depfa funding iii lp members report and financial ...€™ report and financial statements 31...

DEPFA FUNDING III LP Members’ Report and Financial Statements 31 December 2014

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CONTENTS

Page

MEMBERS’S REPORT 2-4

STATEMENT OF THE MEMBERS’ RESPONSIBILITIES IN RESPECT OF THE MEMBERS

REPORT AND THE FINANCIAL STATEMENTS 5

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DEPFA FUNDING III LP 6

INCOME STATEMENT 7

STATEMENT OF COMPREHENSIVE INCOME 8

STATEMENT OF FINANCIAL POSITION 9

STATEMENT OF CHANGES IN MEMBERS’ EQUITY 10

CASH FLOW STATEMENT 11

NOTES TO THE FINANCIAL STATEMENTS 12-21

OTHER INFORMATION 22

Members’ Report

2

Introduction

DEPFA Funding III LP (“the Partnership”) is a United Kingdom Limited Partnership established by a Limited Partnership Agreement dated 6 June 2005 (“the Partnership Agreement”). DEPFA BANK plc, a company registered in Ireland, is the General Partner.

The purpose of the Partnership is to raise and provide finance and financial support to DEPFA BANK plc (‘the Guarantor and General Partner’) and other subsidiaries of DEPFA Group (together, “the DEPFA Group”). The business of the partnership, as administered by, or on behalf of, the General Partner includes the following:

Acquiring and holding the Partnership’s assets; Monitoring the Partnership’s assets and determining whether they continue to be suitable; and Functions necessary or incidental thereto.

The Limited Partner as at 31 December 2014 is BT Globenet Nominees Limited.

Ownership

The Partnership is part of the DEPFA Group (“the DEPFA Group”) which comprises the Guarantor and General Partner of the Partnership, DEPFA BANK plc and its subsidiaries. On 19 December 2014 the entire ordinary share capital of DEPFA BANK plc was acquired by FMS Wertmanagement AöR, a German State Agency established by the Federal Republic of Germany and to which the DEPFA Group transferred non strategic posi tions in 2010. Prior to this date and since 2 October 2007, the entire ordinary share capital of DEPFA BANK plc was held by Hypo Real Estate Holding AG (“HRE Holding”), the parent entity of the Hypo Real Estate Group (“HRE Group”). FMS Wertmanagement AöR is a German State Agency established in 2010 as the Federal Republic of Germany’s winding up institution for the nationalised HRE Group. FMS Wertmanagement AöR is under the direct ownership of the German Financial Markets Stabilisation Fund/German Finanzmarktstabilisierungsfonds (“SoFFin”), which is managed by the Federal Agency for Financial Market Stabilisation (“FMSA”).

Summary of the Partnership’s activities

The Partnership has issued €300,000,000 Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (“Preferred Securities”). The Preferred Securities entitle holders to receive non-cumulative preferential cash distributions at a rate of CMS 10 Year + 0.1% subject to certain conditions including the discretion of the Board of Directors of the Guarantor and General Partner, DEPFA BANK plc (“the directors”). The proceeds of these securities have been lent to DEPFA Finance N.V., a DEPFA Group company.

The Partnership has no contractual obligation to make interest payments under the Preferred Securities. Accordingly the carrying amount of the Preferred Securities is classified as equity.

Dividends

No dividends are proposed in respect of the year ended 31 December 2014 (2013: nil).

Major Events

Sale of the DEPFA Group to FMS Wertmanagement AöR In recent years the DEPFA Group has been involved in a process of stabilisation and strategic restructuring. The finalisation of the state aid proceedings between the European Commission and the Federal Republic of Germany in 2011 allowed for the DEPFA Group’s sale and in this regard the functional separation of the DEPFA Group from the HRE Group was completed during 2014. In May 2014 FMSA decided that a reprivatisation of DEPFA would not occur and instead the ownership of the DEPFA Group would be transferred to FMS Wertmanagement AöR. This transfer of ownership was completed on 19 December 2014.

