Financial statements
Notes to the financial statements
These notes form an integral part of and should be read in conjunction with the accompanying consolidated financial statements.
1. General information
Hafnia Limited (the “Company”), is incorporated and domiciled in Bermuda. The ad- dress of its registered office is Washington Mall Phase 2, 4th Floor, Suite 400, 22 Church Street, HM 1189, Hamilton HM EX, Bermuda.
On 16 January 2019, a wholly-owned subsidiary of Hafnia Limited (formerly known
as BW Tankers Limited), BW Tankers Corporation, merged with Hafnia Tankers Limited (“Hafnia Tankers”), a fellow subsidiary of BW Group Limited (“BW Group”). The merger was effected through a share swap arrangement, where newly issued shares of BW Tankers Limited were exchanged for all outstanding shares of Hafnia Tankers Limited. On 21 January 2019, BW Tankers Corporation was merged with BW Tankers Limited without consideration in a simplified parent and subsidiary merger. BW Tankers Limited, the surviving entity, then changed its name to Hafnia Limited.
The principal activity of the Company is that of investment holding.
These financial statements were authorised for issue by the Board of Directors of Hafnia Limited on 30 March 2022.
2. Significant accounting policies
2.1 Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and have been prepared under the historical cost conven- tion, except as disclosed in the accounting policies below.
2.2 Changes in accounting policies
Amendments to published standards effective in 2022
The Company has adopted the new standards and amendments to published stand- 2.4 ards as of 1 January 2022. Changes in the Company’s accounting policies have been made as required, in accordance with the transitional provisions in the respective standards and amendments.
The adoption of these new or amended standards did not result in substantial changes in the Company’s accounting policies and had no material effect on the amounts reported in the financial statements for the current or prior financial years.
2.3 Critical accounting estimates and assumptions
The preparation of financial statements in conformity with IFRS requires management to exercise its judgement in the process of applying the Company’s accounting policies. It also requires the use of certain critical accounting estimates and assumptions. Estimates, assumptions and judgements are evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There are no estimates and assumptions which have a material effect on the financial statements.
2.4 Revenue and income recognition
Dividend income
Dividend income is recognised when the right to receive payment is established.
Investments in subsidiaries
2.5 Investments in subsidiaries
Subsidiary is an entity controlled by the Company. The Company controls an entity when it is exposed to, or has right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Investment in subsidiaries are carried at cost less accumulated impairment losses in the Company’s balance sheet. On disposal of such investments, the difference between disposal proceeds and the carrying amounts of the investments are recognised in profit or loss.
2.6 Financial assets
(a) Recognition and initial measurement
Other receivables are initially recognised when they are originated. Other financial assets are recognised when the Company becomes a party to the contractual provisions of the instrument.
Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss (FVTPL), which are recognised at fair value. Transaction costs for financial assets at FVTPL are recognised immediately as expenses.
(b) Classification
The Company classifies its financial assets at amortised cost.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
They are presented as “Other receivables“ and “Cash and cash equivalents” in the balance sheet.
Financial assets at amortised cost are subsequently carried at amortised cost using the effective interest method.
(c) Derecognition of financial assets
Financial assets are derecognised
when the contractual rights to the cash flows from the financial asset expire,
or it transfers the rights to receive the contractual cashflows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
(d) Offsetting financial instruments
Financial assets and liabilities are offset, and the net amount reported in the balance sheet, when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
(e) Impairment
For financial assets measured at amortised cost and contract assets, the Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognises an allowance for expected credit loss
(ECL) at an amount equal to the lifetime expected credit loss if there has been a significant increase in credit risk since initial recognition. If the credit risk has not increased significantly since initial recognition, the Company recognises an allowance for ECL at an amount equal to 12-month ECL.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that results from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.
For trade receivables and contract assets, the Company applied the simplified approach permitted by IFRS 9, which requires the loss allowance to be measured at an amount equal to lifetime ECLs.
The Company applies the general approach to provide for ECLs on all other financial instruments. Under the general approach, the loss allowance is measured at an amount equal to 12-month ECLs at initial recognition.
At each reporting date, the Company assesses whether the credit risk of a financial instrument has increased
significantly since initial recognition. When credit risk has increased significantly since initial recognition, loss allowance is measured at an amount equal to lifetime ECLs.
Measurement of ECLs
ECLs are probability-weighted estimates of credit losses. Credit losses are measured
at the present value of all cash shortfalls (i.e. the difference between the cash flows due
to the entity in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effec- tive interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Company assess- es whether financial assets carried at am- ortised cost are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-im- paired includes the following observable data:
- significant financial difficulty of the debtor;
- a breach of contract such as a default or being more than 90 days past due;
- the restructuring of a loan or advance by the Company on terms that the Company would not consider otherwise;
- it is probable that the debtor will enter bankruptcy or other financial reorganisation; or
the disappearance of an active market for a security because of financial difficulties.
Presentation of allowance for ECLs in the balance sheet
Loss allowances for financial assets meas- ured at amortised cost and contract as- sets are deducted from the gross carrying amount of these assets.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating
ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort.
