126
CIMIC Group Limited Annual Report 2016 |
Financial Report
Notes continued
for the 12 months to 31 December 2016
26. JOINT VENTURE ENTITIES
CONTINUED
a)
Material joint ventures
Set out below are the joint venture entities of the Group as at 31 December 2016 which, in the opinion of the directors, are material to
the Group. The entities listed below have share capital consisting solely of ordinary shares, which are held directly by the Group. The
country of incorporation or registration is also their principal place of business, and the proportion of ownership interest is the same as
the proportion of voting rights held.
Ownership interest held by the
Company
Name of entity
Place of business / country of
incorporation
Measurement method
Nature of
relationship
December 2016
%
December 2015
%
HLG Contracting LLC
1
United Arab Emirates
Equity method
Joint venture
45
45
1
There is no quoted market value for HLG Contracting LLC (HLG Contracting) as it is not a listed entity.
HLG Contracting LLC (“HLG Contracting”)
On 30 November 2016 an agreement was reached with with HLG Contracting’s existing shareholders which allowed one shareholder, Al
Habtoor Holdings LLC, to transfer their shareholding to the other partner Riad Al Sadik. Following this transfer CIMIC’s shareholding
remained unchanged at 45% with Riad Al Sadik now owning the remaining 55%.
Following the completion of this agreement CIMIC management have determined they have joint control of HLG Contracting in accordance
with AASB 10
Consolidated Financial Statements
. As a result of this change in control, CIMIC’s investment in HLG Contracting is now
classified as a joint venture, whereas it was previously classified as an associate. CIMIC continues to equity account for the investment
and as such there was no impact on the carrying value of the investment as a result of this change.
As part of the contractual arrangements around shareholder exit, CIMIC assumed certain obligations from the other shareholders including
guaranteeing various performance bonds (refer Note 33:
Contingent Liabilities
), acquired certain loans from Al Habtoor Group LLC for
US$27.2 million (equivalent to $37.8 million) and acquired a call option to purchase the remaining 55% shareholding in HLG Contracting.
This option has no current impact on the control of the company. The option is a derivative, as defined by AASB 139 Financial Instruments:
Recognition & Measurement (AASB 139) and is required to be carried at fair value with any gain and loss recognised in profit and loss in
the period.
As at 31 December 2016 the fair value of the call option was determined to be US$54.0 million (equivalent to $75.0 million). In accordance
with AASB 139 the option has been classified as a financial asset held at fair value through profit or loss and the resulting gain has been
reflected in Note 3:
Expenses
. The asset value has been disclosed in Note 12:
Other investments
.
HLG Contracting’s new shareholder structure is a step towards reaching its long term strategic objectives in the region. This will allow HLG
Contracting to continue to deliver leading projects for clients. A strategic review of the HLG Contracting business has commenced and is
ongoing.
During the reporting period, the carrying value of the Group’s investment in HLG Contracting decreased from $444.7 million to $366.5
million (equivalent to US$263.9 million in 2016 and US$324.6 million in 2015). The decrease was due to the Group’s share of equity
accounted loss of $84.4 million, offset by a foreign exchange translation gain of $6.2 million.
The recoverable amount of the Group’s investment was calculated using a value in use calculation.
126
