KEYBRIDGE CAPITAL LIMITED — Net Asset Value 2018

Jul 12, 2018

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Friday, 13 July 2018

ASX Codes : KBC; KBCPA

ASX MARKET ANNOUNCEMENT

NET ASSET BACKING – JUNE 2018

Keybridge Capital Limited (ASX:KBC) gives notice that its unaudited after-tax Net Asset Backing as at 30 June 2018 was $0.1083 per share.

Net Asset Backing

Net Asset Backing
	%	Current Month	Previous Month
Net Asset Backing for Period Ending:	Change	30 June 2018	31 May2018
Pre-Tax Net Asset Backing per share	-0.66%	$0.1083	$0.109
Post-Tax Net Asset Backing per share	-0.66%	$0.1083	$0.109
Based on total issued (listed) share capital(1)		158,080,432	158,080,432

Net Assets

Net Assets
	Current Month		Previous Month
	30 June 2018		31 May 2018
		% of Net		% of Net
	**$’million **	Assets	$’million	Assets1
Cash	5.008	29.30%	5.736	33.30%
Investment in Associated entity(Note 2)	2.094	12.20%	2.132	12.40%
Other Listed Securities	7.449	43.50%	7.057	41.00%
Managed Funds	0.300	1.80%	0.315	1.80%
Other Investments	0.100	0.60%	0.100	0.60%
Loan Receivables:
•Private Equity(Note 3)	0.533	3.10%	0.520	3.00%
•Insurance(Note 4)	3.135	18.30%	3.133	18.20%
•Property(Note 5)	0.985	5.80%	0.885	5.10%
•Other(Note 6)	1.321	7.70%	0.821	4.80%
Other Assets	0.566	3.30%	1.100	6.40%
Convertible Redeemable Promissory Notes	(4.053)	(23.70%)	(4.181)	(24.30%)
(ASX: KBCPA)(Note 8)
Provision for tax	-	-	-	-
Financial liabilities	-	-	(0.037)	(0.20%)
Other Liabilities	(0.321)	(1.90%)	(0.351)	(2.10%)
Net Assets	17.117	100%	17.230	100%

Currency Exposure

Currency Exposure
	Current Month	Previous Month
% of Net Assets	30 June 2018	31 May2018
Australian Dollars	35%	37%
Euros	41%	40%
US Dollars	4%	3%
New Zealand Dollars	20%	20%

Keybridge Capital Limited | ABN 16 088 267 190 | ASX Codes KBC; KBCPA | Web www.keybridge.com.au Registered Office | Suite 614, Level 6, 370 St Kilda Road, Melbourne, Victoria 3004, Australia Company Secretarial Enquiries | Telephone +61 8 9214 9767 Facsimile +61 8 9214 9701 Email info@keybridge.com.au

20180713 KBC ASX Net Asset Backing - June 2018.docx

Major Investment Holdings

			Current Month	Current Month	Previous	Month
			30 June 2018		31 May	2018
				% of		% of
		Industry	Value	Net	Value	Net
Security	Code	**Sector **	**$’million **	Assets	$’million	Assets1
Metgasco Limited	MEL	Energy	2.150	12.6%	1.968	11.4%
HHY Fund	HHY	Financials	2.094	12.2%	2.132	12.4%
Molopo Energy	MPO	Energy	1.767	10.3%	2.071	12.0%
Limited(Note 7)
Pershing Square	PSH	Financials	1.478	8.6%	1.372	8.0%
Holdings Ltd
Monash Absolute	MA1	Financials	1.199	7.0%	0.748	4.3%
Investment Company
Limited
Yowie Group Ltd	YOW	Food, Beverage	0.521	3.0%	0.536	3.1%
Copper Strike Limited	CSE	Materials	0.312	1.8%	0.362	2.1%
Other managed funds	-	-	0.300	1.8%	0.315	1.8%
Other listed securities	-	-	0.022	0.1%	-	-
Other unlisted securities	-	-	0.100	0.6%	0.100	0.6%
**Total **			9.943	58.0%	**9.604 **	55.7%

Keybridge notes that the carrying value of the Company’s investment in Molopo Energy Limited (ASX:MPO) ( MPO ) has declined from 4.5 cents to 3.84 cents during the month - this resulted in a provision for impairment expense being recognised of ~$327,913, which is equivalent to ~0.66 cent per share.

