Half Yearly Report

Trinity Capital PLC

Consolidated financial statements for the period ended 30 September 2015

Trinity Capital PLC (AIM: TRC), a fund created for investing in Indian real estate and infrastructure, announces its Interim Results for the period ended 30 September 2015.

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Chairman's Report

It will be of little surprise to shareholders that progress remains painfully slow in realising the three remaining Indian assets held by Trinity Capital plc ("Trinity" or the "Company"). Cash from sales of the property investments is the catalyst essential to permit the final resolution of the various issues faced by Trinity. However, the Company continues to be frustrated by a combination of the poor state of India's property markets, our complicated relationship with the German funds managed by SachsenFonds and the inefficiencies of the Mauritian judicial system.

Against this backdrop, Trinity's net asset value declined by 7.3% to £17.2 million (8.2p per share) at 30 September 2015 from £18.6 million (8.8p per share) at 31 March 2015. The value of Trinity's share of investments declined by 6.7% to £13.6 million (6.4p per share), caused largely by the 7% depreciation of the Indian Rupee against Sterling during the first half of the financial year. Due to commercial sensitivities, Trinity does not publish the value of its individual investments in India. Most of Trinity's cash of £6.0 million (2.8p per share) is denominated in Sterling. The Company does not hedge its currency exposure.

During the first half of the year, total operating expenses amounted to £0.3 million, excluding performance-related fees which are payable or accrue only when investments are realised or shareholder distributions occur. This is consistent with the £0.7 million of comparable costs incurred in the financial year ended 31 March 2015 and currently equates to an annualised expense ratio of approximately 3.5%. The Board is cognisant of costs eroding the Company's value over time and, given the delays in selling investments, it reviews the appropriateness and level of all operating costs at each of its quarterly meetings. The complexity of Trinity's structure, with Mauritius and Indian holding/ joint venture companies and unresolved legal issues, complicates decisions to cut costs without prejudicing the value of our investments. Each member of the Board has assumed specific operational responsibilities over and above the usual fiduciary obligations of a director. Nevertheless, we remain alert to seeking opportunities to reduce operating costs.

This remainder of this report should be read in conjunction with that issued in the Annual Report for the year ended 31 March 2015, which can be found at www.trinitycapitalplc.com/wp-content-trc/uploads/2015-Annual-Report-Accounts.pdf. The prolonged stagnation in the property markets in Mumbai and Delhi is in stark contrast to the media reports of general optimism about the prospects for the Indian economy. Local real estate developers report difficulties in obtaining debt financing on appropriate terms. Although the Board is aware of firm interest in acquiring Trinity's interests in the Indian property companies, closure of transactions remains subject to buyers raising capital from third parties and agreeing acceptable contractual terms.

All three of Trinity's remaining investments are jointly owned with two funds managed by SachsenFonds and their partner, Deutsche Fonds Holding. Our negotiations with the German managers have reached the point where, absent significant further legal developments between us in Mauritius or elsewhere, a concerted joint effort could result in agreement in resolving all outstanding issues. The catalyst for such a final negotiation will be the provision of financing to the buyers of two of the three remaining assets in India and agreement on the terms of sale and purchase. Even so, shareholders will be aware of the history of the troubled relationship between Trinity and the German funds and we cannot rule out a sudden change of heart.

As reported in previous statements, we have identified a buyer of the mezzanine securities issued by BKC Realtors (formerly MK Malls) in which Trinity holds the entire beneficial interest. After more than a year of negotiations between SachsenFonds (who will retain control of the Mauritius holding company) and the buyer, the final terms have still not been agreed. The longer the delay until completion, the greater the danger that the financier will withdraw. If and when a sale of the securities is completed, the proceeds will remain trapped at the Mauritian holding company. We have valued this investment on the basis of the negotiated net sales proceeds on the assumption that the German funds will enter into a binding agreement and the lender will not withdraw.

The Lokhandwala group failed to complete the purchase of our Indian joint venture equity interest and their option expired. The promoter has so far been unable to sell other property assets to raise the money required to buy our interest. Significantly, however, since the end of the financial period, the authorities finally approved in-principle a one third increase in the height of the Minerva tower. The cost implications, planning restrictions and timing of issue of the detailed construction and other consents related to the new approval are unknown at present. However, the promoters hope that the increased attraction of the development will permit the group to refinance its debt and raise further capital. This remains a high risk venture, however. Aside from the availability and cost of finance, there is considerable uncertainty as to the achievable sales pricing of apartments in the (new higher value) upper floors of the building. Meanwhile, the management and financial resources at the Lokhandwala group are clearly stretched and recommencement of construction is dependent on raising finance.

At 30 September, Uppal IT continued to hold Rupees equivalent to approximately £7.3 million. There have been no significant developments on the Uppal IT investment during the past 6 months. Trinity's main focus has been the preservation of the cash held in India and avoiding decisions that could reduce the ability to repatriate capital to the Mauritius parent company. Remarkably, despite our petition made in 2013, the Mauritian courts have still not set a date to hear the creditor enforcement action initiated by our subsidiary against the Mauritian holding company of Uppal IT.

