International Public Partnership Ld Full Year -18-
March 26 2015 - 3:01AM
UK Regulatory
in the UK in accordance with
the Financial Services and Markets
Act 2000.
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Recent Regulatory Changes The Board considers the Company
Recent regulatory changes have is self-managed (i.e. it is
included the transposition of its own Alternative Investment
the European Union's Alternative Fund Manager ('AIFM')). It
Investment Fund Managers Directive is therefore subject to a lighter
('AIFMD') into UK and other regulatory regime than if it
EU countries national laws which were to appoint an AIFM from
will impact the Company by increasing within the EU. However it is
its regulatory burden. not possible to entirely mitigate
the risk the Company may be
deemed or choose to be managed
by an EU AIFM in the future.
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Operational and Valuation Risk
Asset Asset Availability
Performance The Company's investments' entitlement The Board reviews underlying
to receive income from their investment performance of each
public sector clients is generally investment quarterly allowing
dependent on the underlying asset performance to be monitored
physical assets remaining available in close to real time.
for use and continuing to meet
certain performance standards. Historically the Company has
Failure to maintain assets available seen very high levels of asset
for use or operating in accordance performance which suggests
with pre-determined performance a positive trend for the future.
standards may entitle the public Contractual mechanisms also
sector to stop (wholly or partially) allow for significant pass-down
paying the income that the Company of unavailability and performance
has projected to receive. risk to sub-contractors in
many cases.
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Termination
In serious cases where the terms In the event of significant
of the underlying contract with and continuing unavailability
the public sector are breached across the Company's portfolio
due to default or force majeure the Company is able to terminate
then that contract can usually the Investment Advisory Agreement.
be terminated without compensation. This serves to reinforce alignment
Failure to receive the amount of interest between the Company
of revenue projected or termination and the Investment Adviser.
of a contract will have a consequential
impact on the Company's cash
flow and value.
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Counterparty The Company's investments are The Company has a broad range
Risk dependent on the performance of suppliers and believes that
of a series of counterparties supplier counterparty risk
to contracts including public is diversified across its investments.
sector bodies, construction All contracts include the provision
contractors, facilities management of a security package from
and maintenance contractors, counterparties to mitigate
asset and investment managers the impact of supplier failure.
(including the Investment Adviser), In addition, generally payments
banks and lending institutions are made in arrears to service
and others. Failure by one or providers giving the Company
more of these counterparties some protection against failures
to perform their obligations in performance.
fully or as anticipated could
adversely affect the performance The credit quality of supplier
of affected investments. Replacement counterparties is reviewed
counterparties where they can as part of the Company's due
be obtained may only be obtained diligence at the time of making
at a greater cost. These risks its investments.
would negatively impact the
Company's cash flows and valuation. Most of the services provided
to the Company's investments
are reasonably generic and
therefore there can be expected
to be a pool of potential replacement
supplier counterparties in
the event that a service counterparty
fails albeit not necessarily
at the same cost.
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Where borrowings exist in respect The credit risk of such swap
of the Company's investments, counterparties is considered
interest rates are generally at the time of entering into
fixed through the use of interest these arrangements and are
rate swaps. The Company is therefore regularly reviewed, however
exposed if the counterparties there is a risk of credit deterioration
of these swaps were to default which could impact affected
or the swaps otherwise become investments.
ineffective.
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Risk Description Mitigation Approach
Operational and Valuation Risk continued
Physical The Company indirectly invests The Company's investments benefit
Asset in physical assets used by the from regular risk reviews and
Risk public and thus is exposed to external insurance advice which
possible risks, both reputational is intended to ensure that
and legal, in the event of damage those assets continue to benefit
or destruction to such assets from insurance cover that is
and their users including loss standard for such assets.
of life, personal injury and
property damage. While the assets
the Company invests in benefit
from insurance policies these
may not be effective in all
cases.
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Contract The performance of the Company's Such contracts have been entered
Risk investments is dependent on into usually only after lengthy
the complex set of contractual negotiations and with the benefit
arrangements specific to each of external legal advice. A
investment continuing to operate legal review of contract documentation
as intended. The Company is is undertaken as part of the
exposed to the risk that such Company's due diligence at
contracts do not operate as the time of making new investments.
intended, are incomplete, contain
unanticipated liabilities, are
subject to interpretation contrary
to the Company's expectation
or otherwise fail to provide
the protection or recourse anticipated
by the Company.
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Financial The Company's projections depend Financial forecasts are generally
Forecasts on the use of financial models subject to model audit by external
to calculate future projected accountancy firms which is
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