The revised $3.84 cent per share carrying value for MPO was based on the Keybridge Board’s judgement of MPO’s estimated net asset backing having regard to the following matters:

• (a) MPO’s gross cash position of A$16.904 million as at 31 March 2018[1] ;

• (b) MPO’s C$8.4 million (A$8.6 million) provision in respect of Canadian litigation matters[2] ;

• (c) MPO’s cash outflows for the April to June 2018 quarter estimated to be A$1.65 million (gross) or $0.55 million per month[1] ;

• (d) MPO’s 30% shareholding in Drawbridge Energy Holdings Ltd ( Drawbridge ), which was reported to have gross cash of US$14.07 million, investment and other assets of US$4.41 million, current liabilities of US$0.29 million and net assets of US$18.2 million (A$24.06 million[3] ), as at 31 March 2018[4] ; and

• (e) Drawbridge’s cash outflows for the 6 month period between April and September 2018 estimated to be US$6.61 million (gross) or US$1.1 million (A$1.46 million[3] ) per month[7] .

Keybridge will re-assess the carrying value of its investment in MPO based on further information about MPO’s financial position, as released on ASX by MPO.

More detail concerning MPO and the circumstances revealed in May 2018[4] concerning the conduct of the former Directors of MPO is set out in Note (7) to this Announcement.

The Keybridge Board notes that these circumstances are being reviewed by the new MPO Board (elected on 31 May 2018)[5] . Keybridge supports the efforts of the new MPO Board to attempt to restore value to MPO which was lost by the Orient and Drawbridge transactions and circumstances described in Note (7).

1 Refer MPO Quarterly Report for the quarter ending 31 March 2018 dated and released on ASX on 8 May 2018

2 Refer MPO Annual Report for the year ended 31 December 2017 released on ASX on 8 May 2018

3 Based on an exchange rate of A$1.00 : US$0.7564 as at 31 May 2018

4 Refer MPO ASX announcement dated 8 May 2018: Molopo De-Risks By Diversifying its Oil and Gas Exploration Portfolio 5 Refer MPO ASX announcements dated 1 June 2018: Board Changes and 4 June 2018: Appointment of Chair

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Loan Receivable Holdings

		Current Month			Previous Month
		30 June 2018			31 May 2018
Loan Exposure		$’million			$’million
to Industry	Gross		Carrying	Gross		Carrying
**Sector **	Value	Impairment	Value	Value	Impairment	Value
Private Equity(3)	6.528	(5.995)	0.533	6.515	(5.995)	0.520
Insurance(4)	3.135	-	3.135	3.133	-	3.133
Property(5)	4.289	(3.304)	0.985	4.189	(3.304)	0.885
Other(6)	1.550	(0.229)	1.321	1.049	(0.228)	0.821
**Total **	**15.502 **	(9.528)	5.974	14.886	(9.527)	5.359

FOR FURTHER INFORMATION:

Victor Ho Company Secretary Tel: +61 8 9214 9767 Email: cosec@keybridge.com.au

ABOUT KEYBRIDGE CAPITAL LIMITED (ASX: KBC)

KBC is an investment and financial services group with a diversified portfolio of listed and unlisted investments/loan assets including in private equity (US), life insurance (New Zealand), property and funds management sectors and strategic holdings in HHY Fund (ASX:HHY), Molopo Energy Limited (ASX:MPO), Metgasco Limited (ASX:MEL) and Yowie Group Ltd (ASX:YOW). KBC is also the Investment Manager of HHY.

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NOTES:

(1) Net Asset Backing per share is based on Keybridge’s total listed shares on issue and excludes unlisted shares issued under the Company’s Executive Share Plan (for further details, refer KBC’s Notice of AGM released on ASX on 30 October 2014 and KBC’s ASX announcement dated 19 December 2014: Appendix 3B and Further Detail Regarding Issuance of Loan Funded Shares).

On 5 December 2017, Keybridge announced its intention to undertake an on-market buy-back of up to 14,227,238 shares (being ~ 9% of 158,080,432 total shares on issue) on or before 30 November 2018. During the month, Keybridge bought back nil shares (31 May 2018: nil).

(2) Investment in Associated entity : Keybridge’s investment in HHY Fund (ASX:HHY), an Associated Entity (i.e. an entity in which the Company has a greater than 20% interest and is considered to have ‘significant influence’ over), is accounted for under the equity method in the consolidated financial statements. Under the equity method, the carrying amount of such investment is cost plus a share of the Associate Entity’s net profit or loss (after tax) as provided to the Company by such Associated Entity (refer Note 20 (Investment in Associate entity) on page 65 of the Company’s 2017 Annual Report). The Board has determined that where HHY’s net tangible asset ( NTA ) backing is lower than the value calculated under the equity method as at month end, the lower NTA backing value will be adopted as the carrying value instead (based on the Directors’ judgement).