Indeed, no decision has so far been handed down by the Mauritian appellate court following the hearing held in July 2015 of the German funds' 2011 appeal of the Mauritius lower court decision to dismiss their claims against Trinity on jurisdictional grounds.

SKIL continues to ignore Trinity's claims in respect of the defaulted put option, which caused losses for our Mauritian subsidiary of INR 498.2 million (£5.0 million at the period end exchange rate). It is remarkable that SKIL's management team has such blatant disregard for the reputational damage they are inflicting on themselves. We continue to consider all options.

The provision of debt financing to buyers of our assets in India and agreement on contractual terms could eventually result in the settlement of all remaining issues involving Trinity in India and Mauritius. However, absent such developments, there remains ample scope for both the value of our investments and the relationship with SachsenFonds to deteriorate.

Martin M. Adams

Chairman

Consolidated Statement of Comprehensive Incomefor the period ended 30 September 2015

* See note 3

Consolidated Statement of Financial Positionat 30 September 2015

These financial statements were approved by the Board on 16 December 2015 and signed on their behalf by

Stephen Coe Graham Smith

Director Director

Consolidated Statements of Changes in Equityfor the period ended 30 September 2015

* See note 3

Consolidated Statement of Cash Flowsfor the period ended 30 September 2015

* See note 3

Notes to the Financial Statementsfor the period ended 30 September 2015

The Company is a closed-end investment company incorporated on 7 March 2006 in the Isle of Man as a public limited company. The Company is listed on the Alternative Investment Market (AIM) of the London Stock Exchange. 

The Company and its subsidiaries (together the "Group") invest in real estate and real estate related entities in India, primarily in commercial development in the office and business space, residential, retail, hospitality and infrastructure sectors deriving returns from development, long-term capital appreciation and income. Following a decision of the shareholders in March 2009, the Company's investment policy is to dispose of all of its existing assets in an orderly fashion and promptly, but having due regard to all applicable legal, governmental and regulatory restraints and with a view to maximising Shareholder value.

The Group has no employees.

These interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year-ended 31 March 2015.

The consolidated financial statements of the Group as at and for the year ended 31 March 2015 are available upon request from the Company's registered office at IOMA House, Hope Street, Douglas, Isle of Man or at www.trinitycapitalplc.com.

These interim consolidated financial statements were approved by the Board of Directors on 16 December 2015.

The accounting policies applied in these interim financial statements, except for the ones listed below, are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 March 2015.

There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a material impact to the Company.

a) Change in accounting policy

The Company has adopted the following standards and amendments to IFRS:

IFRS 10 'Consolidated Financial Statements'. The standard builds on existing principles for the presentation and preparation of consolidated financial statements and provides additional guidance to determine control where it is difficult to assess.

IFRS 12, 'Disclosures of Interests in Other Entities'. The standard requires disclosure for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.

Investment Entities (Amendments to IFRS 10, IFRS 11, IFRS 12 and IAS 27). The amendments define an investment entity and introduce an exception to consolidating particular subsidiaries of investment entities and instead require those subsidiaries to be measured at fair value through profit or loss in accordance with IAS 39.

In accordance with the above, the Board has concluded that the Company meets the definition of an investment entity because the Company has the following characteristics:

(a) The Company has obtained funds for the purpose of providing investors with investment management services.

(b) The Company's initial Investing Policy, which was communicated directly to investors, is investment solely for returns from capital appreciation and investment income.

(c) The performance of investments are measured and evaluated on a fair value basis.

As a result, the Company has changed its accounting policy for its subsidiaries to measure them at fair value through profit or loss. Before adoption of the amendments, the Company consolidated the subsidiaries.

The investments - designated at fair value through profit or loss has changed due to subsidiaries that were historically consolidated now being accounted for as financial assets or liabilities at fair value through profit or loss. As the Company's interest in its subsidiaries is now reported at fair value the share of equity attributable to non-controlling interests no longer exists. The change in the accounting policy resulted in no change in net assets attributable to equity holders of the Company.

In accordance with the transitional provisions of the amendments, the Company has applied the new accounting policy retrospectively and restated the comparative information for the year ended 31 March 2015 and the 6 months ended 30 September 2014 retrospectively.

The preparation of condensed consolidated interim financial statements in conformity with IFRSs requires management to make judgements, estimates, and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results for which form the basis of making the judgements about carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

In preparing these condensed consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies were the same as those that applied to the consolidated financial statements for the year ended 31 March 2015.

The principal risks and uncertainties are consistent with those disclosed in preparation of the Group's annual financial statements for the year ended 31 March 2015.

The authorised share capital at 30 September 2015 and 31 March 2015 and the issued and fully paid share capital at the same dates were as follows:

The basic loss per ordinary share is calculated by dividing the net loss attributable to the ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the period.

