) | |||||||||
| ASSETS | ||||||||||
| Current Assets | ||||||||||
| Cash and cash equivalents | 12 | |||||||||
| Trade accounts receivable | 13 | |||||||||
| Inventories | 14 | |||||||||
| Other receivable and prepayments | 15 | |||||||||
| Total Current Assets | ||||||||||
| Non-Current Assets | ||||||||||
| Property, plant and equipment | 16 | |||||||||
| Advances to contractor | 17 | |||||||||
| Total Non-Current Assets | ||||||||||
| Total Assets | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
| Current Liabilities | ||||||||||
| Trade and accounts payable | 18 | |||||||||
| Other payable | 19 | |||||||||
| Derivative warrant liability | 20 | |||||||||
| Derivative financial instruments | 21 | |||||||||
| Borrowings | 22 | |||||||||
| Lease liabilities | 23 | |||||||||
| Total Current Liabilities | ||||||||||
| Non-Current Liabilities | ||||||||||
| Borrowings | 22 | |||||||||
| Lease liabilities | 23 | |||||||||
| Employees’ end of service benefits | 24 | |||||||||
| Total Non-Current Liabilities | ||||||||||
| Equity | ||||||||||
| Share capital | 25 | |||||||||
| Share premium | 25 | |||||||||
| Retained earnings | ( | ) | ( | ) | ||||||
| Shareholder’s account | ||||||||||
| Total Equity Attributable to the Shareholders | ||||||||||
| Total Liabilities and Equity | ||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-152
Brooge Energy Limited
Consolidated Statement of Changes in Equity
Year Ended December 31, 2019
| (Figures in USD) | Share Capital | Share Premium | Accumulated Losses | Shareholder’s Account | Total | |||||||||||||||
| As at January 01, 2018 (Restated) | ( | ) | ||||||||||||||||||
| Loss for the year | ( | ) | ( | ) | ||||||||||||||||
| Movements during the year | ( | ) | ( | ) | ||||||||||||||||
| As At December 31, 2018 (Restated) | ( | ) | ||||||||||||||||||
| Shares issuance in connection with a merger (Note 30) | ||||||||||||||||||||
| Cash election in lieu of shares | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Loss for the year | ( | ) | ( | ) | ||||||||||||||||
| Movements during the year | ||||||||||||||||||||
| As At December 31, 2019 (Restated) | ( | ) | ||||||||||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-153
Brooge Energy Limited
Consolidated Statement of Cash Flows
Year Ended December 31, 2019
| (Figures in USD) | 2019 | 2018 | ||||||
| (Re-stated) | (Re-stated) | |||||||
| Cash Flow from Operating Activities | ||||||||
| Loss for the year | ( | ) | ( | ) | ||||
| Adjustments for: | ||||||||
| Depreciation of property, plant and equipment | ||||||||
| Interest charged on lease liability | ||||||||
| Provision for employees’ end of services benefits | ||||||||
| Change in estimated fair value of derivative warrant liability | ( | ) | ||||||
| Net changes in fair value of derivative financial instruments | ||||||||
| Shares issuance in connection with a merger | ||||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) / Decrease in trade accounts, other receivable and prepayments | ( | ) | ||||||
| (Increase) / Decrease in inventories | ( | ) | ||||||
| Increase in trade and accounts payable | ||||||||
| Increase in other payable | ||||||||
| Payment of employees’ end of services benefits | ( | ) | ( | ) | ||||
| Net cash (used in) / generated from operating activities | ||||||||
| Cash Flow from Investing Activities | ||||||||
| Advance to contractors | ( | ) | ||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flow from Financing Activities | ||||||||
| Issuance of 21,229,000 warrants in connection with merger | ||||||||
| Issuance of interest rate swaps | ||||||||
| Net of (repayment) / proceeds from term loan | ( | ) | ||||||
| Payment of lease liability | ( | ) | ( | ) | ||||
| Movement in shareholder’s account | ( | ) | ||||||
| Cash election in lieu of shares | ( | ) | ||||||
| Net cash generated from / (used in) financing activities | ( | ) | ||||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of the year | ||||||||
| Cash and cash equivalents at end of the year | ||||||||
The accompanying notes form an integral part of the consolidated financial statements.
F-154
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 1 | Legal Status, Management and Business Activity |
The consolidated financial statements comprise of the consolidation of the financial statements of Brooge Energy Limited (the “Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”. The details of the Group are as follows:
a. Brooge Energy Limited
The Company (formerly known as Brooge Holdings Limited) is a company with limited liability registered as an exempted company in the Cayman Islands.
The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).
The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.
The subsidiaries of the Company are as follows:
i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)
BPGIC FZE is a free zone Company formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.
BPGIC FZE is a
ii. BPGIC International (“BPGIC International”)
BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.
BPGIC International is a
The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The construction of the Company’s phase II, with a total capacity of 602,064 cbm was completed in September 2021.
The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.
On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.
The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) as disclosed in Note 30.
F-155
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 1 | Legal Status, Management and Business Activity (Continued) |
Under this method of accounting, Brooge Energy and Twelve Seas are treated as the “acquired” company. This determination was primarily based on BPGIC FZE comprising the ongoing operations of the combined company, BPGIC FZE’s senior management comprising the senior management of the combined company, and BPGIC FZE’s stockholders having a majority of the voting power of the combined company. For accounting purposes, BPGIC FZE is deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of BPGIC FZE. Accordingly, the consolidated assets, liabilities and results of operations of BPGIC FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.
As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve Seas changed its name to ‘BPGIC International’.
The consolidated financial statements are prepared as a continuation of the financial statements of BPGIC FZE, the acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited). The comparative financial years included herein are derived from the consolidated financial statements of BPGIC FZE as adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited).
The reaudited consolidated financial statements were authorised for issue by the Board of Directors.
| 2 | Basis of Preparation of Consolidated Financial Statements |
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board “IASB”. These consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group. All financial information presented in USD has been rounded to the nearest thousand, unless otherwise stated. The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of derivative financial instruments and warrant liability.
(i) Subsidiaries
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at December 31, 2019. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
| ● | Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); |
| ● | Exposure, or rights, to variable returns from its involvement with the investee; and |
| ● | The ability to use its power over the investee to affect its returns |
F-156
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
| ● | The contractual arrangement with the other vote holders of the investee; |
| ● | Rights arising from other contractual arrangements; and |
| ● | The Group’s voting rights and potential voting rights. |
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed off during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
| ● | derecognizes the assets (including goodwill) and liabilities of the subsidiary |
| ● | derecognizes the carrying amount of any non-controlling interests |
| ● | derecognizes the cumulative translation differences recorded in equity |
| ● | recognizes the fair value of the consideration received |
| ● | recognizes the fair value of any investment retained |
| ● | recognizes any surplus or deficit in profit or loss |
| ● | reclassifies the parent’s share of components previously recognized in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities |
Details of subsidiaries as at December 31, 2019 and December 31, 2018 are stated in Note 1.
The financial statements of the subsidiaries are prepared for the same reporting year as the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
The carrying amount of the Company’s investment in the subsidiaries and the equity of the subsidiaries are eliminated on consolidation. All significant intra-group balances, and income and expenses arising from intra-group transactions are also eliminated on consolidation.
(ii) Non-controlling interests (“NCI”)
NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(iii) Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any noncontrolling interests in the acquiree. For each business combination, the Group elects whether to measure the noncontrolling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
F-157
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with changes in fair value recognised either in profit or loss or as a change to other comprehensive income.
Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.
A ‘reverse acquisition’ is a business combination in which the legal acquirer - i.e. the entity that issues the securities (i.e. listed entity) becomes the acquiree for accounting purposes and the legal acquiree becomes the acquirer for accounting purposes. It is the application in accordance with IFRS 3 Business Combinations on identifying the acquirer, which results in the identification of the legal acquiree as the accounting acquirer in a reverse acquisition. Application in accordance with IFRS 3 Business Combinations on identifying the acquirer may result in identifying the listed entity as the accounting acquiree and the unlisted entity as the accounting acquirer. In this case, if the listed entity is:
| ● | A business, IFRS 3 Business Combinations applies; |
| ● | Not a business, IFRS 2 Share-based Payment applies to the transaction once the acquirer has been identified following the principles in accordance with IFRS 3 Business Combinations. Under this approach, the difference between the fair value of the consideration paid less the fair value of the net assets acquired, is recognized as a listing expense in profit or loss. |
| 2 | Fundamental Accounting Concept |
As of 31 December 2018, the Group
had not paid USD
On September 10, 2019 and again
on December 30, 2019 the Group entered into agreements with its lender to amend the Phase 1 Financing Facility such that on December 31,
2019 the Group was in compliance with the amended facility agreement. At December 31, 2019, the Group’s current liabilities exceeded
its current assets by USD
F-158
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 2 | Basis of Preparation of Consolidated Financial Statements (Continued) |
Fundamental Accounting Concept (Continued)
Subsequent to the year end, the Group defaulted on its commitments under its term loans and the Group was not in compliance with its debt covenants, including the debt service coverage ratio contained in the Group’s loan agreement. Even though the lender did not declare an event of default under the loan agreements, these breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the loans.
On June 15, 2020, the Group entered
into an agreement with its lender to amend its Phase I Financing Facilities (note 22). The Group will have to pay principal and accrued
interest of USD
Term loan (1) and Term loan (2) is now payable in 46 and 16 instalments respectively starting June 30, 2020 with final maturity on July 31, 2030 and July 31, 2023, respectively.
During 2018, the Group signed a sales agreement for phase 2 to provide storage and ancillary services to an international commodity trading company, which was novated to a new party during the year. Phase 2 operations are scheduled to start in fourth quarter of 2020 and management expects this will generate significant operating cash flows. The Group is in receipt of a loan facility letter date 15 October 2018 from a lender. The Group intends to draw down from this facility to finance the payments due to the contractor in respect of Phase 2 construction in the third quarter of 2020. The ability of the Group to draw down on this facility is contingent upon a number of conditions agreed in the facility letter which will need to be assessed and approved by the bank prior to the disbursement of funds.
Group incurred a net loss of USD
Based on the above noted, management has considered the going concern status of the Group and believes there to be a material uncertainty that casts significant doubt upon the Group’s ability to continue as a going concern. Based on management’s forecasts the capital expenditure requirements for phase 2 and debt servicing as described above will be funded by cash generated through the ongoing operations and further drawdowns from loan facilities. The Group’s management acknowledge that there is a risk that the quantum and timing of cash flows may not be achievable in line with the twelve months forecasts from the date of approval of the Group’s financial statements. Accordingly, there is significant doubt that the Group will be able to pay its obligations as they fall due and this significant doubt is not alleviated by management’s plans.
These financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards issued by International Accounting Standards Board (IASB). The validity of this assumption depends upon the continued financial support to the Group by its Shareholders. The financial statements do not include any adjustment that should result from a failure to obtain such combined financial support. The Management has no intention to discontinue the operations of the Group. The assets and liabilities are recorded on the basis that the Group will be able to realise its assets and discharge its liabilities in the normal course of business. This position does not impair the financial position of the Group.
F-159
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 3 | Changes in Accounting Policies and Disclosures |
| New | and amended standards and interpretations. |
The Group applied certain standards, interpretations and amendments for the first time, which are effective for annual periods beginning on or after 1 January 2019. Except for IFRS 16, which was early adopted during the year ended 31 December 2016, the Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
| a) | Amendments to IFRS 9 Prepayment Features with Negative Compensation; |
| b) | IFRIC Interpretation 23 Uncertainty over Income Tax Treatments |
| c) | Amendments to IAS 19 Plan Amendment, Curtailment or Settlement; and |
| d) | Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures. |
Annual Improvements 2015-2017 Cycle
| a) | IFRS 3 Business Combinations; |
| b) | IFRS 11 Joint Arrangements; |
| c) | IAS 12 Income Taxes; and |
| d) | IAS 23 Borrowing Costs |
The adoption of above standards
and amendments did not have any significant impact on the consolidated financial statements of the Group except the amendments in IAS
23. These amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying
asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. The entity applies
the amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies
those amendments. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019. The implementation
of the amendments resulted in USD
| 4 | Significant Accounting Estimates and Judgements |
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. 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.
F-160
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 4 | Significant Accounting Estimates and Judgements (Continued) |
Estimation and assumptions
The key assumptions concerning the future, and other key sources of estimation uncertainty at the date of statement of financial position, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
Useful Life and Depreciation of Property, Plant and Equipment
The Company’s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear and the impact of expected residual value. Management reviews the useful lives annually and the future depreciation charge would be adjusted where management believes that the useful lives differ from previous estimates. The depreciation period of the right-of-use asset has been determined to be over the lease term on the basis that the land is expected to be used for the whole period of the lease considering the existing assets and future expansion on the land.
Asset retirement obligation
As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities. These assets can be used for an extended period of time as long as they are properly maintained and/or upgraded. It is the Group’s current intent to maintain its assets and continue making improvements to those assets based on technological advances. There is no data or information that can be derived from past practice, industry practice or the Group’s intentions that could be used to make a reliable estimate of the decommissioning cost. Accordingly, the Group has not recorded a liability or corresponding asset as the amounts of such potential future costs are not reliably determinable.
Discount rate used for initial measurement of lease liability
The Group, as a lessee, measures
the lease liability at the present value of the unpaid lease payments at the commencement date. The lease payments are discounted using
the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group
on initial recognition of the lease uses its incremental borrowing rate. Incremental borrowing rate is the rate of interest that the Group
would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value
to the right-of-use assets in similar economic environment. The Group determined its incremental borrowing rate at
Impairment of trade receivables
The Company uses the simplified approach under IFRS 9 to assess impairment of its trade receivables and calculates expected credit losses (ECLs) based on lifetime expected credit losses. The Company calculates the ECL based on Group historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.
F-161
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 4 | Significant Accounting Estimates and Judgements (Continued) |
Valuation of derivative financial instruments
The Group has entered into derivative financial instruments (interest rate swaps) with a financial institution with investment grade credit rating. Interest rate swaps are valued using valuation techniques, which employ the use of market observable inputs. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The changes in counterparty credit risk had no material effect on the derivative financial instruments recognised at fair value.
Fair value of Other Financial Instruments
Where 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 valuation techniques including discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of estimation is required in establishing fair values. The estimates include consideration of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements:
Business combination (reverse acquisition)
As the reverse acquisition of Brooge Energy did not constitute a business combination, the transaction was accounted for as an asset acquisition by the issuance of shares of the Company, for the net assets of Twelve Seas and its public listing. Accordingly, the transaction had been accounted for at the fair value of the equity instruments granted to the shareholders and warrant holders of Twelve Seas.
Management applied the following primary judgments in accounting for the reverse acquisition:
| 1. | BPGIC was assessed as the accounting acquirer due to majority shareholding and representatives on the board of directors. |
| 2. | The accounting acquiree is not a business and not in scope of IFRS 3. |
| 3. | The acquisition has been accounted for in terms of IFRS 2 which is aligned to guidance issued by the IFRIC. The difference between the fair value of the consideration paid and the fair value of the net assets acquired has been recognised in profit and loss. |
| 4. | Fair value of ordinary shares issued: Refer to Note 30. |
| 5. | The fair value of the shares in escrow is not materially different from that of the shares which are not in escrow as the rights of these shares are similar to those of “normal ordinary shares”. Fair value of the shares in escrow: Refer to Note 30. |
| 6. | Fair value of warrants issued: Refer to note 20. |
| 7. | Deemed share issue has been presented in the financing activities in the Statement of Cash Flows. |
F-162
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 4 | Significant Accounting Estimates And Judgements (Continued) |
Classification of warrants
Classification of warrants in connection with the completion of the business combination on 20 December 2019 as described in Note 1, Note 20 and Note 30 the Group issued warrants. The warrants agreement require the Group to issue a fixed number of shares for a fixed amount of cash, however it contains a clause that allows for cashless exercise (in the event that no effective registration is maintained), which may lead to the issuance of a variable number of shares. Management assessed that the maintenance of an effective registration statement is a matter not wholly within the control of the Group and as such classified the warrants as a financial liability at fair value through profit or loss.
| 5 | Summary of Significant Accounting Policies |
Revenue Recognition
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services or goods. Revenue is net of discounts and value added taxes. Monthly storage rates and prices for other services are contractually agreed before the services are rendered and do not contain material variable components. When it is probable that the future economic benefits will flow to the Group, the recognition in the consolidated statement of income is in proportion to the stage of the rendered performance as at the end of the reporting period. The Group has a right to a consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s services completed to date.