The DEPFA Group will continue to be wound down under the indirect ownership of the Federal Republic of Germany

and the companies within the DEPFA Group will not conduct any new business except as permitted by the decision

of the EU Commission on 18 July 2011. This is not applicable for measures carried out as part of bank, risk and

refinancing management which is necessary for regulatory purposes and which has the aim of maintaining value and

also within the framework of managing the cover pools of the DEPFA Group entities, DEPFA ACS BANK and Hypo

Pfandbrief Bank International S.A.

Members’ Report (continued)

3

Going concern

Following the announcement that the ownership of the DEPFA Group would be transferred by HRE Holding to FMS Wertmanagement AöR and the subsequent execution of that transfer on 19 December 2014, the directors have considered the appropriateness of the going concern assumption in the preparation of the financial statements.

The directors understand that the DEPFA Group including the Partnership was transferred to FMS Wertmanagement AöR as a going concern and will continue its principal activities, being the wind down of its portfolios in a manner designed to maintain value. The directors consider that the liquidity position of the DEPFA Group including the Partnership is stable and that it continues to be in a position to meet its own funding requirements. The DEPFA Group including the Partnership is not currently dependent on funding from FMS Wertmanagement AöR and is expected to be able to meet its obligations as they fall due for a minimum period of one year from the date of this report. The directors have also considered that the regulatory capital ratios of the DEPFA Group and its regulated entities are currently, and are expected to continue to be, significantly in excess of the required minimum ratios for a minimum period of one year from the date of this report.

The directors have therefore concluded that it is appropriate to prepare the financial statements of the Partnership on a going concern basis of accounting.

Events after 31 December 2014

Tender offer on perpetual securities including the Partnership’s issued Preferred Securities

In January 2015 FMS Wertmanagement AöR, the parent company of DEPFA Group, informed DEPFA BANK plc it proposes to launch a tender offer inviting holders of the following securities:

- €400,000,000 6.50% Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (XS0178243332) issued by DEPFA Funding II LP (the “DEPFA II Securities”)

- €300,000,000 Fixed Rate/Variable Rate Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (DE000A0E5U85) issued by DEPFA Funding III LP (the “DEPFA III Securities”); and

- €500,000,000 Fixed Rate/Floating Rate Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (XS0291655727) issued by DEPFA Funding IV LP (the “DEPFA IV Securities”),

each guaranteed by DEPFA BANK plc (together, the “Perpetual Preferred Securities”), to tender those securities for purchase by FMS Wertmanagement AöR on the terms described below and in relation thereto FMS Wertmanagement AöR has entered into a commitment agreement with certain holders of those securities as described below.

FMS Wertmanagement AöR has further informed the DEPFA Group that on 22 December 2014 certain holders of the Perpetual Preferred Securities (the “Committed Holders”) representing approximately 70% of the DEPFA II Securities, 59% of the DEPFA III Securities and 66% of the DEPFA IV Securities entered into an agreement with FMS Wertmanagement AöR pursuant to which the Committed Holders have undertaken to tender their Perpetual Preferred Securities for purchase by FMS Wertmanagement AöR on the terms of a tender offer that FMS Wertmanagement AöR proposed to launch and to vote in favour of certain amendments to the terms and conditions of the Perpetual Preferred Securities in an associated consent solicitation process (the tender offer and consent solicitation are referred to as the “Proposed Transaction”).

The agreement between FMS Wertmanagement AöR and the Committed Holders does not restrict the Committed Holders’ ability to trade Perpetual Preferred Securities, subject to the transferees agreeing to commit to tender those

Perpetual Preferred Securities and to vote in favour of those amendments. This agreement is subject to customary provisions including regarding an outside termination date for consummation of the Proposed Transaction, which provisions can be extended by mutual agreement of the parties.