As at month end, Keybridge’s 25,146,973 units (30.89% interest) (31 May 2018: 25,146,973 units; 30.89%) in HHY have a carrying value of $0.083 per unit ($2.094m) based on the equity method (31 May 2018: $0.0848 per unit ($2.132m) based on the equity method); this compares with HHY’s last bid price on ASX of $0.069 per unit ($1.735m) (31 May 2018: $0.081 per unit ($2.037m)) and HHY’s NTA backing of $0.084 per unit ($2.111m) (31 May 2018: $0.0855 per unit ($2.15m)), as at month end.

(3) Loan Receivables - Private Equity : Keybridge holds a US$4.3m a limited recourse promissory note ( Note ) issued by RPE I Investor LLC ( RPE Investor ) (a subsidiary of Republic Financial Corporation ( RPC ), a US private investment company) secured (via collateral pledged) over RPE Investor’s ~50% (Limited Partners’) (contributed capital) interest in the Republic Private Equity I Limited Liability Limited Partnership, a private equity fund (managed by a related party to RPC) with investments in US based manufacturing/distribution businesses ( RPE Fund ). The principal and accrued interest (at 14.5% pa) under the note has not been repaid on maturity on 29 December 2017 (the parties are in discussions in relation to a mutually acceptable resolution of this matter). The Note arose out of a restructure in April 2013 where, as part of arrangements to exit legacy aviation investments (made whilst Keybridge was known as Mariner Bridge Investments Limited in 2006/2007) for US$29.7 million cash, Keybridge sold its interest in

the RPE Fund for US$4.3 million fully funded by a Keybridge loan with recourse only to that asset sold (i.e. the Note).[6]

On 24 August 2017, Keybridge received the RPE Fund’s 30 June 2017 Quarterly Report (unaudited) ( June 2017 RPE Accounts ) which disclosed a significant reduction in the RPE Fund’s gross asset position as well as notice from an RPC Executive ( Republic ) advising that it was ‘highly unlikely that the Note will be satisfied on or before its scheduled maturity’ (on 29 December 2017) and proposing a 3-year extension of the Note term or a ‘buy-out’ (retirement) of the Note for US$0.394 million.

In light of these matters, the Board reduced the carrying value of the Note (receivable) to US$0.394 million (A$0.511 million) as at 30 June 2017, which also resulted in Keybridge recognising a US$4.611 million (A$5.996 million) provision for impairment expense for the financial year ending 30 June 2017. Refer also KBC’s ASX announcement dated – 25 August 2017: Update Private Equity Loan Receivable, which contains further details concerning the June 2017 RPE Accounts and Republic’s correspondence.

Since August 2017, Keybridge has also received alternative proposals from Republic to settle the Note liability. As at the date of this announcement, Keybridge has not accepted Republic’s proposals and the parties are in on-going discussions in relation to a mutually acceptable resolution of this matter. Additionally, Keybridge is also reviewing its rights under the Note to call upon the collateral pledged as security (ie. RPE Investor's interest in the RPE Fund).

As at month end, the loan was carried (based on the Directors’ judgement) at a valuation (net of impairments) of US$0.394m (A$0.533m) (31 May 2018: US$0.394m (A$0. 52m)).

(4) Loan Receivables – Insurance : In September 2014, Keybridge invested NZ$3.8m (A$3.4m) (via NZ$0.109m (10.13%) equity and NZ$3.691m notes) into Foundation Life, to finance Foundation’s acquisition of Tower Limited’s life insurance business in New Zealand in 2014. Interest of 9% pa is payable under the note, which is redeemable by noteholders in 50 years (May 2064) (recently amended from 10 years) or by Foundation (from time to time).

During the financial year to month end, Keybridge received NZ$0.301m (A$0.277m) distributions from Foundation.

As at month end, the loan balance is NZ$3.418m (A$3.135m) (31 May 2018: NZ$3.394m and A$3.133m) and Keybridge retains its 10.13% equity interest in Foundation Life valued at cost of NZ$0.109m (A$0.1m) (31 May 2018: NZ$0.109m and A$0.1m).