Tank storage rentals, including minimum guaranteed throughputs, are recognized on a straight-line basis over the contractual period during which the services are rendered. Revenues from excess throughputs, heating/cooling, homogenization, product movements and other services are recognized when these services are rendered. Customers simultaneously consume and benefit from the services at the moment that these are rendered, resulting in a situation where revenue is recognized over time. Where substantially the entire storage capacity is leased to a single customer, the contract contains a lease and the entire storage revenue is presented as lease revenue.
Storage fees are invoiced upfront in the month preceding the month to which the storage fees relate. Handling and other services are invoiced afterwards, based on the actual usage.
F-163
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 5 | Summary of Significant Accounting Policies (Continued) |
| Inventories |
Inventories are valued at the lower of cost, determined on the basis of weighted average cost, and net realizable value. Costs are those expenses incurred in bringing each item to its present location and condition. Net realisable value is valued at selling prices net of selling costs.
Fair values
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
| - | in the principal market for the asset or liability, or |
| - | in the absence of a principal market, in the most advantageous market for the asset or liability. |
The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
| - | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; |
| - | Level 2 inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and |
| - | Level 3 inputs are unobservable inputs for the asset or liability. |
Current and Non-Current Classification
The Group presents assets and liabilities in the statement of financial position based on current / non-current classification.
An asset is current when it is:
| - | Expected to be realized or intended to be sold or consumed in normal operating cycle. - Held primarily for the purpose of trading. |
| - | Expected to be realised within twelve months after the reporting period, or |
| - | Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. |
All other assets are classified as non-current.
A liability is current when:
| - | It is expected to be settled in normal operating cycle. | |
| - | It is held primarily for the purpose of trading. |
| - | It is due to be settled within twelve months after the reporting period. |
| - | There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. |
The Group classifies all other liabilities as non-current.
F-164
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 5 | Summary of Significant Accounting Policies (Continued) |
Taxes
Value Added Tax:
Expenses and assets are recognized net of the amount of input tax, except:
| - | When the input tax is incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the input tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable; |
| - | The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position, as applicable. |
Input VAT and Output VAT
Input VAT is recognized when the goods or services are supplied to the Company and the tax on which is paid/due to be paid by the Company to the Supplier.
Output VAT is recognized in respect of taxable supply of goods/services rendered by the Company on which tax is charged and due to be paid to the UAE Federal Tax Authority.
Borrowing Costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated statement of comprehensive income (within profit and loss) in the period during which they are incurred.
Property, Plant and Equipment
Property, plant and equipment, is stated at historical costs less accumulated depreciation and any accumulated impairment losses. Historical costs includes expenditure that is directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Management.
The cost of replacing or addition to an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in the profit or loss as incurred. Capital work under progress is stated at cost and subsequently transferred to assets when it is available for use.
Depreciation is charged to write off the cost of assets using the straight line method as follows:
| Office Buildings | ||||
| Tanks | ||||
| Installations | ||||
| Other Equipment | ||||
| Right of use asset - Land |
F-165
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 5 | Summary of Significant Accounting Policies (Continued) |
Property, Plant and Equipment (Continued)
The useful lives and depreciation method are reviewed periodically to ensure that the year and method of depreciation are consistent with the pattern of economic benefits expected to flow to the Group through the use of items of property, plant and equipment.
The carrying amounts are reviewed at each reporting date to assess whether they are recorded in excess of their recoverable amounts, and where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised as profit or loss in the statement of comprehensive income.
Capital work in progress
Capital work in progress is stated at cost, which represents costs for the design, development, procurement, construction and commissioning of the asset under development. Cost includes borrowing cost capitalised and depreciation of the right of use asset during the construction phase. When the asset is in the location and condition necessary to operate in the manner intended by management, capital work in progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with the Group’s policies.
Leases
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
For a contract that is, or contains, a lease, the Group accounts for each lease component within the contract as a lease separately from non-lease components of the contract.
The Group determines the lease term as the non-cancellable period of a lease, together with both:
| a) | periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and |
| b) | periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. |
In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, the Group considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Group revises the lease term if there is a change in the non-cancellable period of a lease.
F-166
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 5 | Summary of Significant Accounting Policies (Continued) |
| Leases (Continued) |
Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Group as a lessee
The Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
The relative stand-alone price of lease and non-lease components is determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the Group estimates the stand-alone price, maximising the use of observable information.
For determination of the lease term, the Group reassesses whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that: is within the control of the Group; and
At the commencement date, the Group recognizes a right-of-use asset classified within property, plant and equipment and a lease liability presented separately on the consolidated statement of financial position.
Short-term leases and leases of low-value assets
The Group has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease of 12 months or less and leases of low-value assets when new. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Right-of-use assets
The right-of-use asset is initially recognized at cost comprising of the amount of the initial measurement of the lease liability; any lease payments made at or before the commencement date, less any lease incentives received; any initial direct costs incurred by the Group; and an estimate of costs to be incurred by the Company in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. These costs are recognized as part of the cost of the right-of-use asset when the Group incurs an obligation for these costs. The obligation for these costs is incurred either at the commencement date or as a consequence of having used the underlying asset during a particular period.
After initial recognition, the Group amortises the right-of-use asset over the term of the lease. In addition the right-of- use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability.
F-167
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 5 | Summary of Significant Accounting Policies (Continued) |
Lease liability
The lease liability is initially recognized at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses its incremental borrowing rate.
After initial recognition, the lease liability is measured by (a) increasing the carrying amount to reflect interest on the lease liability; (b) reducing the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
Where, (a) there is a change in the lease term as a result of the reassessment of certainty to exercise an option, or not to exercise a termination option as discussed above; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances in the context of a purchase option, the Group remeasures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The Group determines the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or its incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.
Where, (a) there is a change in the amounts expected to be payable under a residual value guarantee; or (b) there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments, including a change to reflect changes in market rental rates following a market rent review, the Group remeasures the lease liabilities by discounting the revised lease payments using an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In such case, the Group uses a revised discount rate that reflects changes in the interest rate.
The Group recognizes the amount of the re-measurement of the lease liability as an adjustment to the right-of use asset. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Group recognizes any remaining amount of the re-measurement in the consolidated statement of comprehensive income (within profit and loss).
The Group accounts for a lease modification as a separate lease if both:
the modification increases the scope of the lease by adding the right to use one or more underlying assets; and the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.
F-168
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 5 | Summary of Significant Accounting Policies (Continued) |
| Financial | Instruments |
Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Financial assets
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them.
Receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost include other receivables and due from related parties.
Financial assets at fair value through OCI, impairment losses or reversals are recognised in the statement of comprehensive income and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.
Financial liabilities
On Initial recognition, Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.
Financial liabilities are recognised initially at fair value and in the case of loans and borrowings fair value of the consideration received less directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, lease liability and term loans.
Derecognition of financial assets and liabilities
The Group derecognizes a financial asset when the contractual rights to the cash flow from the assets cease and any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
F-169
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 5 | Summary of Significant Accounting Policies (Continued) |
Offsetting of Financial Instruments:
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Amortised cost of financial instruments
Amortised cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.
Non-derivative financial assets and liabilities
Receivables
Receivables are those financial assets that have fixed or determinable payments and for which there is no active market are initially recognized at fair value plus any directly attributable transactions costs. Subsequent to initial recognition they are measured at amortized cost using the effective interest method. These comprise trade accounts and other receivables, receivables from related parties, bank balances including fixed and margin deposits with banks.
Trade Accounts and Other Receivable
Receivable are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
The Management undertakes a periodic review of amounts recoverable from trade and other receivable, and determines recoverability based on various factors such as ageing of receivable, payment history, collateral available and other knowledge about the receivable.
Provision for bad and doubtful debts represents estimates of ultimate unrealizable debts. The estimates are judgmental and are based on case based evaluation by the management.
Provisions created during the year are reflected in the operating results of the year. Debts which are recognised as unrealizable are written off during the year.
Cash and Cash Equivalents
Cash and cash equivalents comprise of cash on hand, banks accounts and short term highly liquid deposits with a maturity date of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Statutory Reserve
Statutory reserve is created by
appropriating
F-170
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 5 | Summary of Significant Accounting Policies (Continued) |
Employees’ End of Service Benefits
Provision is made for the amounts payable under the UAE labour law applicable to the employees and is based on current basic remuneration and cumulative period of service at the balance sheet date.
Provision is made on the assumption that all employees were to leave as of the balance sheet date since this provides, in Management’s opinion, a reasonable estimate of the present value of terminal benefits.
Trade Accounts and Other Payable
Trade accounts and other payable are stated at nominal amounts payable for goods or services rendered.
Asset Retirement Obligation
As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognized as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities. These assets can be used for an extended period of time as long as they are properly maintained and/or upgraded. It is the Group’s current intent to maintain its assets and continue making improvements to those assets based on technological advances. There is no data or information that can be derived from past practice, industry practice or the Group’s intentions that could be used to make a reliable estimate of the decommissioning cost. Accordingly, the Group has not recorded a liability or corresponding asset as the amounts of such potential future costs are not reliably determinable.
Provisions
Provisions are recognised when the Group has a present obligation as a result of past event and it is probable that the outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at the present value of the amount expected to be required to settle the obligation and the risk specific to the obligation.
Foreign Currencies Translations
The financial statements are presented in US Dollars, which is the Group’s functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year - end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
F-171
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2019
| 5 | Summary of Significant Accounting Policies (Continued) |
Derivative financial instruments
The Group uses derivative financial instruments, interest rate swaps, to hedge its interest risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Warrants are accounted for as derivative financial instruments (a financial liability) as they give the holder the right to obtain a variable number of common (ordinary) shares in case an effective registration statement is not maintained, which is not fully within the control of the Group.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value through profit or loss. The warrants shall lapse and expire after five years from the closing of the business combination (Note 30).
Any gains or losses arising from changes in the fair value of derivatives are taken directly to the consolidated statement of comprehensive income (within profit and loss) as the Group has not designated derivative financial instruments under hedging arrangements.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group comprising of share capital, share premium and shareholders’ accounts are recorded at the proceeds received, net of direct issue costs.
Escrow shares issued as part of the reverse acquisition are subject to meeting certain financial milestones during the vesting period as disclosed in Note 30. The fair value of the shares in escrow is not materially different from that of the shares which are not in escrow as the rights of these shares are similar to those of “normal ordinary shares”.
F-172
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| (Figures in USD) | 2019 | 2018 | ||||
| (Re-stated) | (Re-stated) |
| 6 | Revenue |
| Storage rental income (Note 33) | ||||||||
| Miscellaneous income (Note 6.1) | ||||||||
| Ancillary services | ||||||||
The Group has only one segment at the reporting date. Revenue generation from leasing of storage capacity of tanks and other ancillary services started in December 2017.
6.1: Miscellaneous income represents port charges that are paid by the Group to the port authority and recharged to the customers.
| 7 | Direct Costs |
| Depreciation on property, plant and equipment (Note 16) | ||||||||
| Employees’ costs | ||||||||
| Port expense (Note 6.1) | ||||||||
| Spare parts and consumables used | ||||||||
| Insurance charges | ||||||||
| Others | ||||||||
| 8 | Other Income |
| Miscellaneous income | ||||||||
| 9 | Listing Expenses |
| IFRS 2 listing expense | ||||||||
| Other listing expenses (Note 9.1) | ||||||||
| 9.1 | Other listing expenses represents promissory note of USD |
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Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| (Figures in USD) | 2019 | 2018 | ||||
| (Re-stated) | (Re-stated) |
| 10 | General and Administration Expenses |
| Employees’ cost | ||||||||
| Legal and professional | ||||||||
| Office expenses | ||||||||
| Repairs and maintenance | ||||||||
| Sales and marketing | ||||||||
| Travelling expenses | ||||||||
| Rent | ||||||||
| Other expense | ||||||||
| 11 | Finance Costs |
| Interest expense on term loans | ||||||||
| Interest on lease liability | ||||||||
| Bank charges | ||||||||
| Exchange loss | ||||||||
| 12 | Cash and Cash Equivalents |
| Cash in hand | ||||||||
| Balances in current accounts | ||||||||
There are no restricted cash balances for the Group.
| 13 | Trade Accounts Receivable |
| Accounts receivables | ||||||||
At December 31, 2019, all trade receivables were neither past due nor impaired.
Receivables are due within 14 days of invoicing.
Unimpaired trade receivables are expected to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables and the vast majority is, therefore, unsecured.
| 14 | Inventories |
| Spare parts and consumables | ||||||||
Cost of inventories recognised during
the year amounted to USD
F-174
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| (Figures in USD) | 2019 | 2018 | ||||
| (Re-stated) | (Re-stated) |
| 15 | Other Receivable and Prepayments |
| VAT receivable | ||||||||
| Prepaid expenses | ||||||||
| Due from related parties | ||||||||
| Deposits | ||||||||
| Advance paid to suppliers and contractors | ||||||||
| 16 | Property, Plant and Equipment |
| a) | The groupings are mentioned on page 47. |
| 17 | Advances to Contractor |
| Advances to contractor | ||||||||
The amount represents the advances paid to a contractor (Audex) for future services in relation to Phase 2.
| 18 | Trade and Accounts Payable |
| Trade accounts payable | ||||||||
| Capital accruals | ||||||||
| Accrued interest on term loans | ||||||||
| Accrued expenses | ||||||||
| Payables to third parties | ||||||||
Trade accounts payables mainly includes the payables to Audex (Phase
2 contractor) amounting to USD
| 19 | Other Payable |
| M/s Brooge International Advisory LLC | ||||||||
Please refer Note 33 for more details.
F-175
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| (Figures in USD) | 2019 | 2018 | ||||
| (Re-stated) | (Re-stated) |
| 20 | Derivative Warrant Liability |
| Issuance of | ||||||||
| Fair value remeasurement of derivative warrant liability | ( | ) | ||||||
In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.
In connection with the completion
of the business combination on 20 December 2019, each of Twelve Sea’s
At initial recognition on 20 December
2019, the Group recorded a derivative warrant liability of USD
On 14 May 2020, holders of
| 21 | Derivative Financial Instruments |
| Interest rate swaps | ||||||||
In 2018, the Group entered into an interest rate swap with a commercial bank exchanging variable interest for fixed interest at specified dates on its term loan 1. The interest rate swap matures in June 2023.
The Group is exposed to variability in future interest cash flows on terms loan and Islamic ijara loan which bears interest at a variable rate.
F-176
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 21 | Derivative Financial Instruments (Continued) |
In order to reduce its exposure to
interest rates fluctuations on the loans, the Group has entered into an interest rate arrangement with counter-party banks for a notional
amount that mirrors the draw down schedule of the loans, covering not less than
The details of these derivative financial instruments are as follows:
| Notional Amount (USD) | Fair value asset (USD) | Fair value liability (USD) | ||||||||||
| December 31, 2019 Designated at FVTPL Interest rate swaps | ||||||||||||
| December 31, 2018 Designated at FVTPL Interest rate swaps | ||||||||||||
| 22 | Borrowings |
| (Figures in USD) | 2019 | 2018 | ||||||
| Secured term loans | ||||||||
| Promissory notes | ||||||||
| Bank overdraft | ||||||||
The current and non- current break up as below:
| Maturity | |||||||||||
| Non- Current | |||||||||||
| Term loan 1 | 2030 | ||||||||||
| Term loan 2 | 2023 | ||||||||||
| Maturity | |||||||||||
| Current | |||||||||||
| Term loan 1 | 2020 | ||||||||||
| Term loan 2 | 2020 | ||||||||||
| Term loan 3 | 2020 | ||||||||||
| Promissory notes | |||||||||||
F-177
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 22 | Borrowings (Continued) |
Included in secured loans are the below term loans:
Term loan 1
In 2014, the Group obtained term loan
facility (1) amounting to USD
In 2018, the Group entered into an
agreement to amend term loan facility (1).