The Committed Holders and FMS Wertmanagement AöR have agreed that the Proposed Transaction will include a tender offer by FMS Wertmanagement AöR for the Perpetual Preferred Securities at a Purchase Price of €0.604509 per €1 of liquidation preference of each DEPFA II Security and DEPFA IV Security as defined in the relevant limited partnership agreement, and €0.584509 per €1 of liquidation preference of each DEPFA III Security as defined in the relevant limited partnership agreement. Following regulatory approval, a Tender Offer Memorandum was issued on 20 April 2015.

Tendering holders of Perpetual Preferred Securities are asked to vote in favour of empowering DEPFA BANK plc as the General Partner to purchase any remaining Perpetual Preferred Securities not purchased by FMS Wertmanagement AöR.

Therefore holders who do not tender their Perpetual Preferred Securities to FMS Wertmanagement AöR will become subject to an acquisition of such Perpetual Preferred Securities at the option of DEPFA BANK plc as General Partner at an acquisition price of €0.595 per €1 of liquidation preference of each DEPFA II Security and DEPFA IV Security

Members’ Report (continued)

4

as defined in the relevant limited partnership agreement and €0.575 per €1 of liquidation preference of each DEPFA III Security as defined in the relevant limited partnership agreement.

FMS Wertmanagement AöR has informed DEPFA BANK plc that acceptance of the tender by FMS Wertmanagement AöR will be made subject only to the conditions that in each class/meeting of the Perpetual Preferred Securities valid tenders are received in an amount of not less than 50 per cent of the nominal amount of Liquidation Preference plus one Perpetual Preferred Security of each such class and that regulatory approval has been obtained. Otherwise the Tender Offer Memorandum contains only standard tender conditions.

FMS Wertmanagement AöR has informed DEPFA BANK plc that it has agreed to pay the Committed Holders a Commitment Fee of €22,139,320 in aggregate due on completion of the purchase of Perpetual Preferred Securities by FMS Wertmanagement AöR pursuant to the tender offer.

The effects on the DEPFA Group will depend on the extent to which holders do not tender their Perpetual Preferred Securities, which could then be acquired by the DEPFA Group at the prices set out above.

As the Partnership’s Preferred Securities would remain in issue in their entirety after the Proposed Transaction, no effects on the Partnership are expected.

Amendment to constitutive documents of DEPFA BANK plc

On 13 March 2015, DEPFA BANK plc announced that it received notice from its shareholder, FMS Wertmangement AöR, of their intention to amend the Memorandum of Association of DEPFA BANK plc by way of written special resolution. The proposed amendment read as follows:

That the Memorandum of Association of the Company be and is hereby amended by the insertion of the following new Clause 3(2) into the Company’s Memorandum of Association after the existing Clause 3 (1) and the renumbering of the remaining clauses accordingly:

“To carry on business of the Company and its subsidiaries in pursuance of the above object and all of the objects described in this Memorandum of Association, and to exercise the powers exercisable in relation to the Company and its subsidiaries pursuant to this Memorandum of Association, for the purpose of, or in a manner which facilitates, or which is not otherwise inconsistent with winding down the activities of, and realising the value of the assets of, the Company and its subsidiaries and discharging any and all liabilities of the Company and its subsidiaries.”

The directors have assessed the impact of the amendment in the context of considering the appropriateness of the going concern basis of accounting in the preparation of the financial statements of the DEPFA Group and of the Partnership. The directors have concluded based on discussions with FMS Wertmangement AöR in relation to the continuation of the DEPFA Group’s principal activities, being the wind down of its portfolios in a manner designed to maintain value, that it is appropriate to continue to prepare the financial statements of the DEPFA Group and the Partnership on a going concern basis.

Apart from the above, there have been no other notable events after 31 December 2014.

Principal risks and uncertainties

The Partnership's principal asset is a loan to DEPFA Finance N.V., a DEPFA Group company. The principal risks and uncertainties facing the Partnership, which relate primarily to credit risk, therefore relate to the performance of this loan.