6 Refer KBC’ASX Announcements dated 1 May 2013: Sale of Aircraft and Full Repayment of Corporate Debt Facility and 10 April 2013: Quarterly Update – January to March 2013

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• (5) Loan Receivables – Property : In September 2014, Keybridge took direct control of loans that were held in a fund (where Keybridge was the remaining sole lender) which invested in first ranking mortgage loans over commercial properties. Keybridge has registered mortgages over strata title lots comprising Conference Facilities at a Hotel located in Manly, Sydney as security for loans, which are owed by private companies (which are in liquidation).

As at month end, the loan was carried (based on the Directors’ judgement) at a valuation of A$0.985m (31 May 2018: A$0.885m) – this was based on an independent valuation received in respect of the lots in May 2016 and an updated appraisal undertaken by the same valuer in April 2018.

• (6) Loan Receivables – Other : Includes $0.381m (31 May 2018: $0.381m) accrued interest receivable in respect of Executive Share Plan ( ESP ) loans attributable to former Directors[7] - refer also Note 10(e) (Loans and Receivables) on page 53 and Note 15 (Share-based payments) on pages 61 and 62 of the Company’s 2017 Annual Report).

• (7) Molopo Energy Limited (ASX:MPO) : MPO shares have been suspended from trading on ASX since 25 July 2017 with a closing price of $0.14 as at 21 July 2017, the date of the last trade on the ASX prior to MPO’s suspension. Keybridge has adopted a carrying value of $0.045 (30 April 2018: $0.14) per share in respect of its MPO shareholding.

On 7 July 2017, 3,666,285 shares in MPO (out of Keybridge’s total holding of 49,683,828 shares) were vested in the Commonwealth (on trust for Keybridge) under the declaration and orders of the Takeovers Panel in the matter of Molopo Energy Limited 03R, 04R & 05R.[8] These shares will be sold by ASIC (via an appointed investment bank or stock broker within 6 months from their engagement) with the proceeds of sale accounted to Keybridge (net of the costs, fees and expenses of the sale and any costs, fees and expenses incurred by ASIC and the Commonwealth (if any)). Keybridge remains the second largest shareholder in MPO with 46,017,543 shares (18.478%)[9] acquired at an average cost of $0.15 per share.

As these vested 3.67 million MPO shares are held on trust for Keybridge pending sale by ASIC, Keybridge continues to recognise the shares as company assets at the same carrying value per share as its holding of 46 million MPO shares.

On 11 September 2017, Aurora Funds Management Limited ( AFML ) (as Responsible Entity of the Aurora Absolute Return Fund (ASX:ABW), Aurora Global Income Trust (ASX:AIB) and unlisted Aurora Fortitude Absolute Return Fund ( AFARF )) announced that it had applied to the Federal Court for judicial review of the Takeovers Panel decision in the matter[10] .

7 Refer KBC Notice of AGM released on ASX on 30 October 2014 and KBC ASX announcement dated 1 December 2014: Results of AGM; KBC ASX Announcement dated 19 December 2014: Appendix 3B and Further Detail Regarding Issuance of Loan Funded Shares) and KBC ASX Announcement dated 28 April 2015: Appendix 3B

• 8 Refer Takeovers Panel Reasons for Decision dated 22 August 2017: Molopo Energy Limited 03R, 04R & 05R [2017] ATP 12; Takeovers Panel Media Release No. TP17/37 dated 10 July 2017:

AFARF has also launched a cash and/or scrip takeover bid for MPO at $0.135 per share, which is currently scheduled to close on 20 August 2018. Refer AFARF’s ASX announcements dated 26 October 2017: Bidder’s Statement and 12 June 2018: Notice of Variation of MPO Bid and MPO’s ASX announcements dated 28 November 2017: Target’s Statement, 19 January 2018: Supplementary Target’s Statement, 19 March 2018: Second Supplementary Target’s Statement and 28 May 2018: Third Supplementary Target’s Statement.

Keybridge also notes the following matters in relation to MPO:

• (a) On 8 May 2018, MPO released its 2017 Annual Report (in respect of the calendar year ended 31 December 2017) and March 2018 Quarterly Report and an ASX Announcement ( Molopo De-Risks by Diversifying its Oil and Gas Exploration Portfolio ) which discloses for the first time a series of transactions the previous Molopo Board entered into between 1 January and 7 March 2018 whereby, inter alia:

• (i) US$23.5 million was loaned to British Virgin Islands ( BVI ) registered Orient FRC Ltd ( Orient ) – this is in addition to the US$4.5 Million previously loaned to Orient (as announced by MPO on 11 December 2017 ( Update on Orient FRC Ltd Investment ));