On 10 September 2019, the Group entered
into an agreement with the bank to again amend term loan facility (1).
On 30 December 2019, the Group entered
into another amendment by revoking the previous amendment for term loan facility (1).
Term loan 2
During 2017, the Group obtained an
additional term loan facility (2) of USD
During the year 2018, the Group has
entered in to an agreement to amend term loan facility (2).
Term loan (2) was not amended as part of the 10 September 2019 and 30 December agreement to amend loan (1). In 2019, the Group repaid all instalments due under the repayment schedule.
F-178
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 22 | Borrowings (Continued) |
Term loan 1 and 2
The term loans are secured by a mortgage on the tanks and the office/administration building, step-in right to the leased land and assignment of insurance policies.
Under the term loan facility agreements, the Group is subject to certain covenants requiring amongst other things, the maintenance of:
i) a minimum debt service coverage ratio of 150% at all times and if the ratio decreases to 120% or less, it results in an event of default; the debt service coverage ratio (DSCR) is defined as net operating income divided by total debt service and;
ii) an amount equivalent to one quarterly instalment including interest in a debt service reserve account at all times.
Under the amended agreement signed on 30 December 2019, the maintenance of above covenants is required to be complied from 28 February 2020. As of December 31, 2019, the Group was in compliance with its commitments under the loan agreements and has accordingly classified the balance between current and non-current liability based on the loan agreements in effect at December 31, 2019.
Subsequent to year end, the Group has again defaulted on the instalments due under the loan agreements and are also in breach of the loan covenants. The lender has not declared an event of default under the loan agreement.
The Group negotiated another amendment
to the term loan facilities (1) and (2) on 15 June 2020.
The Group has to pay USD
All securities and covenants under the original agreements remain in effect under the amended agreement except debt service reserve account (DSRA) balance to be maintained from 31 October 2020 and debt service coverage ratio (DSCR) to be commenced from 31 December 2020. Under this agreement, term loans (1) and (2) are also secured by assignment of the proceeds from operation of the tanks of Phase 1 and 2.
Term Loan 3
In 2018, the Group has obtained a facility
from a commercial bank in the UAE to settle accrued interest on term loan (1) amounting to USD
F-179
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 22 | Borrowings (Continued) |
Term Loan 4
In 2018, the Group obtained a new facility
from a commercial bank in the UAE amounting to USD
The term loan facility (4) is secured by a mortgage on the Phase 2 storage tanks, step-in right to the leased land and assignment of the proceeds from operation of the tanks and insurance policies.
Under the term loan facility agreement,
the Group is subject to certain covenants requiring amongst other things, the maintenance of
The term loan facility (4) agreement includes an initial condition precedent that requires evidence of initial equity contribution by the Group towards the phase 2 storage tanks before the loan facility can be utilised. The Group has not made any drawdowns on the term loan facility (4) as of the date of issuance of these consolidated financial statements.
Promissory notes
Pursuant to the Business Combination
Agreement, on December 20, 2019, Twelve Seas, Early Bird Capital (EBC), and the Company entered into the Business Combination Marketing
Agreement Fee Amendment (the “BCMA Fee Amendment”) whereby the Company became party to the Business Combination Marketing
Agreement solely with respect to the provision relating to EBC’s fees and EBC’s fees were amended. Pursuant to the Business
Combination Marketing Agreement, as amended by the BCMA Fee Amendment, EBC received as full payment for any and all fees under the Business
Combination Marketing Agreement, a cash fee equal to USD
There is an additional promissory
note of USD
F-180
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| (Figures in USD) | 2019 | 2018 | ||||
| (Re-stated) | (Re-stated) |
| 23 | Lease Liabilities |
| Balance at the beginning of the year | ||||||||
| Interest charged during the year | ||||||||
| Repayment during the year | ( | ) | ( | ) | ||||
| Balance at the end of the year |
| 1) The analysis of lease liability is as follows: | ||||||||
| Current | ||||||||
| Non-Current |
2)
The maturity of the lease liability is as follows:
| lease payments | Present value of minimum lease payments | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Not later than one year | ||||||||||||||||
| Later than one year and not later than five years | ||||||||||||||||
| Later than five years | ||||||||||||||||
| Finance costs | ( | ) | ( | ) | ||||||||||||
| Present value of minimum lease payments | ||||||||||||||||
| 24 | Employees’ End of Service Benefits |
| Balance at the beginning of the year | ||||||||
| Provision for the year | ||||||||
| Paid during the year | ( | ) | ( | ) | ||||
| Balance at the end of the year |
| 25 | Share Capital & Share Premium |
| Authorized | No. of Shares | USD | ||
| Ordinary shares |
F-181
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| (Figures in USD) | 2019 | 2018 | ||||
| (Re-stated) | (Re-stated) |
| 25 | Share Capital & Share Premium (Continued) |
| Share Capital | ||||||||
| Conversion of 100 BPGIZ FZE ordinary shares at 1 for 1 million to the legal acquirer, Brooge Energy (Note 1) | ||||||||
| Cash election | ( | ) | ( | ) | ||||
| Changes in share capital due to business combination (Note 30) | ||||||||
| As at December 31, 2019 | ||||||||
Note 1: Ordinary shares held in escrow (
| Share Premium | ||||||||
| As at January 01 | ||||||||
| Reverse acquisition adjustment | ||||||||
| Ordinary shares issued on merger with Twelve Seas | ||||||||
| Cash election | ( | ) | ||||||
| As at December 31 | ||||||||
| 26 | Transactions with Related Parties |
The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with related parties are as under:
| Transactions in shareholders’ account | ||||||||
| Contributions by the shareholders | ||||||||
| Amounts paid on behalf of the Group by the shareholders* | ||||||||
| Amounts paid by the Group on behalf of the shareholders | ( | ) | ( | ) | ||||
| Distributions to shareholders | ( | ) | ( | ) | ||||
| ( | ) | |||||||
These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equity.
| * |
Changes in shareholders’ account is as follows:
| At January 01 | ||||||||
| Net contributions (distributions) during the year | ( | ) | ||||||
| At December 31 |
F-182
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| (Figures in USD) | 2019 | 2018 | ||||
| (Re-stated) | (Re-stated) |
| 26 | Transactions with Related Parties (Continued) |
| Expense paid on behalf of related parties |
Key management remuneration for the
year ended December 31, 2019 amounted to USD
Related party balances as at the year end are classified as under:
| Related Party | Classification | ||||||||||
| Shareholder | Shareholder’s account (Equity) | ||||||||||
| HBS Investments LP | Due from related parties (Note 15) | ||||||||||
| H Capital International LP | Due from related parties (Note 15) | ||||||||||
| O2 Investments Limited as GP | Due from related parties (Note 15) | ||||||||||
| SBD International LP | Due from related parties (Note 15) | ||||||||||
| SD Holding Limited as GP | Due from related parties (Note 15) | ||||||||||
| Gyan Investments Ltd | Due from related parties (Note 15) | ||||||||||
Prior year restatement:
Regarding prior year restatements with the related party Al Brooge International Advisory (“BIA”) refer to note 33.
| 27 | Contingent Liabilities |
| Capital commitments | ||||||||
Capital commitments relate to the construction of phase 2 which completed by the last quarter of 2021.
Except for the above and ongoing purchase commitments in the normal course of business against which no loss is expected, there are no other known contingent liabilities existing at the balance sheet date.
| 28 | Earnings Per Share |
Basic EPS is calculated by dividing the profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS calculations:
| (Loss) / profit attributable to ordinary equity holders of the parent | ( | ) | ( | ) | ||||
| Weighted average number of ordinary shares |
As part of the business combination (Note 30) warrants and ordinary shares subjected to escrow has been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.
F-183
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 28 | Earnings Per Share (Continued) |
The number of contingently issuable shares (escrow shares) to be included in the diluted earnings per shares calculation is based on the number of shares that would be issuable if the end of the period were the end of the contingency period. No ordinary shares would have been issuable on December 31, 2019 as the conditions attached to the escrow shares have not been met at reporting date. As a result, the escrow shares have been excluded from the calculation of diluted earnings per share for December 31, 2019 and the weighted average number of ordinary shares for basic earnings per share and diluted earnings per shares are the same.
On 14 May 2020, holders of
| 29 | Fair Value of Financial Instruments |
Management considers that the fair value of financial assets and financial liabilities in the consolidated financial statements approximate their carrying amounts at the reporting date.
Fair Value Hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
| Liabilities measured at fair value: | Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
| 31-Dec-19 Derivative financial instruments | ||||||||||||||||
| 31-Dec-18 Derivative financial instruments |
||||||||||||||||
The fair values of the financial liabilities measured at fair value included in the Level 1 and Level 2 category above, have been determined in accordance with quoted price and generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.
During the year ended December 31, 2019 and 2018, there were no transfers between Level 1 and Level 2 fair value measurements.
| 30 | Business Combination |
In connection with the Business Combination as described in Note 1, the following occurred:
Twelve Seas:
(i) Each outstanding ordinary share of Twelve Seas has been exchanged for one (1) ordinary share of Brooge Energy.
(ii) Each outstanding warrant of Twelve Seas has been exchanged for one warrant of Brooge Energy.
F-184
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 30 | Business Combination (Continued) |
(iii) As part of the Business Combination,
(iv) In connection with the closing
of the Business Combination, holders of
Brooge Petroleum and Gas Investment Company FZE:
Twelve Seas issued a total of 100 million shares (inclusive of 20 million of escrowed shares) to BPGIC in exchange for 100 ordinary shares of BPGIC. All 100 million shares were simultaneously replaced with Brooge Energy shares at the ratio of 1:1.
The fair value of the shares that were
swapped between the parties above was based on the closing share price of Brooge Energy’s as traded on NASDAQ on December 20, 2019
which was USD
The fair value of the warrants that
were swapped between the parties above was based on the closing price of Brooge Energy’s as traded on NASDAQ on December 20, 2019
which was USD
As part of the above-mentioned business
combination, Twelve Seas’ net assets of USD
The net assets of USD
| Cash and cash equivalent | ||||
| Current assets | ||||
| Accounts payable | ( | ) | ||
F-185
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 30 | Business Combination (Continued) |
The total shares issued by Brooge
Energy to BGPIC was
(i) One-half (½) of the Escrow
Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either:
(ii) All Escrow Property remaining
in the Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either:
The same conditions mentioned above applied for the escrow founder shares.
| 31 | Subsequent Events |
The outbreak of Novel Coronavirus (COVID 19) continues to progress and evolve. Therefore, it is challenging now, to predict the full extent and duration of its business and economic impact. The outbreak of Covid-19 has had an impact on demand for oil and petroleum products. Recent global developments in March 2020 have caused further volatility in commodity markets.
The extent and duration of such impacts remain uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the transmission rate of the coronavirus and the extent and effectiveness of containment actions taken. Given the ongoing economic uncertainty, a reliable estimate of the impact cannot be made at the date of authorisation of these consolidated financial statements. These developments could impact our future financial results, cash flows and financial condition.
The Group has entered into a land lease agreement, dated as of February 2, 2020 (the “Phase III Land Lease Agreement”), by and between Group and the Fujairah Oil Industry Zone (“FOIZ”) to lease an additional plot of land that has a total area of approximately 450,000 m2 (the “Phase III Land”). Group intends to use the relevant land to expand its crude oil storage and service and refinery capacity (“Phase III”).
On April 7, 2020 the Company changed its name from Brooge Holding Limited to Brooge Energy Limited.
The Group negotiated another amendment to the term loan facilities (1) and (2) on 15 June 2020. Loans (1) and (2) are now payable in 46 and 16 instalments, respectively, with the first installment starting from June 30, 2020 with final maturity in July 30, 2030 and July 31, 2023, respectively. The loan 1 carries interest at 6 months EIBOR + 4% (minimum 5%) and to be further enhanced to 6 month EIBOR + 4.5% (minimum 5%) from January 2021 as compared to interest at 3 month EIBOR + 3% previously, and, the loan 2 carries interest at 3 months EIBOR + 4% (minimum 5%) and to be further enhanced to 3 month EIBOR + 4.5% (minimum 5%) as compared to interest at 3 month EIBOR + 3% previously The Group has to pay USD 8.8 million for term loan (1) and (2) in 2020 which represents the cumulative instalments including interest outstanding from periods prior to this amended agreement and an amendment fee of USD 136,000. All securities and covenants under the original agreements remain in effect under the amended agreement except debt service reserve account (DSRA) balance to be maintained from October 31, 2020 and debt service coverage ratio (DSCR) to be commenced from December 31, 2020. Under this agreement, term loans (1) and (2) are also secured by assignment of the proceeds from operation of the tanks of Phase 1 and Phase 2.
As part of management’s plans
to alleviate the significant doubt disclosed in Note 2.2, in September 2020, BPGIC FZE issued bonds amounting to USD
F-186
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 32 | Financial Risk Management And Policies |
The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks and interest bearing loans and borrowings at variable rates.
Market Risk
The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.
Currency Risk
The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2019 and 2018.
The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.
F-187
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 32 | Financial Risk Management And Policies (Continued) |
Liquidity Risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.
The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.
The table below summarizes the maturity profile of the Group’s financial liabilities at December 31, 2019 and December 31, 2018 based on contractual undiscounted payments.
| On | Upto | 1 to 5 | > 5 | |||||||||||||||||
| Demand | 1 Year | Years | Years | Total | ||||||||||||||||
| USD | USD | USD | USD | USD | ||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||
| Term loans (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Derivative financial instruments | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| December 31, 2018 | ||||||||||||||||||||
| Bank overdraft/ Term loans | ||||||||||||||||||||
| (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Derivative financial instruments | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
The derivative warrant liabilities have not been included in the table above as there is no requirement to settle the warrants in cash.
F-188
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 32 | Financial Risk Management And Policies (Continued) |
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated losses) retained earnings.
| Term loans | ||||||||
| Lease liability | ||||||||
| Less: cash and cash | ||||||||
| equivalents | ( | ) | ||||||
| Net debt | ||||||||
| Total capital | ||||||||
| Capital and net debt | ||||||||
| Gearing ratio | % | % | ||||||
| 33 | Current Year and Prior Year Restatement |
i) The comparative figures for 2018 were restated previously on account of errors identified by the management subsequent to the issuance of the 2018 financial statements.
ii) In year 2022, subsequent to the issuance of the Group’s 2019 consolidated financial statements, the Group identified errors in the consolidated financial statements for the year ended December 31, 2019 and determined that the 2019 consolidated financial statements should be restated. The basis of such error and restatement is given as below:
Restatement Background
As disclosed on May 27, 2022, the Group has not been able to file the 2021 Form 20-F due to an ongoing non-public examination being conducted by the U.S. Securities and Exchange Commission (the “SEC”) regarding the consolidated financial statements of the Group. Subsequently, the Audit Committee of the Board of Directors (the “Audit Committee”), engaged independent counsel to conduct under its supervision, an internal examination into the Group’s revenue recognition practices and related matters. As a result of the findings from this internal examination, on August 12, 2022, the Audit Committee, in consultation with the Group’s management, concluded that the previously issued audited consolidated financial statements as of and for the periods ending December 31, 2020, and 2019 and the previously issued unaudited consolidated financial statements for interim periods therein and the six months ended June 30, 2021 should no longer be relied upon.
F-189
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
| 33 | Current Year and Prior Year Restatement (Continued) |
In connection with the internal examination,
the Company conducted a comprehensive review of the accounting policies, procedures, and internal controls related to revenue recognition.