Auditors

The auditors, KPMG, have indicated their willingness to continue in office.

Signed on behalf of the Guarantor and General Partner, DEPFA BANK plc:

Fiona Flannery Noel Reynolds

Director Director

21 April 2015

Statement of Members’ Responsibilities in respect of the Members’ Report and Financial Statements

5

The members are responsible for preparing the Members' Report and the financial statements in accordance with applicable law and regulations.

The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 require the members to prepare financial statements for each financial year. Under that law the members have elected to prepare the financial statements in accordance with IFRSs as adopted by the EU and applicable law.

Under Regulation 8 of the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 the members must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Partnership and of the net income or loss of the Partnership for that period. In preparing these financial statements, the members are required to:

select suitable accounting policies and then apply them consistently;

make judgements and estimates that are reasonable and prudent;

state whether they have been prepared in accordance with IFRSs as adopted by the EU;

in accordance with the Transparency Directive (Directive 2004/109/EC) (“the Transparency Regulations”), the members are required to include in their report a fair review of the business and a description of the principal risks and uncertainties facing the Partnership and a responsibility statement relating to these and other matters included below; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Partnership will continue in business.

Under Regulation 6 of the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, the members are responsible for keeping adequate accounting records that are sufficient to show and explain the Partnership's transactions and disclose with reasonable accuracy at any time the financial position of the Partnership and enable them to ensure that its financial statements comply with those regulations.

The members have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Partnership and to prevent and detect fraud and other irregularities.

Responsibility Statement, in accordance with the Transparency Regulations

Each of the directors of the General Partner in office, whose names and functions are listed on page 22 confirm that to the best of each person's knowledge and belief:

The Partnership’s financial statements, prepared in accordance with IFRSs as adopted by the EU give a true and fair view of the assets, liabilities and financial position of the Partnership at 31 December 2014 and its net income for the year then ended; and

The Members' Report includes a fair review of the development and performance of the business and the position of the Partnership, together with a description of the principal risks and uncertainties they face.



Director Director

21 April 2015

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF DEPFA FUNDING III LP

6

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DEPFA FUNDING III LP

We have audited the financial statements of DEPFA Funding III LP (the “Partnership”) for the year ended 31 December 2014 which comprise the Income Statement, the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of changes in Member’s Equity, the Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (“IFRS”).

This report is made solely to the members of the Partnership, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006, as required by Regulation 39 of the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008. Our audit work has been undertaken so that we might state to the Partnership’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Partnership and the Partnership’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of members and auditor

As explained more fully in the Members’ Responsibilities Statement set out on page 5, the members are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Ethical Standards for Auditors issued by the Financial Reporting Council.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website

at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements

In our opinion the financial statements:

give a true and fair view, of the state of affairs of the Partnership as at 31 December 2014 and of its net income for the year then ended;

have been properly prepared in accordance with IFRSs as adopted by the EU; and

have been prepared in accordance with the requirements of the Companies Act 2006 as applied to limited liability partnerships by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 as applied to limited

liability partnerships requires us to report to you if, in our opinion:

adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

the financial statements are not in agreement with the accounting records and returns; or

we have not received all the information and explanations we require for our audit; or

the members were not entitled to prepare financial statements in accordance with the small limited liability partnerships’ regime.

Ian Nelson

for and on behalf of

KPMG

Chartered Accountants, Statutory Audit Firm

1 Harbourmaster Place

IFSC

Dublin 1, Ireland

21 April 2015

http://www.frc.org.uk/auditscopeukprivate

7

Income statement

For the year ended 31 December 2014

Note Year ended 31 December

2014

€

2013

€

Interest and similar income 5 3,243,954 3,168,946

Interest expense and similar charges 5 (62,835) (54,033)

Net interest income 3,181,119 3,114,913

Net income 3,181,119 3,114,913

The notes on pages 12 to 21 are an integral part of these financial statements.



