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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2015
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31.
2014 RESTRUCTURING
The original holding company of the Group was Kuwait Energy Company K.S.C. (Closed) (KEC). The 2011 Restructuring
transferred most of the then-existing subsidiaries and assets held by KEC to the Company, and transferred, by way of a
capital reduction, 90.0% of the ordinary shares of the Company then held by KEC to the existing shareholders of KEC at
that time. As a result of the 2011 Restructuring, the Company became the Group holding company and KEC, although
under common control, was no longer part of the Group. Economic transfer agreements were implemented as part of the
2011 restructuring between KEC and the Group in order to retain the risks and rewards of assets legally owned by
subsidiaries of KEC within the Group, as a result of which the Group consolidated these assets in prior periods. These
agreements included the rights and responsibility for the obligations in respect of KEC’s interest in the Block 9 service
agreement (KEC’s only material asset) but did not cover KEC itself.
During 2014, the Company obtained control of KEC through the mechanism described below (the KEC Restructuring) and
has consolidated it as a subsidiary for the years ended 31 December 2015 and 2014.
In July 2014 Awal II Shares and Securities Co. SPC (Awal II), an SPV incorporated in the GCC member state of Bahrain,
began to acquire legal ownership of the KEC shares. Existing KEC shareholders were invited to transfer their shares in
KEC to Awal II in exchange for new shares in the Company on a one-for-one basis.
The Company has obtained full control over KEC and has acquir
ed KEC’s economic risks and rewards by entering into
the following arrangements:
i.
A management agreement between the Company and Awal II under which the management of, and all operational
decision making power over, Awal II, is vested solely in the Company; and
ii.
A “total return swap” agreement between Awal II and the Company, under
which Awal II is obliged to pay the
Company an amount equal to any economic returns derived from its ownership of the KEC shares.
As at 31 December 2014, 87.8% of the shares in KEC had been exchanged. Shareholders who had not exchanged their
shares by this date, representing 12.2% of the KEC shares, were shown as a non-controlling interest in the consolidated
balance sheet of the Group.
For accounting purposes this represents a reorganisation of entities under common control and is outside the scope of IFRS
3 “Business Combinations”. This restructuring has therefore been accounted using the principles of merger accounting.
Under this method:
the consolidated assets and liabilities of KEC and related entities, were recognised and measured at the pre-
restructuring carrying amounts, without restatement to fair value;
the results and cash flows of KEC are brought into the consolidated financial statement of the Company from the
beginning of the financial year 2014 in which the combination occurred;
the difference between the historical carrying amounts of net assets acquired and consideration paid has been
recognised as a merger reserve.
During 2015, a further 1.3 million shares equivalent to 4.1% of the shares in KEC had been exchanged for shares in the
Company. As at 31 December 2015, 91.9% of the shares in KEC had been exchanged. Shareholders who had not exchanged
their shares by this date, representing 8.1% of the KEC shares, are shown as a non-controlling interest in the consolidated
balance sheet of the Group.
During 2015, the Company repurchased its own 31.8 million number of shares at a price of Kuwaiti Dinar 0.620 per share
from KEC at a book value of USD 72.0 million, which are now being directly held as treasury shares.
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