All available customer contracts were assessed based on International Financial Reporting Standard (IFRS) 15 ‘Revenue from Contracts
with Customers’ and IFRS 16 ‘Leases’. This review identified that the funds received from a related party BIA do not
qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in the Company’s internal examination,
including the number of years over which the non-qualified revenue was recognized, the Company determined that it would be appropriate
to rectify the misstatements in the previously issued financial statements by restating such financial statements. Accordingly, for the
year 2019 the Company reversed revenue amounting to USD
The Management does not expect to settle these amounts using any of it’s current assets or any existing resources in the foreseeable future. Pending its potential receipt of confirmation or adequate supporting documentation from the party. The Group has taken a conservative approach to recognise this as a liability. The Group continues to assess this liability and will evaluate whether there arises any obligation or it is discharged or cancelled or expires or is swapped out for one with significantly different terms or when the terms of are significantly modified, such an exchange or modification is recognized as a derecognition of the old liability and the recognition of a new liability or as equity contribution, as applicable and the difference in the respective carrying amounts will be recorded in the consolidated statement of either other comprehensive income or directly as equity as applicable.
The above changes pertaining to reversal of Revenue and recognition of such amount under Other payable were accounted retrospectively in accordance with IAS 8 and, accordingly the prior years’ consolidated financial statements have been restated as disclosed on Page 48.
| 34 | Reaudit of the Consolidated Financial Statements |
The consolidated financial statements are re-audited as the Group has undertaken a restatement of its consolidated financial statement for the year ended December 31, 2018, the details of which are mentioned in note 33. The restatement mainly pertains to revenue, other payable and trade account receivable.
| 35 | Rounding Off of Figures |
All figures have been rounded off to the nearest US Dollars.
| 36 | Comparative Figures |
Certain of the prior year figures have been regrouped to conform with the presentation of the current year. The comparative financial years included herein are derived from the financial statements of BPGIC FZE as adjusted to reflect the legal capital of legal parent / acquiree (Brooge Energy Limited).
F-190
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
(Figures in USD)
| 36 | Comparative Figures (Continued) |
Groupings for Property, Plant and Equipment
| Buildings | Installations | Other Equipments | Tanks | Capital Work in Progress | Right of use assets | Total | ||||||||||||||||||||||
| Cost: | ||||||||||||||||||||||||||||
| As at January 01, 2019 | ||||||||||||||||||||||||||||
| Additions during the year | ||||||||||||||||||||||||||||
| As at December 31, 2019 | ||||||||||||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||||||
| As at January 01, 2019 | ||||||||||||||||||||||||||||
| Charge for the year | ||||||||||||||||||||||||||||
| As at December 31, 2019 | ||||||||||||||||||||||||||||
| Net Carrying Value: | ||||||||||||||||||||||||||||
| As at December 31, 2019 | ||||||||||||||||||||||||||||
| As at December 31, 2018 | ||||||||||||||||||||||||||||
Capital work in progress at December
31, 2019 includes total amount capitalised relating to the construction of phase 2 and includes an amount of USD
The capitalised borrowing costs have
been included under “additions” in the table above. The capitalisation rate used to determine these finance costs was
Tanks and related assets with a carrying
value of USD
The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows:
| 2018 | 2019 | |||||||
| Direct costs (Note 7) | ||||||||
| CWIP | ||||||||
F-191
Brooge Energy Limited
Notes to the Consolidated Financial Statements
December
31, 2019
(Figures in USD)
| 36 | Comparative Figures (Continued) |
Current Year and Prior Year Restatement
Significant balances change during the year are as follows
| As previously reported | Restatement Adjustment | As per the restated Financial Statement | ||||||||||||||||||||||
| 31-12-19 | 31-12-18 | 31-12-19 | 31-12-18 | 31-12-19 | 31-12-18 | |||||||||||||||||||
| Consolidated Statement of Comprehensive Income | ||||||||||||||||||||||||
| Revenue | ( | ) | ( | ) | ||||||||||||||||||||
| Direct costs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Gross Profit / (Loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other Income | ||||||||||||||||||||||||
| General and administration expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Finance costs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Profit (loss) for the year | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Consolidated Statement of Financial Position | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current Assets | ||||||||||||||||||||||||
| Trade receivables | ( | ) | ( | ) | ||||||||||||||||||||
| Other receivable and prepayments | ( | ) | ||||||||||||||||||||||
| Total Current Assets | ( | ) | ( | ) | ||||||||||||||||||||
| Total Assets | ( | ) | ( | ) | ||||||||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||||||
| Trade and accounts payable | ( | ) | ||||||||||||||||||||||
| Other payable | ||||||||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||||||
| Equity | ||||||||||||||||||||||||
| Retained Earnings / (accumulated losses) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Statutory reserve | ( | ) | ( | ) | ||||||||||||||||||||
| Shareholder’s account | ( | ) | ||||||||||||||||||||||
| Total Equity | ( | ) | ( | ) | ||||||||||||||||||||
| Total Equity & Liabilities | ( | ) | ( | ) | ||||||||||||||||||||
F-192
Brooge Petroleum and Gas Investment Company FZE
Financial Statements
December 31, 2018
F-193
Brooke Energy Limited
Index to the Financial Statements
December 31, 2018
| Page | |
| Independent Auditor’s Report | F-195 |
| Statement of Financial Position | F-198 |
| Statement of Comprehensive Income | F-199 |
| Statement of Changes in Equity | F-200 |
| Statement of Cash Flows | F-201 |
| Notes to the Financial Statements | F-202 |
F-194
 |
Office 106, The Binary | |
| Al Abraj Street | ||
| Business Bay | ||
| PO Box 413383 | ||
| Dubai / UAE | ||
| [T] +971 4 557 8358 | ||
| [E] mail@affiniax.com | ||
|
Independent Auditor’s Report
To the Board of Directors and Shareholders of Brooge Petroleum and Gas Investment Company FZE
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Brooge Petroleum and Gas Investment Company FZE, (“the Company”), which comprises of the statement of financial position as at December 31, 2018, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies and other explanatory notes.
In our opinion, the accompanying financial statements, present fairly, in all material respects, the financial position of Brooge Petroleum and Gas Investment Company FZE as at December 31, 2018 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the and the PCAOB.
We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the 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
a. We draw your attention to Note no. 24 where the Company has reversed the revenue amounting to USD 29,451,920. Out of this reversed revenue an amount of USD 27,854,947 was received from M/s Brooge International Advisory LLC (BIA). Since the Company could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, an amount of USD 27,854,947 representing the funds received from BIA has been classified as Other payable in the financial statements for the year ended December 31, 2018.
b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party. Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party. | ||
F-195
 |
Emphasis of Matter (Continued)
c. We draw attention to statement of comprehensive income in the financial statements, which indicates that the Company incurred a net loss of USD 13,670,708 during the year ended December 31, 2018, and, as of that date, the Company’s current liabilities exceed current assets by USD 138,267,472. Our opinion is not modified in respect of this matter.
Reaudit of Financial Statements for the Year Ended December 31, 2018
Attention is invited to Note no. 24 Reaudit of the financial statements. The financial statements of the Company are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable, which were recorded erroneously due to the inadequate documents.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined that there are no other key audit matters to communicate in our report.
Responsibility of the Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Management is responsible for assessing the Company’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s 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 ISA’s 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 financial statements.
As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;
● Identify and assess the risks of material misstatement of the 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 risks 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, misrepresentation or override of internal controls. |
F-196
| |
Auditor’s Responsibilities for the Audit of the Financial Statements | |
| ● | Obtain an understanding of internal controls 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 controls. | |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. | |
| ● | Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. | |
| ● | Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. | |
| ● | We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit. | |
| We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. | ||
| From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters. | ||
| Affiniax A A S Auditors | ||
| ||
| Dubai, | ||
| United Arab Emirates, | ||
| April 24, 2023 | ||
F-197
Brooge Petroleum and Gas Investment Company FZE
Statement of Financial Position
As at December 31, 2018
| (Figures in USD) | Note | 2018 | 2017 | |||||||
| (Re-stated) | (Re-stated) | |||||||||
| ASSETS | ||||||||||
| Current Assets | ||||||||||
| Cash and cash equivalents | 14 | |||||||||
| Inventories | 15 | |||||||||
| Other receivables | 16 | |||||||||
| Total Current Assets | ||||||||||
| Non-Current Assets | ||||||||||
| Property, plant and equipment | 17 | |||||||||
| Total Non-Current Assets | ||||||||||
| Total Assets | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
| Current Liabilities | ||||||||||
| Trade and accounts payable | 18 | |||||||||
| Other payable | 24 | |||||||||
| Derivative financial instruments | 13 | |||||||||
| Borrowings | 19 | |||||||||
| Lease liabilities | 21 | |||||||||
| Total Current Liabilities | ||||||||||
| Non-Current Liabilities | ||||||||||
| Employees’ end of service benefits | 20 | |||||||||
| Lease liabilities | 21 | |||||||||
| Total Non-Current Liabilities | ||||||||||
| Equity | ||||||||||
| Share capital | 22 | |||||||||
| Retained earnings | ( | ) | ( | ) | ||||||
| Owners’ account | ||||||||||
| Total Equity Attributable to the owners | ||||||||||
| Total Liabilities and Equity | ||||||||||
These financial statements were approved by the Management on April ___, 2023 and signed by:
Authorised Signatory
The accompanying notes form an integral part of the financial statements
F-198
Brooge Petroleum and Gas Investment Company FZE
Statement of Comprehensive Income
Year Ended December 31, 2018
| (Figures in USD) | Note | 2018 | 2017 | |||||||
| (Re-stated) | (Re-stated) | |||||||||
| Revenue | 8 | |||||||||
| Direct costs | 9 | ( | ) | ( | ) | |||||
| Gross loss | ( | ) | ( | ) | ||||||
| Other income | 10 | |||||||||
| General and administration expenses | 11 | ( | ) | ( | ) | |||||
| Finance costs | 12 | ( | ) | ( | ) | |||||
| Changes in fair value of derivative financial instruments | 13 | ( | ) | |||||||
| Loss for the year | ( | ) | ( | ) | ||||||
| Other comprehensive income | ||||||||||
| Total comprehensive income for the year | ( | ) | ( | ) | ||||||
The accompanying notes form an integral part of the financial statements
F-199
Brooge Petroleum and Gas Investment Company FZE
Statement of Changes in Equity
Year Ended December 31, 2018
| (Figures in USD) | Share Capital | (Accumulated Losses) | Owners’ Account | Total | ||||||||||||
| As at January 01, 2017 (Restated) | ( | ) | ||||||||||||||
| Net movements during the year | ||||||||||||||||
| Loss for the year | ( | ) | ( | ) | ||||||||||||
| As at December 31, 2017 (Restated) | ( | ) | ||||||||||||||
| Loss for the year | ( | ) | ( | ) | ||||||||||||
| Net movements during the year | ( | ) | ( | ) | ||||||||||||
| As at December 31, 2018 (Restated) | ( | ) | ||||||||||||||
The accompanying notes form an integral part of the financial statements
F-200
Brooge Petroleum and Gas Investment Company FZE
Statement of Cash Flows
Year Ended December 31, 2018
| (Figures in USD) | 2018 | 2017 | ||||||
| (Re-Stated) | (Re-Stated) | |||||||
| Cash Flow from Operating Activities | ||||||||
| Loss for the year | ( | ) | ( | ) | ||||
| Adjustments for: | ||||||||
| Depreciation of property, plant and equipment | ||||||||
| Finance costs | ||||||||
| Provision for employees’ end of services benefits | ||||||||
| Net changes in fair value of derivative financial instruments | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Increase in other receivables | ||||||||
| Decrease / (Increase) in inventories | ( | ) | ||||||
| Increase / (Decrease) in trade and accounts and payable | ( | ) | ||||||
| Increase / (Decrease) in other payable | ||||||||
| Payment of employees’ end of services benefits | ( | ) | ||||||
| Net cash generated from / (used in) operating activities | ( | ) | ||||||
| Cash Flow from Investing Activities | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flow from Financing Activities | ||||||||
| Net (distributions to) / contribution from the owners | ( | ) | ||||||
| Repayment of principal and interest on lease liability | ( | ) | ( | ) | ||||
| Interest charge | ||||||||
| Borrowings and term loans | ( | ) | ||||||
| Net cash (used in) / generated from financing activities | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of the year | ||||||||
| Cash and cash equivalents at end of the year | ||||||||
The accompanying notes form an integral part of the financial statements
F-201
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 1 | Legal Status, Owners Management and Business Activity |
Brooge
Petroleum and Gas Investment Company FZE, (the “Company”), formerly known as Brooge Petroleum and Gas Investment Company FZC,
is a free zone company registered and incorporated on 10 February 2013 in Fujairah, United Arab Emirates (“UAE”). The free
zone is income tax free without a set time limit. The Company provides oil storage and related services at the Port of Fujairah in the
Emirate of Fujairah in the UAE.
The Company’s share capital was divided amongst three shareholders (referred to as the owners or shareholders). Emirates Investment LLC FZC was the parent company.
On 25 February 2019, the shareholders of Brooge Petroleum and Gas Investment Company FZC transferred their ownership in the Company to Brooge Petroleum and Gas Investment Company plc (“BPGIC plc”), a company incorporated under the laws of England and Wales and owned by the same shareholders that previously owned Brooge Petroleum and Gas Investment Company FZC and in the same ownership proportion. Upon the change of ownership, Brooge Petroleum and Gas Investment Company FZC changed its name to Brooge Petroleum and Gas Investment Company FZE. As a result of the above, BPGIC plc became the parent of the Company.
On 15 April 2019, the Company entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), Brooge Energy Limited (Formerly known as Brooge Holdings Limited), Brooge Merger Sub Limited, a subsidiary of Brooge Energy Limited, and the Company’s shareholders. On 10 May 2019, BPGIC plc became party to the business combination agreement by execution of a joinder thereto. Pursuant to the business combination agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the business combination agreement, Twelve Seas will merge with Brooge Merger Sub Limited, with Twelve Seas continuing as the surviving entity and with holders of Twelve Seas securities receiving securities of Brooge Energy Limited, and Brooge Energy Limited will acquire all of the issued and outstanding ordinary shares of the Company from BPGIC plc in exchange for ordinary shares of Brooge Energy Limited, with the Company becoming a wholly-owned subsidiary of Brooge Energy Limited.
The registered office is at P.O Box 50170 Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates.
The owners of the Company are:
| Name of Owner | Number of Shares | % of Shares | Value in USD | |||||||||
| HH Sheikh Mohammed Khalifa Zayed Al Nahyan | % | |||||||||||
| M/s. AL Brooge Capital Providing for Oil and Gas LLC | % | |||||||||||
| M/s. Emirates Investment LLC FZC | % | |||||||||||
| % | ||||||||||||
F-202
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 2 | Application of New and Revised International Financial Reporting Standards (IFRS) |
The Company has adopted the following new and amended IFRS’s in these financial statements. The adoption of the standards did not have a material impact on the financial statements of the Company.
| Description | Effective for annual periods beginning on or after | |
| IFRS 15 - Revenue from Contracts with Customers | ||
| IFRS 9 - Financial Instruments | ||
| IFRIC 22 - Foreign Currency Transactions and Advance Consideration | ||
| Amendments to IAS 40 Transfers of Investment Property; |
| 3 | New Standards Issued but Not Yet Adopted |
Certain new standards, amendments to standards and interpretations (annual improvements to IFRS, amendments to IFRS 4, IFRS 17, IFRS Practice Statement 2, IAS 1, IAS 8 and IAS 12) are not yet effective for up to the date of issuance of the Company’s financial statements. The Company anticipates that these new standards, interpretations and amendments will be adopted in the financial statements as and when they are applicable and adoption of these new standards, interpretations and amendments may have no material impact on the financial statements of the Company in the period of initial application.
| 4 | Basis of Preparation of Financial Statements |
These financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards issued by International Accounting Standards Board (IASB). The validity of this assumption depends upon the continued financial support to the Company by its Shareholders. The financial statements do not include any adjustment that should result from a failure to obtain such combined financial support. The Management has no intention to discontinue the operations of the Company. The assets and liabilities are recorded on the basis that the Company will be able to realise its assets and discharge its liabilities in the normal course of business. This position does not impair the financial position of the Company.
The financial statements have been prepared under the historical cost convention basis, except for re-measurement at fair value of derivative financial instruments.
These financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Company. All financial information presented in USD has been rounded to the nearest thousand, unless otherwise stated.
The preparation of financial statements in conformity with International Financial Reporting Standards requires Management to make judgements, estimates and assumptions that affect the application of accounting policies and the carrying amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant and reasonable under the circumstances.
F-203
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 4 | Basis of Preparation of Financial Statements (Continued) |
Estimates and the underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that year, or in the year of revision and future periods if the revision affects both current and future years.
Estimation and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:
Useful lives of property, plant and equipment
The Company’s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear and the impact of expected residual value. Management reviews the useful lives annually and the future depreciation charge would be adjusted where management believes that the useful lives differ from previous estimates. The depreciation period of the right-of-use asset has been determined to be over the lease term on the basis that the land is expected to be used for the whole period of the lease considering the existing assets and future expansion on the land.
Asset retirement obligation
As part of the land lease agreement between Fujairah Municipality and the Company, the Company has a legal obligation to remove the plant at the end of its lease term. The Company initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Company’s operating assets generally consist of storage tanks and related facilities. These assets can be used for an extended period of time as long as they are properly maintained and/or upgraded. It is the Company’s current intent to maintain its assets and continue making improvements to those assets based on technological advances. There is no data or information that can be derived from past practice, industry practice or the Company’s intentions that could be used to make a reliable estimate of the decommissioning cost. Accordingly, the Company has not recorded a liability or corresponding asset as the amounts of such potential future costs are not reliably determinable.
Discount rate used for initial measurement of lease liability
The
Company, as a lessee, measures the lease liability at the present value of the unpaid lease payments at the commencement date. The lease
payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be
readily determined, the Company on initial recognition of the lease uses its incremental borrowing rate. Incremental borrowing rate is
the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary
to obtain an asset of a similar value to the right-of-use assets in similar economic environment. The Company determined its incremental
borrowing rate at
F-204
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 4 | Basis of Preparation of Financial Statements (Continued) |
Estimation and assumptions (continued)
Impairment of trade receivables
The Company uses the simplified approach under IFRS 9 to assess impairment of its trade receivables and calculates expected credit losses (ECLs) based on lifetime expected credit losses. The Company calculates the ECL based on Company historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.
Valuation of derivative financial instruments
The Company has entered into derivative financial instruments (interest rate swaps) with a financial institution with investment grade credit rating. Interest rate swaps are valued using valuation techniques, which employ the use of market observable inputs. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The changes in counterparty credit risk had no material effect on the derivative financial instruments recognised at fair value.
Judgements
In the process of applying the Company’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognized in the financial statements:
Functional currency
The Company’s operating costs and borrowings are primarily in UAE Dirham (“AED”) and are expected to remain principally denominated in AED in the future. However, the construction contract for Phase1 and 2 and the current revenue contracts of the Company are dominated in USD. Management has determined USD is the Company’s functional currency.
F-205
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies |
Revenue recognition
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or goods. Revenue is net of discounts and value added taxes. Monthly storage rates and prices for other services are contractually agreed before the services are rendered and do not contain material variable components. When it is probable that the future economic benefits will flow to the Company, the recognition in the consolidated statement of income is in proportion to the stage of the rendered performance as at the end of the reporting period. The Company has a right to a consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s services completed to date.
Tank storage rentals, including minimum guaranteed throughputs, are recognized on a straight-line basis over the contractual period during which the services are rendered. Revenues from excess throughputs, heating/cooling, homogenization, product movements and other services are recognized when these services are rendered. Customers simultaneously consume and benefit from the services at the moment that these are rendered, resulting in a situation where revenue is recognized over time. Where substantially the entire storage capacity is leased to a single customer, the contract contains a lease and the entire storage revenue is presented as lease revenue.
Storage fees are invoiced upfront in the month preceding the month to which the storage fees relate. Handling and other services are invoiced afterwards, based on the actual usage.
Inventories
Inventories are valued at the lower of cost, determined on the basis of weighted average cost, and net realisable value. Costs are those expenses incurred in bringing each item to its present location and condition. Net realisable value is valued at selling prices net of selling costs.
Fair Values
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
| ● | In the principal market for the asset or liability, or |
| ● | In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Company. |
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
F-206
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies (Continued) |
Fair Values (Continued)
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
| ● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity |
| ● | Level 2 inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, |
| ● | Level 3 inputs are unobservable inputs for the asset or liability. |
Current versus non-current classification
The Company presents assets and liabilities in statement of financial position based on current/non-current classification. An asset is current when it is:
| ● | Expected to be realised or intended to be sold or consumed in a normal operating cycle |
| ● | Held primarily for the purpose of trading |
| ● | Expected to be realised within twelve months after the reporting period, |
Or
| ● | Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period |
All other assets are classified as non-current.
A liability is current when it is:
| ● | Expected to be settled in normal operating cycle |
| ● | Held primarily for the purpose of trading |
| ● | Due to be settled within twelve months after the reporting period, |
Or
| ● | There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period |
The Company classifies all other liabilities as non-current.
Taxes
Value Added Tax
Expenses and assets are recognized net of the amount of input tax, except:
| ● | When the input tax is incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the input tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable; |
| ● | The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position, as applicable. |
F-207
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies (Continued) |
Taxes (Continued)
Input VAT and Output VAT
Input VAT is recognized when the goods or services are supplied to the Company and the tax on which is paid/due to be paid by the Company to the Supplier.
Output VAT is recognized in respect of taxable supply of goods/services rendered by the Company on which tax is charged and due to be paid to the UAE Federal Tax Authority.
Borrowing Costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in the statement of comprehensive income (within profit and loss) in the period during which they are incurred.
Property, Plant and Equipment
Property, plant and equipment, is stated at historical costs less accumulated depreciation and any accumulated impairment losses. Historical costs includes expenditure that is directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Management.
The cost of replacing or addition to an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in the profit or loss as incurred. Capital work under progress is stated at cost and subsequently transferred to assets when it is available for use.
Depreciation is charged to write off the cost of assets using the straight-line method as follows:
| Buildings | ||
| Tanks | ||
| Installations | ||
| Other Equipment | ||
| Right of use asset - Land |
The useful lives and depreciation method are reviewed periodically to ensure that the year and method of depreciation are consistent with the pattern of economic benefits expected to flow to the Company through the use of items of property, plant and equipment.
F-208
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies (Continued) |
Property, Plant and Equipment (Continued)
The carrying amounts are reviewed at each reporting date to assess whether they are recorded in excess of their recoverable amounts, and where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised as profit or loss in the statement of comprehensive income.
Capital Work In Progress
Capital work in progress is stated at cost, which represents costs for the design, development, procurement, construction and commissioning of the asset under development. Cost includes borrowing cost capitalized and depreciation of the right-of-use asset during the construction phase. When the asset is in the location and condition necessary to operate in the manner intended by management, capital work in progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with the Company’s policies.
Leases
At inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
For a contract that is, or contains, a lease, the Company accounts for each lease component within the contract as a lease separately from non-lease components of the contract.
The Company determines the lease term as the non-cancellable period of a lease, together with both:
| a) | periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and |
| b) | periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. |
In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, the Company considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Company revises the lease term if there is a change in the non-cancellable period of a
Company as a lessor
Leases where the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
F-209
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases (Continued)
Company as a lessee
For a contract that contains a lease component and one or more additional lease or non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of the relative stand- alone price of the lease component and the aggregate stand-alone price of the non-lease components.
The relative stand-alone price of lease and non-lease components is determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the Company estimates the stand-alone price, maximising the use of observable information.
For determination of the lease term, the Company reassesses whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that: is within the control of the Company; and
At the commencement date, the Company recognizes a right-of-use asset classified within property, plant and equipment and a lease liability presented separately on the consolidated statement of financial position.
Short-term leases and leases of low-value assets
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease of 12 months or less and leases of low-value assets when new. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Right-of-use assets
The right-of-use asset is initially recognized at cost comprising of:
| a) | the amount of the initial measurement of the lease liability; |
| b) | any lease payments made at or before the commencement date, less any lease incentives received; |
| c) | any initial direct costs incurred by the Company; and |
| d) | an estimate of costs to be incurred by the Company in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. These costs are recognized as part of the cost of the right-of-use asset when the Company incurs an obligation for these costs. The obligation for these costs is incurred either at the commencement date or as a consequence of having used the underlying asset during a particular period. |
After initial recognition, the Company amortises the right-of-use asset over the term of the lease. In addition, the right of use asset is periodically reduced, if any, and adjusted for certain re-measurements of the lease liability.
Lease liability
The lease liability is initially recognized at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Company uses its incremental borrowing rate.
F-210
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies (Continued) |
Leases (Continued)
After initial recognition, the lease liability is measured by (a) increasing the carrying amount to reflect interest on the lease liability; (b) reducing the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
Where, (a) there is a change in the lease term as a result of the reassessment of certainty to exercise an option, or not to exercise a termination option as discussed above; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances in the context of a purchase option, the Company remeasures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The Company determines the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or its incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.
Where, (a) there is a change in the amounts expected to be payable under a residual value guarantee; or (b) there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments, including a change to reflect changes in market rental rates following a market rent review, the Company remeasures the lease liabilities by discounting the revised lease payments using an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In such case, the Company uses a revised discount rate that reflects changes in the interest rate.
The Company recognizes the amount of the re-measurement of the lease liability as an adjustment to the right- of-use asset. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognizes any remaining amount of the re- measurement in the consolidated statement of comprehensive income (within profit and loss).
The Company accounts for a lease modification as a separate lease if both:
| a) | the modification increases the scope of the lease by adding the right to use one or more underlying assets; and |
| b) | the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract. |
Financial Instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
F-211
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial Instruments (Continued)
Financial assets
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them.
Receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under IFRS 15.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Company’s financial assets at amortised cost include other receivables and due from related parties.
Financial assets at fair value through OCI, impairment losses or reversals are recognised in the statement of comprehensive income and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.
Financial liabilities
On Initial recognition, financial liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition.
Financial liabilities are recognised initially at fair value and in the case of loans and borrowings fair value of the consideration received less directly attributable transaction costs.
The Company’s financial liabilities include trade and other payables, lease liability and term loans.
Derecognition of financial assets and liabilities
The Company derecognizes a financial asset when the contractual rights to the cash flow from the assets cease and any interest in such derecognised financial assets that is created or retained by the Company is recognised as a separate asset. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
F-212
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies (Continued) |
Financial Instruments (Continued)
Offsetting of Financial Instruments:
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Amortised cost of financial instruments
Amortised cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.
Non-derivative financial assets and liabilities
Receivables
Receivables are those financial assets that have fixed or determinable payments and for which there is no active market are initially recognized at fair value plus any directly attributable transactions costs. Subsequent to initial recognition they are measured at amortized cost using the effective interest method. These comprise trade accounts and other receivables, receivables from related parties, bank balances including fixed and margin deposits with banks.
Trade Accounts and Other Receivable
Receivable are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
The Management undertakes a periodic review of amounts recoverable from trade and other receivable, and determines recoverability based on various factors such as ageing of receivable, payment history, collateral available and other knowledge about the receivable.
Provision for bad and doubtful debts represents estimates of ultimate unrealizable debts. The estimates are judgmental and are based on case based evaluation by the management.
Provisions created during the year are reflected in the operating results of the year. Debts which are recognised as unrealizable are written off during the year.
Cash and Cash Equivalents
Cash and cash equivalents comprise of cash on hand, banks accounts and short term highly liquid deposits with a maturity date of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Statutory Reserve
Statutory
reserve is created by appropriating
F-213
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies (Continued) |
The non-derivative financial liabilities comprise of trade accounts and other payables and Owners’ accounts.
Employees’ End of Service Benefits
Provision is made for the amounts payable under the UAE labour law applicable to the employees and is based on current basic remuneration and cumulative period of service at the balance sheet date.
Provision is made on the assumption that all employees were to leave as of the balance sheet date since this provides, in Management’s opinion, a reasonable estimate of the present value of terminal benefits.
Trade Accounts and Other Payable
Trade accounts and other payable are stated at nominal amounts payable for goods or services rendered.
Decommissioning liabilities
As part of the land lease agreement between Fujairah Municipality and the Company, the Company has a legal obligation to remove the plant at the end of its lease term. The Company initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognized as finance cost. The Company’s operating assets generally consist of storage tanks and related facilities.
Provisions
Provisions are recognised when the Company has a present obligation as a result of past event and it is probable that the outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at the present value of the amount expected to be required to settle the obligation and the risk specific to the obligation.
Foreign Currencies Translations
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year - end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Financial Risk Management
The Company is exposed to financial risks of markets mainly related to currency risk, interest rate risks, other price risks, credit risks and liquidity risk. The Company’s policies and procedures keeps the Management updated on these risks and it takes appropriate measures to control or minimise its adverse effects if any on the financial position and performance of the Company.
F-214
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 5 | Summary of Significant Accounting Policies (Continued) |
Market Risks
Market risks is the risk that is associated with the changes in market prices and market rates, such as interest rates, equity prices and currency rates will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risks exposures within acceptable parameters, while optimising the returns on the risks.
Currency Risk
The Company’s substantial assets and liabilities are denominated in Arab Emirates Dirhams or in United States Dollars to which the Arab Emirate Dirham is fixed, hence there is no material exchange rate risks.
At the balance sheet date, since there was no material exposure to currencies other than United States Dollars and Gulf Corporation Council currencies, net profits for the year is not materially sensitive to currency risks.
Interest Rate Risk
The Company has interest rate risk as at the year end under review. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s balances with banks and interest bearing loans and borrowings at variable rates.
Credit Risk
Credit risk is the risk of financial loss to the Company if the customer or counterparty to the financial instrument fails to meet its contractual obligations. Credit risk is mainly attributable to trade accounts and other receivables and cash at bank. The exposure to credit risk on trade and other receivables and amounts due from related parties is monitored on an ongoing basis by the Management and these are considered as recoverable by the Management. The Company’s bank account are placed with regulated financial institutions.
Advances and other receivable are settled in the ordinary course of business.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Liquidity risk relates to amounts due to related parties and long-term payables. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities and obligations as and when they fall due without having to face any losses which may adversely effect the Company’s financial position and reputation.
Capital Management
The primary objective of the Company is to maintain adequate capital to support its business and to maximise Owners’ value.
The Company manages its capital structure and make adjustments to it, in light of changes in economic conditions. To maintain or to adjust structure, the Company may adjust the dividend payment to Owners or issue new shares.
F-215
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| (Figures in USD) | 2018 (Re-Stated) | 2017 (Re-Stated) |
| 8 | Revenue |
| Storage rental income (Note 24) | ||||||||
| Miscellaneous income (Note 8.1) | ||||||||
| Ancillary services | ||||||||
| 8.1 | Miscellaneous income represents port charges that are paid by the Company to the port authority and recharged to the customers. |
| 9 | Direct Costs |
| Depreciation on property, plant and equipment (Note 17) | ||||||||
| Operations staff salary | ||||||||
| Port expenses (Note 8.1) | ||||||||
| Spare parts and consumables (Note 15) | ||||||||
| Insurance charges | ||||||||
| Maintenance charges | ||||||||
| Operations pickup charges | ||||||||
| Repairs & maintenance consumables | ||||||||
| License fees | ||||||||
| Power and electricity | ||||||||
| Other expenses | ||||||||
| 10 | Other Income |
| Miscellaneous income | ||||||||
| 11 | General and Administration Expenses |
| Employees’ cost | ||||||||
| Legal and professional | ||||||||
| Sales and marketing | ||||||||
| Office expenses | ||||||||
| Repairs and maintenance | ||||||||
| Rent | ||||||||
| Other expenses | ||||||||
| Travelling expenses | ||||||||
F-216
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| (Figures in USD) | 2018 (Re-Stated) |
2017 (Re-Stated) |
| 12 | Finance Costs |
| Interest expense | ||||||||
| Interest on lease liability | ||||||||
| Bank charges | ||||||||
| 13 | Changes in Fair Value of Derivative Financial Instruments |
Interest rate swaps
During the year 2018, the Company entered into an interest rate swap with a commercial bank exchanging variable interest for fixed interest at specified dates on its term loan 1 (Note 19). The interest rate swap matures in June 2023.