The Company has no potential dilutive ordinary shares; the diluted loss per share is the same as the basic loss per share.

The Investment Management Agreement with Indiareit Investment Management Company ("Indiareit") expired on 31 December 2014. However, Indiareit continues to provide investment management services to the Company. Periodic investment management fees are paid at the rate of US$198,000 per annum. Incentive fees are negotiated from time to time and on an ad hoc basis. During the period, there were no incentive fees paid.

The Group holds full or partial ownership interests in three unquoted Indian companies.

CBRE conducted an independent valuation (acting as external valuers) of the development property owned by Lokhandwala Kataria Constructions Pvt. Ltd. and of the development property owned by Uppals IT Project Pvt. Ltd. ("Uppals") as at 30 September 2015. Based on CBRE's valuation of the development properties and taking into account uncertainties identified in completion of the project, which were carried out in accordance with the valuation guidelines of The Royal Institution of Chartered Surveyors, the Directors valued the Group's interest in the equity interests held in each of the Indian companies. CBRE also carried out certain Agreed Upon Procedures to test these computations of the fair value of Group's interest.

CBRE has made certain assumptions regarding the density of the Lokhandwala project and its timings to completions. There are significant uncertainties surrounding these assumptions and accordingly the Directors have assessed a number of the risks and discounted the CBRE valuation accordingly.

The value of the investment DB (BKC) Realtors Private Limited (MK Malls) is based on the net sales proceeds to be received under the terms of a draft (but not yet binding) sales agreement.

The Directors' valuations are based (where appropriate) on a discounted cash flow methodology. The methodology uses the cash-flow data generated by CBRE (which in turn is partially based on company-generated cash flows) and observable market data on interest rates and equity returns. The discount rates used for valuing equity securities are determined based on historic equity returns for other entities operating in the same industry for which market returns are observable. The Board uses models to adjust the observed equity returns to reflect the actual debt/equity financing structure of the investment. The discount rate applied varies from project to project to take account of the estimated risk of about 19%.

The investments are in projects for which there is very little or no market comparable information. Consequently the valuations are dependent on assumptions which are the subject of judgement, and a large range of possible valuations can be deduced. Due to the inherent uncertainty associated with the determination of the valuations, the amount realised on disposal may differ materially from the carrying amount in the financial statements. The impact of such uncertainty cannot be quantified.

Investments are recorded at fair value are as follows:

The fair value adjustment consists of:

IFRS 13, Fair Value Measurement requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investment is chosen with reference to the specific underlying circumstances and position of the investee company. On that basis, the Board believe that the impact of changing one or more of the inputs to reasonably possible alternative assumptions would not change the fair value significantly.

Fair value hierarchy of investments

A reconciliation from the beginning balances to the ending balances for Level 3 investments is as follows:

On 12 January 2011 the Company received a notification of claim from Immobilien I and Immobilien II. In addition to the Company, the notification was addressed to TCML, Trikona Advisers Ltd. ("TAL", the former investment adviser of the Company,) private persons who together controlled TAL, and TSF Advisers Mauritius Limited (a joint venture between TAL and SachsenFonds Asset Management GmbH). On 13 July 2011, the Supreme Court in Mauritius set aside the claim lodged by Immobilien I and Immobilien II. Immobilien I and Immobilien II appealed against that decision on 26 July 2011. The appeal of the Mauritius lower court's dismissal on jurisdictional grounds of their case against Trinity was finally heard on 9 July 2015. No decision has so far been handed down by the Mauritian appellate court.

By way of background, in November 2007 and May 2008 Immobilien I and Immobilien II purchased from TCML interests in various Mauritian companies (the "TC Companies") which in turn owned equity stakes in Indian investment vehicles (the "Indian Companies") which held certain of the Company's development projects in India (the "Transactions"). Accordingly, Immobilien I and/or Immobilien II were partners with TCML in various Mauritian companies in respect of five development projects in India. One Mauritian TC Company was sold in its entirety to Immobilien I and Immobilien II. In aggregate, Immobilien I and Immobilien II paid £86.4 million for investments in which the Company had invested £41.8 million. The contracts included legal provisions in the relevant documentation whereby the Group would be obliged to make good to the acquirer the economic loss which would arise upon the non-fulfilment of certain conditions in the contractual arrangements. 

The amount claimed by Immobilien I and Immobilien II in the original pleading was their original cost of the investments, being nearly €116 million, plus amounts to compensate for prejudice, trouble, annoyance, interest and costs.

The Board remains fully committed to defending the claims made by Immobilien I and Immobilien II. The Directors do not consider it necessary to provide for the claims in the financial statements, but the Company maintains a provision of £2 million for future legal costs to defend the actions.

Graham Smith is a Director of the Company and of the Administrator. The fees paid to the Administrator for the period amounted to £50,000 (six months ended 30 September 2014: £50,000). Mr Smith was not paid a Director's fee during the period.

There were no significant events after reporting date.