Director Director

21 April 2015

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Statement of comprehensive income

2014

€

2013

€

Before tax Tax After tax Before tax Tax After tax

Net income 3,181,119 - 3,181,119 3,114,913 - 3,114,913

Total comprehensive income 3,181,119 - 3,181,119 3,114,913 - 3,114,913

Attributable to the General Partner 3,181,119 - 3,181,119 3,114,913 - 3,114,913

Disclosure of components of comprehensive income

2014 2013

€ €

Net income 3,181,119 3,114,913

Total comprehensive income 3,181,119 3,114,913


9

Statement of financial position

As at 31 December 2014

Note As at 31 December

2014

€

2013

€

ASSETS

Loans and advances to customers 6 300,183,380 300,206,023

Other receivables 2 2

Total assets 300,183,382 300,206,025

LIABILITIES

Preferred securities issued 7 1 1

Liabilities to banks 8 20,773,078 23,976,840

Total liabilities 20,773,079 23,976,841

MEMBERS’ EQUITY

Capital contribution account 1 1

Preferred securities issued 250,201,398 250,201,398

Income account 29,208,904 26,027,785

Total equity 9 279,410,303 276,229,184

Total liabilities and members’ equity 300,183,382 300,206,025




Director Director

21 April 2015

10

Statement of changes in Members’ Equity


€

Capital

Contribution

Preferred securities

issued Income

Account Total Members’

Equity

Balance at 1 January 2013 1 250,201,398 22,912,872 273,114,271

Net Income - - 3,114,913 3,114,913

Balance at 31 December 2013 1 250,201,398 26,027,785 276,229,184

Net Income - - 3,181,119 3,181,119

Balance at 31 December 2014 1 250,201,398 29,208,904 279,410,303


11

Cash Flow Statement


2014

€ 2013

€

Cash flows from operating activities

Net income on ordinary activities before taxation 3,181,119 3,114,913

Adjustments for non-cash movements:

Net decrease/(increase) in accrued interest income 22,643 (18,124)

Net (decrease)/increase in accrued interest expense (1,925) 2,383

Net decrease in liabilities to banks (3,201,837) (3,099,172)

Net cash from operating activities - -

Cash and cash equivalents at the beginning of the year - -

Cash and cash equivalents at the end of the year - -

Included in the cash flows from operating activities for the year are the following amounts:

2014

€ 2013

€

Interest income received 3,266,597 3,150,822

Interest expense paid 64,760 51,650


Notes to the members’ report and financial statements

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1. The Partnership

(a) Establishment of the Partnership

DEPFA Funding III LP Limited Partnership (“the Partnership”) is a United Kingdom Limited Partnership, established by a Limited Partnership Agreement dated 6 June 2005 (“the Partnership Agreement”). The Preferred Securities Issued of the Partnership are listed on the Official Market of the Frankfurt Stock Exchange and Eurolist by Euronext Amsterdam.

The General Partner, Manager and Guarantor of the Partnership is DEPFA BANK plc (“the Guarantor and General Partner”) which is responsible for the management, operation and administration of the affairs of the Partnership in accordance with the Partnership Agreement.

The Limited Partner as at 31 December 2014 is BT Globenet Nominees Limited.

(b) Business of the Partnership

The business of the Partnership is as set out in the Members’ Report on page 2.

(c) Duration of the Partnership

The Partnership has no specific duration.