The details of these derivative financial instruments are as follows:
| Notional | Fair value | Fair value | ||||||||||
| Amount | asset | liability | ||||||||||
| 31 December 2018 | USD | USD | USD | |||||||||
| Designated at FVTPL | ||||||||||||
| Interest rate swaps | ||||||||||||
| 14 | Cash and Cash Equivalents |
| Cash in hand | ||||||||
| Balance in local currency account | ||||||||
| 15 | Inventories |
| Spare parts and consumables | ||||||||
Cost
of inventories recognised during the year amounted to USD
| 16 | Other Receivables |
| VAT receivable | ||||||||
| Deposits | ||||||||
| Advance paid to suppliers and contractors | ||||||||
F-217
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
(Figures in USD)
| 17 | Property, Plant and Equipment |
| Buildings | Installations | Other Equipment | Tanks | Capital work in progress | Right - of Use Asset (land) | Total | ||||||||||||||||||||||
| Cost: | ||||||||||||||||||||||||||||
| As at January 01, 2018 (Re-stated) | ||||||||||||||||||||||||||||
| Additions during the year | ||||||||||||||||||||||||||||
| As at December 31, 2018 | ||||||||||||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||||||
| As at January 01, 2018 (Re-stated) | ||||||||||||||||||||||||||||
| Charge for the year | ||||||||||||||||||||||||||||
| As at December 31, 2018 | ||||||||||||||||||||||||||||
| Net Carrying Amount: | ||||||||||||||||||||||||||||
| As at December 31, 2018 | ||||||||||||||||||||||||||||
| As at December 31, 2017 (Restated) | ||||||||||||||||||||||||||||
Tanks
and related assets with a carrying value of USD
Capital
work in progress at December 31, 2018 includes total amount capitalised relating to the construction of Phase 2 and includes an amount
of USD
The
Company has entered into a land lease agreement with the municipality of Fujairah. The lease commenced in 2013 and is for a period of
30 years extendable for another 30 years at the option of the Company. Considering the use of the land, it is reasonably certain that
the Company will continue to lease the land till the end of the lease period (i.e. 60 years) and the lease rentals have been discounted
at the incremental borrowing rate of
The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows.
| 2018 | 2017 | |||||||
| Direct costs (Note 9) | ||||||||
| CWIP | ||||||||
F-218
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| (Figures in USD) | 2018 (Re-Stated) |
2017 (Re-Stated) |
| 18 | Trade and Accounts payable |
| Trade accounts payable | ||||||||
| Capital accruals | ||||||||
| Accrued expenses | ||||||||
| Accrued interest on term loans | ||||||||
| Advance from customers | ||||||||
| 19 | Borrowings |
| Bank overdraft | ||||||||
| Secured term loans | ||||||||
Included in secured loans are the below term loans:
Term loan 1
The
term loan facility was obtained in 2014 to partially finance the construction of 14 oil storage tanks in Fujairah (Phase 1). The loan
facility amounted to USD
The interest rate on the loan was initially at 6 month EIBOR + 3.5%, however as per above mentioned amendment, it was revised to 6 month EIBOR+3%.
Term loan 2
The
term loan facility was obtained in 2017 for constructing an administrative building in Fujairah. The loan facility amount to USD
During
the year, the term loan agreement was amended to revise the repayable date starting on October 2018 with final maturity in July 2023.
F-219
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 19 | Borrowings (Continued) |
Term loans 1 and 2
The below covenants were applicable to Term Loans 1 and 2:
| ii) | an amount equivalent to one quarterly instalment including interest in a debt service reserve account at all times. |
As at the year end, both the above covenants were not met by Company, however the lender did not declare these events as defaults under the loan agreements. This non-compliance resulted in classification of the bank loans as a current liability.
The securities on Term Loans 1 and 2 are as below:
| (i) | mortgage on the tanks and the office/administration building |
| (ii) | step-in right to the leased land and assignment of insurance policies |
| (iii) | corporate guarantees from M/s Al Brooge Capital Providing for Oil and Gas LLC and M/s Emirates Investment Company LLC FZC. |
| (iv) | assignment of the proceeds from operation of the tanks and insurance policies |
As at the year end, the Company did not pay the principal and accrued interest on this loan. Although this event constituted as a default under the loan agreement, the lender did not declare this event as a breach requiring immediate repayment of the loan.
Term Loan 3
The
term loan facility was obtained during the year to settle the accrued interest on Term Loan 1. The loan facility amounted to USD
The term loan facility (3) is secured by a mortgage on the tanks and office/administration building, step-in right to the leased land and assignment of the proceeds from operation of the tanks and insurance policies. The term loan is also secured by guarantees from the following owners: (i) Al Brooge Capital Providing for Oil and Gas LLC, and (ii) Emirates Investment Company LLC FZC.
Term Loan 4
The
term loan facility was obtained during the year to partially finance the construction of Phase 2. The facility amounted to USD
F-220
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 19 | Borrowings (Continued) |
Term Loan 4 (Continued)
The term loan facility 4 is secured by a mortgage on the Phase 2 storage tanks, step-in right to the leased land and assignment of the proceeds from operation of the tanks and insurance policies. The term loan is also secured by guarantees from the following owners: (i) Al Brooge Capital Providing for Oil and Gas LLC, and (ii) Emirates Investment Company LLC FZC.
A condition was included in the agreement requiring evidence of initial contribution by the Company towards Phase 2 storage tanks prior to utilisation of the loan facility. There were no drawdowns of the term loan made as at the year end.
All the above loans were drawn in AED.
| 20 | Employees’ End of Service Benefits |
| (Figures in USD) | 2018 | 2017 | ||||||
| Balance at the beginning of the year | ||||||||
| Provision for the year | ||||||||
| Paid during the year | ( | ) | ||||||
| Balance at the end of the year | ||||||||
F-221
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| (Figures in USD) | 2018 (Re-Stated) |
2017 (Re-Stated) |
| 21 | Lease Liabilities |
| Balance at the beginning of the year | ||||||||
| Interest charge | ||||||||
| Repayment during the year | ( | ) | ( | ) | ||||
| Balance at the end of the year |
| a) The analysis of lease liability is as follows: | ||||||||
| Current | ||||||||
| Non-Current |
During
2013,
| Minimum lease payments | Present value of Minimum lease payments | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Not later than one year | ||||||||||||||||
| Later than one year and not later than five years | ||||||||||||||||
| Later than five years | ||||||||||||||||
| Finance costs | ( | ) | ( | ) | ||||||||||||
| Present value of minimum lease payments | ||||||||||||||||
| 22 | Share Capital |
F-222
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
(Figures in USD)
| 23 | Transactions with Related Parties |
Related parties represent associated companies, owners, directors and key management personnel of the Company, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Company’s Chief Executive Officer.
Transactions with related parties
Movements in owners’ account are as follows.
| 2018 | 2017 | |||||||
| (Re-Stated) | (Re-Stated) | |||||||
| Contributions by the owners | ||||||||
| Amounts paid on behalf of the Company by the owners* | ||||||||
| Amounts paid by the Company on behalf of the owners | ( | ) | ||||||
| Distributions to owners | ( | ) | ||||||
| ( | ) | |||||||
These amounts are repayable at the discretion of the Chief Executive Officer of the Company and are interest free, therefore classified as part of equity.
| * |
Changes in owners’ account is as follows:
| At 1 January | ||||||||
| Net (distributions) contributions during the year | ( | ) | ||||||
A
member of key management personnel was employed by the owners and her compensation amounting to USD
Prior year restatement:
Regarding prior year restatements with the related party Al Brooge International Advisory (“BIA”) refer to Note 24.
Guarantees by related parties:
The owners have issued corporate guarantees to secure the term loans described in Note 19.
F-223
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 24 | Prior Year Restatement |
| i) | The comparative figures for 2017 were restated previously on account of errors identified by the management subsequent to the issuance of the 2017 financial statements. |
The errors comprised the following:
| ● | Use of incorrect discount rate |
The
Company erroneously used a
| ● | Incorrect classification of term loans |
As
of December 31, 2017 and 1 January 2017, the Company had erroneously classified its debt balance of USD
| ● | Incorrect calculation of accrued interest |
As of December 31, 2017, management identified an error in the calculation of accrued interest on term loan (1). The correction of this error resulted in a decrease in the amount of interest capitalised (recorded within property, plant and equipment), a decrease in finance costs and a decrease in accrued interest (recorded within Trade and accounts payable).
| ● | Incorrect determination of functional currency |
The Company incorrectly concluded that its functional currency was the UAE Dirham. The UAE Dirham has been pegged to the US Dollar for all periods since the Company’s inception. Thus, the correction of this error has no impact on the 2017 financial statements or prior periods.
The aforementioned changes were accounted for retrospectively in accordance with IAS 8 and, accordingly the prior years’ financial statements have been restated as follows:
| As previously | Restatement | |||||||||||||||||||||||
| reported | adjustments | Restated | ||||||||||||||||||||||
| 31-12-17 | 01-01-17 | 31-12-17 | 01-01-17 | 31-12-17 | 01-01-17 | |||||||||||||||||||
| Statement of Comprehensive Income | ||||||||||||||||||||||||
| Direct costs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Gross loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Finance costs | ( | ) | ( | ) | ||||||||||||||||||||
| Loss and total comprehensive loss for the year | ( | ) | ( | ) | ||||||||||||||||||||
F-224
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 24 | Prior Year Restatement (Continued) |
| As previously | Restatement | |||||||||||||||||||||||
| reported | adjustments | Restated | ||||||||||||||||||||||
| 31-12-17 | 01-01-17 | 31-12-17 | 01-01-17 | 31-12-17 | 01-01-17 | |||||||||||||||||||
| Statement of Financial Position | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Non-Current Assets | ||||||||||||||||||||||||
| Property, plant and equipment | ||||||||||||||||||||||||
| Total Non-current assets | ||||||||||||||||||||||||
| Total Assets | ||||||||||||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||||||
| Term loans (current portion) | ||||||||||||||||||||||||
| Accounts payable, accruals and other payables | ( | ) | ||||||||||||||||||||||
| Lease liability (current portion) | | |||||||||||||||||||||||
| Total Current Liabilities | ||||||||||||||||||||||||
| Non-Current Liabilities | ||||||||||||||||||||||||
| Term loans (non-current portion) | ( | ) | ( | ) | ||||||||||||||||||||
| Lease liability (non-current portion) | ||||||||||||||||||||||||
| Total Non-Current Liabilities | ( | ) | ( | ) | ||||||||||||||||||||
| Total Liabilities | ||||||||||||||||||||||||
| Equity | ||||||||||||||||||||||||
| Accumulated losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Total Equity | ||||||||||||||||||||||||
| Total Liabilities and Equity | ||||||||||||||||||||||||
| i) | In year 2022, subsequent to the issuance of the Company’s 2018 financial statements, the Company identified errors in the financial statements for the year ended December 31, 2018 and determined that the 2018 financial statements should be restated. The basis of such error and restatement is given as below: |
Restatement Background
As disclosed on May 27, 2022, the Company has not been able to file the 2021 Form 20-F due to an ongoing non-public examination being conducted by the U.S. Securities and Exchange Commission (the “SEC”) regarding the financial statements of the Company. Subsequently, the Audit Committee of the Board of Directors (the “Audit Committee”), engaged independent counsel to conduct, under its supervision, an internal examination into the Company’s revenue recognition practices and related matters.
F-225
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 24 | Prior Year Restatement (Continued) |
Restatement Background (Continued)
As a result of the findings from this internal examination, on August 12, 2022, the Audit Committee, in consultation with the Company’s management, concluded that the previously issued audited consolidated financial statements as of and for the periods ending December 31, 2020 and 2019 and the previously issued unaudited financial statements for interim periods therein and the six months ended June 30, 2021 should no longer be relied upon.
In
connection with the internal examination, the Company conducted a comprehensive review of the accounting policies, procedures, and internal
controls related to revenue recognition. All available customer contracts were assessed based on International Financial Reporting Standard
(IFRS) 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’. This review identified that the funds
received from a related party do not qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in
the Company’s internal examination, including the number of years over which the non-qualified revenue was recognized, the Company
determined that it would be appropriate to rectify the misstatements in the previously issued financial statements by restating such
financial statements. Accordingly, for the year 2018 the Company reversed revenue amounting to USD
The Management does not expect to settle these amounts using any of its current assets or any existing resources in the foreseeable future. Pending its potential receipt of confirmation or adequate supporting documentation from BIA, the Company has taken a conservative approach to recognise this as a liability. The Company continues to assess this liability and will evaluate whether there arises any obligation or it is discharged or cancelled or expires or is swapped out for one with significantly different terms or when the terms of are significantly modified, such an exchange or modification is recognized as a derecognition of the old liability and the recognition of a new liability or as equity contribution, as applicable, and the difference in the respective carrying amounts will be recorded in the statement of either other comprehensive income or directly as equity as applicable.
The above changes pertaining to reversal of Revenue and recognition of such amount under Other payable were accounted retrospectively in accordance with IAS 8 and, accordingly the prior years’ financial statements have been restated as follows:
| As previously reported | Restatement adjustments | Restated | ||||||||||||||||||||||
| 31-12-18 | 01-01-18 | 31-12-18 | 01-01-18 | 31-12-18 | 01-01-18 | |||||||||||||||||||
| STATEMENT OF COMPREHENSIVE INCOME | ||||||||||||||||||||||||
| Revenue | ( |
) | ||||||||||||||||||||||
| Direct costs | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| Gross Profit / (Loss) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Other income | ||||||||||||||||||||||||
| General and administrative expenses | ( |
) | ( |
) | ( |
) | ) | |||||||||||||||||
| Profit / Loss and total comprehensive profit / (loss) for the year | ( |
) | ( |
) | ( |
) | ) | |||||||||||||||||
F-226
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 24 | Prior Year Restatement (Continued) |
(Figures in USD)
| As previously reported | Restatement adjustments | Restated | ||||||||||||||||||||||
| 31-12-18 | 01-01-18 | 31-12-18 | 01-01-18 | 31-12-18 | 01-01-18 | |||||||||||||||||||
| STATEMENT OF FINANCIAL POSITION | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current Assets | ||||||||||||||||||||||||
| Trade receivables | ( | ) | ||||||||||||||||||||||
| Total current assets | ( | ) | ||||||||||||||||||||||
| Total Assets | ( | ) | ||||||||||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||||||
| Other payable | ||||||||||||||||||||||||
| Total Current Liabilities | ||||||||||||||||||||||||
| Equity | ||||||||||||||||||||||||
| Retained Earnings / (accumulated losses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Statutory reserve | ( | ) | ||||||||||||||||||||||
| Total Equity | ( | ) | ||||||||||||||||||||||
| Total Liabilities and Equity | ( | ) | ||||||||||||||||||||||
| 25 | Contingent Liabilities |
| Capital commitments | 2018 | 2017 | ||||||
| Within one year | ||||||||
| More than 1 year and less than 5 years | ||||||||
| At 31 December | ||||||||
Capital commitments relate to construction of Phase 2 which is expected quarter of 2020.
Capital commitments include advances to suppliers which are contingent on an advance payment guarantee being issued by the supplier in favour of the Company, therefore not recognised as at December 31, 2018.
Except for the above and ongoing purchase commitments in the normal course of business against which no loss is expected, there are no other known contingent liabilities existing at the balance sheet date.
F-227
Brooge Petroleum and Gas Investment Company FZE
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2018
| 26 | Subsequent Events |
The significant events that occurred after the balance sheet date, which require disclosures in the financial statements are as follows:
February 25, 2019
The owners transferred the ownership in Brooge Petroleum and Gas Investment Company FZC to Brooge Petroleum and Gas Investment Company plc (“BPGIC plc”). Thereafter, the Company has become “Brooge Petroleum and Gas Investment Company FZE”.