• (ii) Orient has utilised these funds to buy-back Gil Feiler’s 50% interest in Orient (held via Gil Feiler’s Belizeregistered ESGM Investments Limited) for US$7 million – Gil Feiler also received US$7 million when he sold a 50% interest in Orient to MPO (as announced by MPO on 22 August 2017 ( Molopo Acquires Interest in US Oil and Gas Project ));

• (iii) Orient (now a wholly owned subsidiary of MPO), has transferred the ‘Orient Project’ into a subsidiary, Texas-registered Orient FRC (US) LLC ( Orient US ); Orient also provided a US$21 million intercompany loan to Orient US ;

• (iv) Orient’s shareholding in Orient US has been exchanged for a 30% non-voting interest (Class A shares) in Drawbridge Energy Holdings Ltd ( Drawbridge ); Drawbridge has interests in a number of on-shore and off-shore oil and gas projects in the US; and

• (v) Orient’s US$21 million to Orient US has been extinguished as part of the ‘Drawbridge Transaction’;

Molopo Energy Limited 03R, 04R & 05R - Orders; Takeovers Panel Media Release No. TP17/34 dated 30 June 2017: Molopo Energy Limited 03R, 04R & 05R – Declaration of Unacceptable Circumstances

• 9 Refer KBC ASX Announcement 11 July 2017: Change of Substantial Holder Notice for MPO

• 10 Refer AIB and ABW ASX Announcements dated 11 September 2017: AFARF, ABW and AIB – Takeovers Panel 03R, 04R & 05R

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• (b) On 11 May 2018, MPO released an ASX Announcement containing a letter from the ASX to MPO whereby ASX states, inter alia ( ASX Breaches Letter ):

• (i) Molopo has committed serious breaches of the ASX Listing Rules;

• (ii) Molopo may have breached the Corporations Act for making misleading disclosures to ASX;

• (iii) ASX has referred its findings to ASIC for potential action against Molopo; and

  • (8) Convertible Redeemable Promissory Notes: (ASX: KBCPA): Keybridge issued 4,956,936 listed Convertible Redeemable Promissory Notes on 30 June 2015. The notes have a face value of $1.00, pays interest at 7% pa and matures on 31 July 2020 (unless redeemed or bought-back by Keybridge earlier). Interest distributions are generally payable quarterly and have a franking credit component under Australian taxation law. Further details are contained in the Prospectus dated 17 June 2015. As at month end, 4,401,047 notes are on issue (31 May 2018: 4,401,047 notes).

• (iv) ASX requires the Orient and Drawbridge Transactions be put to Molopo shareholders for approval.

• (c) A detailed background to the Orient and Drawbridge Transactions and the ASX Breaches Letter is summarised in Keybridge’s Media Release dated 23 May 2018.[11]

• (d) At MPO’s AGM[12] held on 31 May 2018[13] , Messrs Baljit Johal, Matthew Cudmore and Richard Matthews were not re-elected as Directors ( Former Directors ) and Messrs Ralph Curton, William Johnson (being also a Director of Keybridge), Anthony Hartnell AM and Roger Corbett AO were elected as Directors.[ 14]

• (e) On 8 June 2018, the Takeovers Panel announced that it had made a declaration of unacceptable circumstances in relation to the affairs of MPO arising out of, inter alia, the Orient and Drawbridge Transactions including that[15] :

• (i) MPO shareholders have not been given enough information to enable them to assess the merits of AFARFs takeover bid and have not had a reasonable and equal opportunity to participate in any benefits accruing under the bid; and

• (ii) The Former Directors by their action, including such action which may contribute to AFARF’s bid not proceeding, have not given MPO shareholders a reasonable and equal opportunity to participate in any benefits accruing under the bid.

The Panel is currently considering what final orders to make (if any).

11 Refer KBC Media Release dated 23 May 2018: Further Letter to Molopo Shareholders for AGM – Orient and Drawbridge Transactions and Breaches of ASX Listing Rules; available on KBC website: www.keybridge.com.au

12 Refer MPO Notice of AGM and Explanatory Statement dated and released on ASX on 30 April 2018

13 Refer MPO ASX announcement dated 31 May 2018: AGM Results 14 Refer also MPO ASX announcements dated 1 June 2018: Board Changes and 4 June 2018: Appointment of Chair

15 Refer Takeovers Panel Media Release No. TP18/042 dated 8 June 2018: Molopo Energy Limited 10 & 11 – Declaration of Unacceptable Circumstances

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