IFRIC 19, debt for equity swap, gain in income statement, transfer to share premium under UK Companies Act of difference between fair value of shares issued and face value of debt

Avanti Communications Group plc – Interim report – 30 June 2018
Industry: telecoms
CONSOLIDATED UNAUDITED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED 30 JUNE 2018

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CONSOLIDATED UNAUDITED STATEMENT OF CHANGES IN EQUITY
FOR THE TWELVE MONTHS ENDED 30 JUNE 2018

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  • A gain on debt for equity swap was recognised in the income statement in the 6 months to 30 June 2018 being the difference between the carrying amount of the liability extinguished, and the fair value of the equity instruments issued as consideration in the transaction. Under UK company law, the amount to be credited to share capital and share premium is based on the value of the consideration received for the issue of shares, in this case the face value of the liability. Therefore a transfer has been done between equity components.

11. Loans and borrowings

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The Company had Notes with a nominal value of $998.3m in issue at 1 January 2018, consisting of $557.0m Amended Existing Notes, $323.3m PIK Toggle Notes, and $118.0m Super Senior Notes.

Debt for Equity Swap
On 26 April 2018 the Company completed a debt for equity swap consisting of repayment of the 12%/17.5% Senior Secured Notes due 2023 of $557.0m by issuing 1,999,676,704 new ordinary shares with a nominal value of 1 pence each in Avanti Communications Group plc. The interest accrued on the Amended Existing Notes as at 25 April 2018 was settled through the issue of additional notes, and included in the debt for equity swap. $55.7m of Amended Existing Notes were issued in respect of interest due on these notes between 2 October 2017 and 1 April 2017. The fair value of the shares at the date of the Swap was 6.11 pence per share, giving total consideration of $170.4m. The carrying value of the liability at the date of the Swap was $425.3m, after issue of April PIK. The resulting gain of $254.9m has been recognised in the Income Statement as an exceptional gain on debt for equity swap.

Modification of debt
On 26 April 2018 the restructuring of the 10%/15% Senior Secured Notes due 2021 completed, and from this date the interest rate reduced from 12.5%/17.5% to 9% for both cash and PIK and their maturity was extended by one year to 2022. The interest accrued on the PIK Toggle Notes as at 25 April 2018 was settled through the issue of additional notes. $20.2m of PIK Toggle Notes were issued in respect of interest due on these notes between 2 October 2017 and 1 April 2017.
The Group performed an assessment under its accounting policies and the requirements of IAS 39 as to whether the restructuring of the terms of the PIK Toggle Notes represented a substantial modification. As the net present value of the cash flows under the original terms and the modified terms was greater than 10% different, the modification was accounted for as substantial.
As a result, on completion of the restructuring, the carrying value of the PIK Toggle Notes of $312.4m was de-recognised and the amended PIK Toggle notes with a nominal value of $343.7m were recognised on the balance sheet at the date of modification at their fair value of $258.6m. The fair value at the date of modification of $0.8 per note was obtained from the price of the first trade of the PIK Toggle Notes after modification. The gain arising on substantial modification of the PIK Toggle Notes was $53.8m which has been recognised in the Income Statement as an exceptional gain on substantial modification.

12. Share capital

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