March 31, 2019
An
amount of USD
April 15, 2019
A business combination agreement was entered into between the Company’s owners and Twelve Seas, Brooge Holdings Limited, Brooge Merger Sub Limited, a subsidiary of Brooge Holdings Limited. BPGIC plc became party to the business combination agreement by execution of a joinder thereto on May 10, 2019.
September 10, 2019
The Company entered into an agreement with its lender to amend the terms of it’s Term Loan 1.
| 24 | September 2020 |
On
24 September 2020, the Company issued long term fixed interest rate senior secured bonds of USD
| 27 | Reaudit of the Financial Statements |
The financial statements are re-audited as the Company has undertaken a restatement of its financial statement for the year ended December 31, 2018, the details of which are mentioned in Note 24 the restatement mainly pertains to revenue, other payable and trade account receivable.
| 28 | Rounding Off of Figures |
All figures have been rounded off to the nearest US Dollar.
| 29 | Comparative Figures |
Certain of the prior year figures have been regrouped to conform with the presentation of the current year.
F-228
Brooge Energy Limited
Interim
Condensed Consolidated Financial Statements
June 30, 2022
F-229
| Office 106, The Binary | |
| Al Abraj Street | |
| Business Bay | |
| PO Box 413383 | |
| Dubai / UAE | |
| [T] +971 4 557 8358 | |
| [E] mail@affiniax.com |
 |
Independent Auditor’s Review Report
The Shareholders Brooge Energy Limited
Report on the Interim Condensed Consolidated Financial Statements
We have reviewed the accompanying interim condensed consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprise of the consolidated statement of financial position as at June 30, 2022, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the period then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.
Management’s and Auditor’s Responsibility for the Interim Condensed Consolidated Financial Statements
The Management is responsible for the preparation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Our responsibility is to express a conclusion on the interim condensed consolidated financial statements based on our review.
Scope of Review
We conducted our review in accordance with International Standards on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. This Standard requires that we plan and perform the review to obtain moderate assurance as to whether the interim condensed consolidated financial statements are free of material misstatement. A review is limited primarily to inquiries of Group personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial statements are not prepared, in all material respects, in accordance with International Financial Reporting Standards.
Affiniax A A S Auditors
Dubai, United Arab Emirates, April 24, 2023 |
F-230
Brooge Energy Limited
Interim Condensed Consolidated Statement of Comprehensive Income
Period Ended June 30, 2022
| (Figures in USD) | Note | June 30, 2022 (6 Months) | June 30, 2021 (6 Months) (Restated) | |||||||
| Revenue | 5 | |||||||||
| Direct costs | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||
| Other income | ||||||||||
| Change in estimated fair value of derivative warrant liability | ||||||||||
| General and administration expenses | ( | ) | ( | ) | ||||||
| Finance costs | ( | ) | ( | ) | ||||||
| Changes in fair value of derivative financial instruments | ||||||||||
| Profit for the period | ||||||||||
| Other comprehensive income | ||||||||||
| Total Comprehensive Income for the period | ||||||||||
| 23 | ||||||||||
The accompanying notes form an integral part of the interim condensed consolidated financial statements.
F-231
Brooge Energy Limited
Interim Condensed Consolidated Statement of Financial Position
As at June 30, 2022
| (Figures in USD) | Note | June 30, 2022 | December 31, 2021 (Restated) | |||||||
| ASSETS | ||||||||||
| Current Assets | ||||||||||
| Cash and cash equivalents | 6 | |||||||||
| Trade accounts receivable | 7 | |||||||||
| Inventories | 8 | |||||||||
| Other receivable and prepayments | 9 | |||||||||
| Total Current Assets | ||||||||||
| Non-Current Assets | ||||||||||
| Restricted bank balance | 6 | |||||||||
| Property, plant and equipment | 10 | |||||||||
| Derivative financial instrument | 11 | |||||||||
| Advances to contractor | 12 | |||||||||
| Total Non-Current Assets | ||||||||||
| Total Assets | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
| Current Liabilities | ||||||||||
| Trade and accounts payable | 13 | |||||||||
| Other payable | 14 | |||||||||
| Derivative warrant liability | 15 | |||||||||
| Borrowings | 16 | |||||||||
| Lease liabilities | 17 | |||||||||
| Total Current Liabilities | ||||||||||
| Non-Current Liabilities | ||||||||||
| Borrowings | 16 | |||||||||
| Lease liabilities | 17 | |||||||||
| Employees’ end of service benefits | 18 | |||||||||
| Asset retirement obligation | 19 | |||||||||
| Total Non-Current Liabilities | ||||||||||
| Equity | ||||||||||
| Share capital | 20 | |||||||||
| Share premium | 20 | |||||||||
| Statutory reserve | ||||||||||
| Retained earnings | ( | ) | ( | ) | ||||||
| Shareholder’s account | ||||||||||
| Total Equity Attributable to the Shareholders | ||||||||||
| Total Liabilities and Equity | ||||||||||
The accompanying notes form an integral part of the interim condensed consolidated financial statements.
F-232
Brooge Energy Limited
Interim Condensed Consolidated Statement of Changes in Equity
Period Ended June 30, 2022
| (Figures in USD) | Share Capital | Share Premium | Statutory Reserve | Retained Earnings | Shareholder’s Account | Total | ||||||||||||||||||
| As at January 01, 2021 | ( | ) | ||||||||||||||||||||||
| Profit for the period | ||||||||||||||||||||||||
| As at June 30, 2021 | ( | ) | ||||||||||||||||||||||
| Transfer to statutory reserve | ( | ) | ||||||||||||||||||||||
| Movements during the year | ||||||||||||||||||||||||
| As at December 31, 2021 | ( | ) | ||||||||||||||||||||||
| Profit for the period | ||||||||||||||||||||||||
| Movements during the period | ( | ) | ( | ) | ||||||||||||||||||||
| As at June 30, 2022 | ( | ) | ||||||||||||||||||||||
The accompanying notes form an integral part of the interim condensed consolidated financial statements.
F-233
Brooge Energy Limited
Interim Condensed Consolidated Statement of Cash Flows
Period Ended June 30, 2022
| (Figures in USD) | June 30, 2022 (6 Months) | June 30, 2021 (6 Months) (Restated) | ||||||
| Cash Flow from Operating Activities | ||||||||
| Profit for the period / year | ||||||||
| Adjustments for: | ||||||||
| Depreciation of property, plant and equipment | ||||||||
| Interest charged on lease liability | ||||||||
| Change in estimated fair value of derivative warrant liability | ( | ) | ( | ) | ||||
| Net changes in fair value of derivative financial instruments | ( | ) | ( | ) | ||||
| Asset retirement obligation - accretion expense | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Increase in trade accounts and other receivable and prepayments | ( | ) | ( | ) | ||||
| (Increase) / Decrease in inventories | ( | ) | ( | ) | ||||
| Increase in trade accounts and other payable | ||||||||
| Increase in employees’ end of services benefits | ||||||||
| Net cash generated from operating activities | ||||||||
| Cash Flow from Investing Activities | ||||||||
| Amount withdrawn from restricted bank account | ||||||||
| Advance to contractors | ( | ) | ||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flow from Financing Activities | ||||||||
| Proceeds from term loan | ||||||||
| Repayment of borrowings | ( | ) | ( | ) | ||||
| Payment of lease liability | ( | ) | ( | ) | ||||
| Movement in shareholder’s account | ( | ) | ||||||
| Net cash used in from financing activities | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of the period / year | ||||||||
| Cash and cash equivalents at end of the period / year | ||||||||
The accompanying notes form an integral part of the interim condensed consolidated financial statements.
F-234
Brooge Energy Limited
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022
| 1 | Legal Status, Management and Business Activity |
The interim condensed consolidated financial statements comprise of the interim condensed financial statements of Brooge Energy Limited (“Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”. The details of the Group are as follows:
a. Brooge Energy Limited (“Company”)
The Company, is a Company with limited liability registered as an exempted company in the Cayman Islands.
The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).
The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.
The subsidiaries of the Company are as follows:
i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)
BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.
BPGIC
FZE is a
ii. Brooge Petroleum and Gas Investment Company Phase III FZE (BPGIC Phase III FZE)
BPGIC Phase III FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 20-FZE-1972.
BPGIC
Phase III FZE is a
iii. BPGIC International
BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.
BPGIC
International is a
iv. Brooge Petroleum and Gas Management Company Limited (BPGMC Limited)
BPGMC Limited is a company with limited liability registered in Dubai International Financial Centre with commercial license number CL3852.
BPGMC
Limited is a
v. BPGIC Phase 3 Limited (BPGIC Phase III Ltd)
BPGIC Phase 3 Limited is a Free Zone Company with limited liability formed in accordance with the provisions of Jebel Ali Free Zone Authority Offshore Companies Regulations 2018. The registration number of BPGIC Phase 3 Limited is 226933.
BPGIC
Phase 3 Limited is a
F-235
Brooge Energy Limited
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022
| 1 | Legal Status, Management and Business Activity (Continued) |
The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The construction of the Company’s phase II, with a total capacity of 602,064 cbm was completed in September 2021.The Group has commenced early preparation work for its phase 3 project where it intends to construct additional storage and refinery facilities. The Group’s has commenced preconstruction work for its phase 3. The Group intends to construct additional storage and refinery facility as part of the phase 3.
The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.
On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.
The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”).
Under this method of accounting, Brooge Energy and Twelve Seas are treated as the “acquired” company. This determination was primarily based on BPGIC FZE comprising the ongoing operations of the combined company, BPGIC FZE’s senior management comprising the senior management of the combined company, and BPGIC FZE’s stockholders having a majority of the voting power of the combined company. For accounting purposes, BPGIC FZE is deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of BPGIC FZE. Accordingly, the consolidated assets, liabilities and results of operations of BPGIC FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.
As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve seas changed its name to ‘BPGIC International’.
The consolidated financial statements for the year ended December 31, 2019 were prepared as a continuation of the financial statements of BPGIC FZE, the acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited).
F-236
Brooge Energy Limited
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022
| 2 | Basis of Preparation of Consolidated Financial Statements |
The interim condensed consolidated financial statements for the six-month period ended 30 June 2022 have been prepared in accordance with International Accounting Standard 34 (“IAS 34”) “Interim Financial Reporting”.
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group’s annual consolidated financial statements as at and for the year ended 31 December 2021.
The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new and amended standards as set out below.
These interim condensed consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group.
The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of warrant liability.
| 2.1 | Going Concern |
During the period ended 30 June
2022, the Group earned a profit of USD
As of 30 June 2022, the Group
had a waiver for leverage ratio and working capital financial covenant requirements, however it was in technical breach of its Information
Undertakings requirements. Even though the lender did not declare an event of default under the bond agreement, this constituted events
of default and could have resulted in the lender requiring immediate repayment of the bonds. Accordingly, as of 30 June 2022, the Group
has classified its debt balance of USD
These interim condensed consolidated financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards issued by International Accounting Standards Board (IASB). The validity of this assumption depends upon the continued financial support to the Group by its Shareholders. The financial statements do not include any adjustment that should result from a failure to obtain such combined financial support. The Management has no intention to discontinue the operations of the Group. The assets and liabilities are recorded on the basis that the Group will be able to realise its assets and discharge its liabilities in the normal course of business. This position does not impair the financial position of the Group.
F-237
Brooge Energy Limited
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022
| 3 | Changes in Accounting Policies And Disclosures |
New and amended standards and interpretations
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2021. The Group has adopted the following new and amended IFRS’s in these interim condensed consolidated financial statements.
Annual Improvements to IFRS Standards 2018 – 2020 – Amendments to IFRS 1, IFRS 9, illustrative examples accompanying IFRS 16 and IAS 41.
Classification of Liabilities as Current or Non-current-Amendments to IAS 1
Property, Plant and Equipment - Proceeds before intended use - Amendments to IAS 16 Reference to Conceptual Framework - Amendments to IFRS 3
Onerous Contracts - Cost of Fulfilling a Contract - Amendments to IAS 37
The adoption of above standards and amendments did not have any significant impact on the consolidated financial statements of the Group.
| 4 | Significant Accounting Estimates And Judgements |
The preparation of the interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of financial assets and liabilities and the disclosure of contingent liabilities. These judgments, estimates and assumptions also affect the revenue, expenses and provisions as well as fair value changes. Actual results may differ from these estimates.
In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty are the same as those applied to the preparation of the Group’s consolidated financial statements as at and for the year ended 31 December 2021.
F-238
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| (Figures in USD) | June 30, 2022 (6 Months) |
June 30, 2021 (6 Months) |
| 5 | Revenue |
| Storage rental income | ||||||||
| Miscellaneous income (Note 5.1) | ||||||||
| Ancillary services | ||||||||
Note 5.1
The Group has only
The commercial contracts with customers related to the Phase 1 and Phase 2 have been assigned as security against the borrowing obtained in 2020.
Miscellaneous income includes port charges of USD
The revenues of the Group mainly comprise of fixed fees for storage and related services and variable fees for ancillary services provided under a contract with its customers. Accordingly, there is no cyclicality in the Group’s operations.
| June 30, 2022 |
December 31, 2021 |
| 6 | Cash and Cash Equivalents |
| Cash in hand | ||||||||
| Balances in current accounts | ||||||||
| The above consist of the following: | ||||||||
| Non-current | ||||||||
| Restricted bank balance | ||||||||
| Current | ||||||||
| Cash and Cash Equivalents | ||||||||
| Restricted bank balance | ||||||||
F-239
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| (Figures in USD) | June 30, 2022 |
December 31,
2021 |
| 7 | Trade Accounts Receivable |
| Trade accounts receivable | ||||||||
| 8 | Inventories |
| Spare parts and consumables | ||||||||
Cost of inventories recognised during
the year amounted to USD
| 9 | Other Receivable and Prepayments |
| Prepaid expenses | ||||||||
| Due from shareholder | ||||||||
| Due from related parties (Note 21) | ||||||||
| Staff advances | ||||||||
| Deposits | ||||||||
| Other receivable | ||||||||
| 10 | Property, Plant and Equipment |
| a) | The movement schedule is set out on page 25. |
| 11 | Derivative financial instruments |
| Call option | ||||||||
On 24 September 2020, the Group issued
long term fixed interest rate senior secured bonds of USD
At 30 June 2022 management has assessed
the value of the call option of USD
F-240
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| (Figures in USD) | June 30, 2022 |
December 31,
2021 |
| 12 | Advances to Contractor |
| Advances to contractor | ||||||||
The above amount mainly includes the advances paid towards
Audex Fujairah LL FZE for the interconnectivity construction amounting USD
| 13 | Trade and Accounts Payable |
| Trade accounts payable | ||||||||
| Accrued interest on borrowings | ||||||||
| Advances from customer | ||||||||
| Accrued expenses | ||||||||
| Due to a related party (Note 21) | ||||||||
| VAT payable | ||||||||
| Payables to third parties | ||||||||
| 14 | Other Payable |
| M/s Brooge International Advisory LLC | ||||||||
As disclosed on May 27, 2022, the Group has not been able to file the 2021 Form 20-F due to an ongoing non-public examination being conducted by the U.S. Securities and Exchange Commission (the “SEC”) regarding the financial statements of the Group. Subsequently, the Audit Committee of the Board of Directors (the “Audit Committee”), engaged independent counsel to conduct under its supervision, an internal examination into the Group’s revenue recognition practices and related matters. As a result of the findings from this internal examination, on August 12, 2022, the Audit Committee, in consultation with the Group’s management, concluded that the previously issued audited consolidated financial statements as of and for the periods ending December 31, 2020, 2019, and 2018, and the previously issued unaudited financial statements for interim periods therein and the six months ended June 30, 2021 should no longer be relied upon.
In connection with the internal examination, the Group conducted a comprehensive review of the accounting policies, procedures, and internal controls related to revenue recognition. All available customer contracts were assessed based on International Financial Reporting Standard (IFRS) 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’. This review identified that the funds received from a related party viz. M/s Al Brooge International Advisory LLC do not qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in the Group’s internal examination, including the number of years over which the non-qualified revenue was recognized the Group determined that it would be appropriate to rectify the misstatements in the previously issued financial statements by restating such financial statements.