This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience, informed
credit assessment and other forward-looking information.
The Company assumes that the credit risk on a financial asset has increased significantly if the debtor is under significant financial difficulties, or when there is default or significant delay in payments. The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realising security (if any is held).
2.7 Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired from suppliers in the ordinary course of business. Trade and other payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Trade and other payables are initially recognised at fair value and subsequently carried
at amortised cost using the effective interest method, and are derecognised when the Company’s obligation has been discharged or cancelled or expired.
2.8 Impairment of non-financial assets
For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less costs to sell and value-in-use) is determined on an individual asset basis un- less the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the CGU to which the asset belongs.
If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The difference between the carrying amount and recoverable amount is recognised as an impairment loss in profit or loss.
An impairment loss for an asset (or CGU) other than goodwill is reversed if, and only if, there has been a change in the estimate of the asset’s (or CGU’s) recoverable amount since the last impairment loss was recognised. The carrying amount of the asset (or CGU) is increased to its revised recoverable amount, provided that this amount does
not exceed the carrying amount that would have been determined (net of any accumulated amortisation and depreciation) had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of impairment loss for an asset (or CGU) other than goodwill is recognised in profit or loss.
2.9 Fair value estimation of financial assets and liabilities
The carrying amounts of current financial assets and liabilities measured at amortised costs approximate their fair values due to the short term nature of the balances.
2.10 Foreign currency translation
(a) Functional and presentation currency
The financial statements are presented in United States Dollars, which is
the Company’s functional currency. All financial information presented in US dollars has been rounded to the nearest thousand, unless otherwise stated.
(b) Transactions and balances
Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates pre- vailing at the date of the transactions. Foreign currency exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance sheet date, are recognised in profit or loss.
2.11 Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents include cash on hand short-term bank deposits, which are subject to an insignificant risk of change in value.
2.12 Share capital
Common shares are classified as equity.
Incremental costs directly attributable to the issuance of new equity instruments are taken to equity as a deduction, net of tax, from the proceeds.
2.13 Dividend to Company’s shareholders
Interim dividends are recognised in the financial year in which they are declared payable and final dividends are recognised when the dividends are approved for payment by the directors and shareholders respectively.
2.14 Financial guarantee contracts
Financial guarantee contracts are accounted for as insurance contracts and treated
as contingent liabilities until such time as they become probable that the Company will be required to make a payment under the guarantee. A provision is recognised based on the Company’s estimate of the ultimate cost of settling all claims incurred but unpaid at the balance sheet date. The provision is assessed by reviewing individual claims
and tested for adequacy by comparing the amount recognised and the amount that would be required to settle the guarantee contract.
3. Acquisition of Subsidiaries
On 27 January 2022, the Company completed the acquisition of 100% of equity interest in Chemical Tankers Inc and its subsidiaries (“CTI”), including CTI’s fleet of 32 vessels in exchange for the Company’s equity instruments (“Acquisition of CTI”). The acquisition was accounted for as an asset acquisition that did not constitute a business combination and which was satisfied by way of issuance of new shares of the Company together with the Company’s existing treasury shares.
In exchange for all outstanding shares in CTI, CTI’s shareholders received a total of 99,199,394 common shares in the Company, consisting of 92,112,691 newly issued shares and 7,086,703 of treasury shares. Since the consideration for the acquisition was satisfied by way of issuance of the Company’s equity instruments, the accounting of the fair value of the consideration settled follows the guidance of IFRS 2 Share-based Payment. At the acquisition date, ordinary shares and the existing treasury shares of the Company were issued to CTI’s shareholders, and the fair value of issued shares was deemed to be the fair value of the CTI’s net assets acquired.
The fair value of CTI’s net assets acquired was assessed at USD 221.1 million. Equity settlement of the transaction resulted in an increase in share capital of USD 0.9 million and share premium of USD 207.4 mil- lion, while reducing balance of treasury shares by USD 12.8 million.
Immediately following the acquisition, a subsidiary, Hafnia Holding II Limited, purchased all of the shares of CTI from the Company at a consideration measured at fair value of the net assets of CTI.
4. Expenses by Nature
| 2022 USD’000 |
2021 USD’000 |
|
|
Administrative expenses |
692 |
21 |
|
Other expenses |
934 |
816 |
|
Total other operating expenses |
1,626 |
837 |
5. Income Taxes
No provision for tax has been made for the year ended 31 December 2022 and 2021 as the Company does not have any income that is subject to income tax based on the tax legislation applicable to the Company.
There are no income, withholding, capital gains or capital transfer taxes payable in Bermuda.
6. Other Receivables
| 2022 USD’000 |
2021 USD’000 |
|
|
Other receivables |
||
|
– subsidiary |
165,580 |
111,738 |
|
– non-related parties |
8 |
8 |
|
Total other operating expenses |
165,588 |
111,746 |
Other receivables due from subsidiary represent dividends receivable.
The carrying amounts of other receivables approximate their fair values.
Information about the Company’s exposure to credit risk is disclosed in Note 15.
7. Loans Receivable from Subsidiary
| 2022 USD’000 |
2021 USD’000 |
|
|
Loans receivable from subsidiary |
13,327 |
13,166 |
|
Analysed as: |
||
|
– Non-current |
4,900 |
4,900 |
|
– Current |
8,427 |
8,266 |
|
|
13,327 |
13,166 |
8. Subsidiaries
| 2022 USD’000 |
2021 USD’000 |
|
|
Equity investments at cost |
1,257,966 |
657,966 |
|
Receivables from subsidiaries |
233,182 |
495,493 |
|
|
1,491,148 |
1,153,459 |
The receivables from subsidiaries originated from reorganisation of entities in prior years. Accordingly, these receivables are classified within “Subsidiaries” and are stated at amortised cost. These receivables are unsecured, interestfree, and settlement is at the absolute discretion of the subsidiaries. As the Company does not expect these receivables to be settled within the next 12 months, they have been classified as “non-cur- rent”.
Details of the subsidiaries held directly by the Company are as follows:
| Name of companies | Principal activities | Country of incorporation | Equity holding 2021 % |
Equity holding 2020 % |
|
|
Hafnia Pte. Ltd. |
Management company |
Singapore | 100 | 100 | |
|
Hafnia Tankers Marshall Islands LLC |
Investment |
Marshall |
100 | 100 | |
|
Hafnia Holding Limited |
Investment |
Bermuda |
100 | 100 | |
|
Hafnia Holding II Limited |
Investment |
Bermuda |
100 | 100 | |
Impairment assessment
The Company assesses whether there are any indicators of impairment of investments in subsidiaries at each reporting date.
Management has used the fair value less cost to sell approach to de- termine the recoverable amounts for its investment in subsidiaries. For this purpose, the net assets of the subsidiaries were used and where needed, adjusted to reflect their fair values, and this involves restating the carrying values of the vessels held by subsidiaries to their fair values based on independent third-party valuation reports. Other items within the net assets computation are primarily current monetary items, whose carrying values already approximate their fair values. From the Company’s assessment of the fair values of the subsidiaries, and together with the prevailing market conditions affecting the subsidiaries owning and operating the product and chemical tanker businesses, the Company concluded none of the subsidiaries faced any indication of impairment as at 31 December 2022.
In 2021, the Company found indication of impairment for subsidiaries and estimated the recoverable amounts of subsidiaries using the basis
as described above. For this purpose, the vessels held by subsidiaries were restated to their recoverable amounts based on the value in use approach. The value in use was determined with reference to the future cash flows projections of vessels held by Hafnia Pte. Ltd. And its subsidiaries, discounted at 6.9%. The discount rate took into account the time value of money and the risks specific to the vessels’ estimated cash flows. Cash flows were projected based on past experiences and actual operating results. Charter rates were included based on actual contractual charter rates and forecast rates upon contract expiry for the remaining useful lives of the vessels. The projected cash outflows took into account existing and projected vessels’ voyage and operating expenses. Other items within the net assets computation were primarily current monetary items, whose carrying values already approximated their fair values.
Based on the assessment, no impairment loss was recognised in prior year’s profit or loss by the Company.
Liquidation of subsidiary
On 25 January 2021, the Certificate of Cancellation of subsidiary, Hafnia Tankers LLC (“HT LLC”) was filed with the Registrar of Corporations in
the Republic of the Marshall Islands. Prior to liquidation, HT LLC was an intermediate holding company of several subsidiaries; and the Company recorded an investment cost of USD 348,470,000 in HT LLC. The Company also recorded liabilities of USD 407,668,000 owing to HT LLC that arose from reorganisation of group entities in 2021, subsequent to the merger of Hafnia Limited with Hafnia Tankers Limited in January 2019, and another payable of USD 10,524,000 owing to HT LLC. As part of the liquidation procedure, all liabilities owing to HT LLC were forgiven, after the investment cost in HT LLC was written off. The Company considered the net effect of USD 69,722,000 as return on capital and was deducted against investment in subsidiaries. Only the cash proceed of USD 900,000 returned on liquidation of HT LLC was taken to current year’s profit or loss.
The effect of the liquidation is as follows:
The loans receivable from subsidiary refer to amounts provided to Hafnia Tankers Marshall Islands LLC (“HTMI LLC”) for on-lending to a joint venture company, Vista Shipping Pte. Ltd., for making payments for newbuild instalments and other vessel related expenses.
The non-current loan relates to a loan agreement offered to HTMI LLC and matures on 31 December 2025. It is unsecured, non-interest bearing and repayable on the earlier of (i) the maturity date or (ii) repayment from Vista Shipping Pte. Ltd. to HTMI LLC, whenever the subsidiary has surplus cash, and at the subsidiary’s discretion to settle the loan outstanding. The Company has not disclosed the fair value since the timing of repayment can be variable, and the sum involved is not material to the overall financial statements.
The current loan relates to a loan agreement offered to HTMI LLC. It is unsecured, bears interest at 6% per annum and is repayable on demand.