F-241
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| 14 | Other Payable (Continued) |
Accordingly, the above USD
The Management does not expect to settle these amounts using any of it’s current assets or any existing resources in the foreseeable future. Pending its potential receipt of confirmation or adequate supporting documentation from the party, the Group has taken a conservative approach to recognise this as a liability. The Group continues to assess this liability and will evaluate whether there arises any obligation or it is discharged or cancelled or expires or is swapped out for one with significantly different terms or when the terms of are significantly modified, such an exchange or modification is recognized as a derecognition of the old liability and the recognition of a new liability or as equity contribution, as applicable and the difference in the respective carrying amounts will be recorded in the statement of either other comprehensive income or directly as equity as applicable.
| 15 | Derivative Warrant Liability |
| Issuance of | ||||||||
| Fair value remeasurement of derivative warrant liability | ( | ) | ( | ) | ||||
In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the interim consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised, or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.
In connection with the completion of
the business combination on 20 December 2019, each of Twelve Sea’s
At initial recognition on 20 December
2019, the Group recorded a derivative warrant liability of USD
On 14 May 2020, holders of
At 30 June 2022, the Group recorded
a derivative warrant liability of USD
F-242
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| (Figures in USD) | June 30, 2022 |
December 31,
2021 |
| 16 | Borrowings |
| Term loan | ||||||||
| Bonds | ||||||||
| The current and non- current break up as below: | ||||||||||
| Non- Current | Maturity | |||||||||
| Term loan | 2028 | |||||||||
| Current | ||||||||||
| Term loan | ||||||||||
| Bonds | On demand | |||||||||
| Coupon | Effective interest | 2022 | 2021 | |||||||||||||||
| Bonds | rate % | rate % | Maturity date | USD | USD | |||||||||||||
| USD | % | % | | |||||||||||||||
On 24 September 2020, the Group issued
long term fixed interest rate senior secured bonds of USD
The bonds will be repaid in semi-annual
payments of USD
F-243
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| 16 | Borrowings (Continued) |
The bonds are secured by:
| (ii) | assignment of rights and pledge over the balance in the Earnings account; | |
| (iii) | pledge over the balance in the Liquidity account, the Debt Service Retention account and the Construction Funding account; | |
| (iv) | pledge over moveable assets of BPGIC FZE and its subsidiaries; |
| (v) | security assignment of commercial contracts related to phase I and phase II, land lease agreement, port facilities agreement and EPC construction contract; |
| (vi) | security assignment over insurance contracts for phase I terminal, phase II terminal and admin building; (vii) security assignment over group and intercompany loans; and |
| (viii) | corporate guarantee from Brooge Energy Limited. |
The bond agreement also restricts BPGIC FZE from making any distributions other than in the form of an inter company loan for phase III construction.
Under the bond agreement, BPGIC FZE is subject to the following financial covenants during the term of the bonds:
| (i) | Minimum Liquidity: BPGIC FZE to maintain $8.5 million in the Liquidity account; | |
| (ii) | Leverage Ratio: BPGIC FZE and its subsidiaries’ leverage ratio not to exceed: (A) 5.5x at 31 December 2020; (B) 3.5x at 31 December 2021; and (C) 3.0x anytime thereafter; and |
| (iii) | Working Capital: BPGIC FZE and its subsidiaries to maintain a positive working capital. | |
| The bond agreement requires the Group to comply with the following financial covenant: | ||
| (i) | Brooge Energy Limited to maintain a minimum equity ratio of 25%. |
As of 30 June 2022, the Group was in technical breach of the requirements to comply with the leverage ratio and working capital thresholds. Even though the lenders did not declare an event of default under the bond agreement, these technical breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the bonds. Accordingly, the Group has classified the respective bonds as a current liability at the end of 30 June 2022. Subsequent to the year end, the lenders have confirmed their intention to not require immediate repayment of the outstanding amounts or alter the repayment pattern in the original bond agreement.
Bond Waiver letter
On April 27, 2022, the Group entered into an agreement with the Bondholders to implement following amendments to the Bond Financing Facility, effective immediately:
| (a) | Waiver of the Events of Defaults that are triggered by the technical breaches of the Leverage Ratio and positive Working Capital covenants until December 31, 2022. |
F-244
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| 16 | Borrowings (Continued) |
| (b) | The requirement to maintain a Leverage Ratio to not exceed certain thresholds is suspended (waived) for the results period from December 31, 2021 to and including December 30, 2022, and shall be tested again for the 12 months results period from (and including) January 1, 2022 to December 31, 2022 (inclusive) at 3.5x, stepping down to 3.0x anytime thereafter (as per the original terms of the Bond Financing Facility). For the avoidance of doubt, the costs associated with the amendments shall not be taken into consideration in EBITDA when calculating Leverage Ratio. |
| (c) | The requirement to maintain a positive Working Capital is suspended (waived) for the period from December 31, 2021 to and including December 30, 2022, and shall be tested again starting from and including December 31, 2022. |
| (d) | Permitted Distribution: |
| (i) | No Permitted Distribution shall be made before BPGIC is in compliance with financial covenant requirements under the original terms of the Bond Facility Financing. |
| (ii) | Furthermore, BPGIC shall provide to the Bond Trustee a written statement signed by its chief executive officer and chief financial officer within three business days prior to any permitted distribution under the terms of the Bond Financing Facility that (A) states the amount being distributed as a permitted distribution, (B) confirms the conditions with respect to such distribution are satisfied, and (C) declares such distribution will not lead to an Event of Default on the next testing date. |
Term loan
During the year, the Group obtained
a new term loan facility from a commercial bank in the UAE amounting to USD
F-245
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| 16 | Borrowings (Continued) |
Term loan (Continued)
The term loan is secured by:
| i. | Corporate Guarantee of M/s Brooge Energy Limited. | |
| ii. | BPGIC Phase III FZE grants in favor of the commercial bank
a First Rank Degree Mortgage for a total mortgage of AED |
|
| iii. | Rental Income generated by the corporate office to be automatically assigned to the commercial bank unless the parties agree otherwise in writing. | |
| iv. | Authority to debit account no: 1001752862 of BPGIC FZE signed by the signatories (RIM No.1123593) | |
| v. | Promissory note for the secured loan. | |
| vi. | Security cheque covering the total facility limit drawn by the Group. |
| (Figures in USD) | June 30, 2022 |
December 31,
2021 |
| 17 | Lease Liabilities |
| Balance at the beginning of the period / year | ||||||||
| Rent waiver | ( | ) | ||||||
| Interest charged during the period / year | ||||||||
| Repayment during the period / year | ( | ) | ( | ) | ||||
| Balance at the end of the period / year | ||||||||
| 1) The analysis of lease liability is as follows: | ||||||||
| Current | ||||||||
| Non-Current |
During 2013, the Group entered into a land lease agreement with the Municipality of Fujairah for a period of 30 years, extendable for another 30 years at the option of the Group. The Group has concluded that they have the right-to-use of the asset and accordingly, recorded a lease liability as per the requirements of IFRS 16. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 9.5% (2019: 9.5%) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis as per the agreement.
During 2020, the Group entered into another land lease agreement in respect of its Phase III project with the Fujairah Oil Industry Zone for a period of 30 years, extendable for another 30 years. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 13% (2020: 13%) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis and there is an initial rent free period of 18 months from the contract date.
During the year, the Group entered into an agreement with the lessor for an additional one-year rent free period in respect of the Phase III land The Group has treated this to be a partial extinguishment of the lease liability as per IFRS 16 and IFRS 9. The rent waiver is recognised as a gain in the income statement, with a corresponding reduction in the lease liability.
F-246
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| (Figures in USD) | June 30, 2022 |
December 31,
2021 |
| 17 | Lease Liabilities (Continued) |
| Lease payments | Present value of
minimum lease payments | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Not later than one year | ||||||||||||||||
| Later than one year and | ||||||||||||||||
| not later than five years | ||||||||||||||||
| Later than five years | ||||||||||||||||
| Finance costs | ( | ) | ( | ) | ||||||||||||
| Present value of minimum lease payments | ||||||||||||||||
| 18 | Employees’ End of Service Benefits |
| Balance at the beginning of the period / year | ||||||||
| Provision for the period / year | ||||||||
| Paid during the period / year | ( | ) | ( | ) | ||||
| Balance at the end of the period / year |
| 19 | Asset Retirement Obligation |
| Asset retirement obligation | ||||||||
As part of the land lease agreement between the Fujairah Oil Industry Zone (“FOIZ”) and the Group, the Group has a legal obligation to remove the plant at the end of its useful life, or earlier, if the Group is unable to continue its operations, and restore the land. The Group has employed professional valuers to estimate the amount of liability.
| 20 | Share Capital & Share Premium |
| Authorized | No. of Shares | USD | ||||||
| Ordinary shares | ||||||||
| Share Capital | ||||||||
| As at 31 December 2021 | ||||||||
| As at 30 June 2022 |
Ordinary shares held in escrow (
F-247
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| (Figures in USD) | June 30, 2022 |
December 31, 2021 |
| 20 | Share Capital & Share Premium (Continued) |
One-half (½) of the Escrow
Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized
EBITDA (as defined in the Escrow Agreement) for any full fiscal quarter during the Escrow Period (beginning with the first full fiscal
quarter beginning after the Closing) (an “Escrow Quarter”) equals or exceeds USD
(20) Trading Day period during the Escrow Period.
All Escrow Property remaining
in the Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either:
(a) the Annualized EBITDA for any Escrow Quarter equals or exceeds $
| Share Premium | ||||||||
| As at January 01 | ||||||||
| As at June 30 / December 31 | ||||||||
| 21 | Transactions with Related Parties |
The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with
related parties are as under:
| Transactions in shareholders’ account | ||||||||
| (Repayments to) / Contributions by the shareholders | ( | ) | ||||||
| ( | ) |
These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equity.
| Changes in shareholders’ account is as follows: | ||||||||
| At January 01 | ||||||||
| Net contributions (distributions) during the period / year | ( | ) | ||||||
| At June 30 / December 31 | ||||||||
| Expense paid on behalf of related parties | ||||||||
| Key management remuneration | ||||||||
F-248
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| (Figures in USD) | June 30, 2022 |
December 31, 2021 |
| 21 | Transactions with Related Parties (Continued) |
Related party balances as at the period / year end are classified as under:
| Related Party | Classification | |||||||||
| Shareholder | Shareholder’s account (Equity) | |||||||||
| BPGIC Holdings | Due from shareholder (Note 9) | |||||||||
| HBS Investments LP | Due from related parties (Note 9) | |||||||||
| H Capital International LP | Due from related parties (Note 9) | |||||||||
| O2 Investments Limited as GP | Due from related parties (Note 9) | |||||||||
| SBD International LP | Due from related parties (Note 9) | |||||||||
| SD Holding Limited as GP | Due from related parties (Note 9) | |||||||||
| Gyan Investments Ltd | Due from related parties (Note 9) | |||||||||
| Shareholder | Due to a related party (Note 13) | |||||||||
| 22 | Contingent Liabilities |
| Capital commitments within one year | ||||||||
Capital commitments relate to construction project for interconnection of pipelines between Phase I and Phase II with Phase III and early preparation work for Phase III
| 23 | Earnings Per Share |
Basic EPS is calculated by dividing the profit/(loss) for the period / year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period / year.
Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS calculations:
| (Figures in USD) | June 30, 2022 | December 31, 2021 | ||||||
| Profit attributable to ordinary equity holders of the parent | ||||||||
| Weighted average number of ordinary shares | ||||||||
As part of the business combination warrants and ordinary shares subjected to escrow has been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.
F-249
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| 23 | Earnings Per Share |
The number of contingently issuable
shares (
| 24 | Fair Value of Financial Instruments |
Management considers that the fair value of financial assets and financial liabilities in the interim consolidated financial statements approximate their carrying amounts at the reporting date.
Fair Value Hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
| Liabilities measured at fair value: | Level 1 USD |
Level 2 USD |
Level 3 USD |
Total Fair Value USD |
||||||||||
| June 30, 2022 | ||||||||||||||
| Derivative warrant liability | ||||||||||||||
| Borrowings | ||||||||||||||
| Derivative financial instruments | ||||||||||||||
| December 31, 2021 | ||||||||||||||
| Derivative warrant liability | ||||||||||||||
| Borrowings | ||||||||||||||
| Derivative financial instruments | ||||||||||||||
The fair value of level 1 financial liability have been determined in accordance with quoted price.
The fair value of level 2 financial liability have been determined by using generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.
During the period ended 30 June 2022 and 31 December 2021, there were no transfers between Level 1 and Level 2 fair value measurements.
| 25 | Subsequent Events After the Reporting Date |
The Company on Aug. 17, 2022 announced that its majority shareholder, BPGIC Holdings Limited has expressed an interest to acquire all the shares of the Company that it does not currently own and to take the Company private. The Board of Directors of the Company is considering the proposal and will be entering into substantive negotiations. Any transaction, if entered into, will be subject to the receipt of a fairness opinion and approval of the Company’s shareholders and bondholders. There can be no assurance that a transaction will be entered into.
F-250
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| 26 | Financial Risk Management And Policies |
The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks. The Group’s borrowing are issued at fixed rate of interest.
Market Risk
The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the interim consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.
At the reporting date, the exposure
to derivative warrant liability at fair value listed on the NASDAQ was USD
Currency Risk
The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the interim consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2022 and 2021.
The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.
Liquidity Risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.
F-251
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| 26 | Financial Risk Management And Policies (Continued) |
Liquidity Risk (Continued)
The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.
The table below summarizes the maturity profile of the Group’s financial liabilities at June 30, 2022 and December 31, 2021 based on contractual undiscounted payments.
| On Demand | Upto 1 Year | 1 to 5 Years | > 5 Years | Total | ||||||||||||||||
| USD | USD | USD | USD | USD | ||||||||||||||||
| June 30, 2022 | ||||||||||||||||||||
| Bonds (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Bonds (Including accrued interest) | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Accounts payable, accruals and other payables (excluding accrued interest) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
F-252
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
| (Figures in USD) | June 30, 2022 |
December 31, 2021 |
| 26 | Financial Risk Management And Policies (Continued) |
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated
losses) retained earnings.
| Borrowing | ||||||||
| Lease liability | ||||||||
| Less: cash and cash equivalents | ( | ) | ( | ) | ||||
| Net debt | ||||||||
| Total capital | ||||||||
| Capital and net debt | ||||||||
| Gearing ratio | % | % |
| 27 | Rounding Off of Figures |
All figures have been rounded off to the nearest US Dollars.
| 28 | Comparative Figures |
Certain of the prior year figures have been regrouped to conform with the presentation of the current year.
F-253
Brooge Energy Limited
Notes to the Interim Consolidated Financial Statements
June 30, 2022
Groupings of Property, Plant and Equipment
| Other | Capital Work | Right of use | (Figures in USD) | |||||||||||||||||||||||||
| Buildings | Installations | Equipments | Tanks | in Progress | Assets | Total | ||||||||||||||||||||||
| Cost: | ||||||||||||||||||||||||||||
| As at January 01, 2022 | ||||||||||||||||||||||||||||
| Additions during the period | ||||||||||||||||||||||||||||
| As at June 30, 2022 | ||||||||||||||||||||||||||||
| Accumulated Depreciation: | ||||||||||||||||||||||||||||
| As at January 01, 2022 | ||||||||||||||||||||||||||||
| Charge for the period | ||||||||||||||||||||||||||||
| As at June 30, 2022 | ||||||||||||||||||||||||||||
| Net Carrying Value: | ||||||||||||||||||||||||||||
| As at June 30, 2022 | ||||||||||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||||||||||
Additions to buildings of USD
Capital work in progress at June 30, 2022 of USD
Land lease agreement and the moveable assets of BPGIC FZE are pledged as security against borrowings obtained in 2020 (Note 16)
The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows:
| (Figures in USD) | June 30, 2022 | December 31, 2022 | ||||||
| Direct costs | ||||||||
| CWIP | ||||||||
F-254