The Partnership is part of the DEPFA Group which comprises DEPFA BANK plc and its subsidiaries (“the DEPFA Group”). On 19 December 2014 the entire ordinary share capital of DEPFA BANK plc was acquired by FMS Wertmanagement AöR, a German State Agency established by the Federal Republic of Germany and to which the DEPFA Group transferred non strategic positions in 2010. Prior to this date and since 2 October 2007, the entire ordinary share capital of DEPFA BANK plc was held by Hypo Real Estate Holding AG (“HRE Holding”), the parent entity of the Hypo Real Estate Group (“HRE Group”). FMS Wertmanagement AöR is a German State Agency established in 2010 as the Federal Republic of Germany’s winding up institution for the nationalised HRE Group. FMS Wertmanagement AöR is under the direct ownership of the German Financial Markets Stabilisation Fund/German Finanzmarktstabilisierungsfonds (“SoFFin”) which is managed by the Federal Agency for Financial Market Stabilisation (“FMSA”).

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below.

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the EU using accounting policies in accordance with the Partnership Agreement and in accordance with the Transparency Directive (Directive 2004/109/EC). In accordance with the Partnership Agreement, the currency used for reporting purposes is Euro.

The financial statements are prepared on a going concern basis.

Following the announcement that the ownership of the DEPFA Group would be transferred by HRE to FMS Wertmanagement AöR and the subsequent execution of that transfer on 19 December 2014, the directors of the Guarantor and General Partner, DEPFA BANK plc (“the directors”) have considered the appropriateness of the going concern assumption in the preparation of the financial statements.

The directors understand that the DEPFA Group including the Partnership was transferred to FMS Wertmanagement AöR as a going concern and will continue its principal activities, being the wind down of its portfolios in a manner designed to maintain value. The directors consider that the liquidity position of the DEPFA Group including the Partnership is stable and that it continues to be in a position to meet its own funding requirements. The DEPFA Group including the Partnership is not currently dependent on funding from FMS Wertmanagement AöR and is expected to be able to meet its obligations as they fall due for a minimum period of one year from the date of this report. The directors have also considered that the regulatory capital ratios of the DEPFA Group and its regulated entities are currently, and are expected to continue to be, significantly in excess of the required minimum ratios for a minimum period of one year from the date of this report.

The directors have therefore concluded that it is appropriate to prepare the financial statements of the Partnership on a going concern basis of accounting.

The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Partnership’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

Notes to the members’ report and financial statements (continued)

13

The Partnership has prepared its financial statements for the period ended 31 December 2014 in line with EC

ordinance No. 1606/2002 of the European Parliament and Council of 19 July 2002 in accordance with IFRSs. These

financial statements are based on IFRSs, which have been adopted in European Law by the European commission

as part of the endorsement process. Therefore, the financial statements are accordingly consistent with the entire

IFRSs and also with the IFRSs as applicable in the EU.

The IFRSs are standards and interpretations adopted by the International Accounting Standards Board (“IASB”).

These are the International Financial Reporting Standards, the International Accounting Standards (“IAS”) and the

interpretations of the International Financial Reporting Interpretations Committee (“IFRSIC”) or the former Standing

Interpretations Committee (“SIC”).

IFRS 10 Consolidated Financial Statements (IASB effective date 1 January 2013, EU endorsement effective date 1 January 2014)

IFRS 11 Joint Arrangements (IASB effective date 1 January 2013, EU endorsement effective date 1 January 2014)

IFRS 12 Disclosure of Interests In Other Entities (IASB effective date 1 January 2013, EU endorsement effective date 1 January 2014)

IAS 27 Separate Financial Statements (2011), which supersedes IAS 27 (2008) (IASB effective date 1 January 2013, EU endorsement effective date 1 January 2014)

IAS 28 Investments in Associates and Joint Ventures (2011) which supersedes IAS 28 (2008) (IASB effective date 1 January 2013, EU endorsement effective date 1 January 2014)

Amendments to IAS 32 Offsetting financial Assets and Financial L iabilities (IASB and EU endorsement effective date 1 January 2014)

IFRS 10 Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (IASB and EU endorsement effective date 1 January 2014)

Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets (IASB and EU endorsement effective date 1 January 2014)

Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting (IASB and EU endorsement effective date 1 January 2014)

IFRIC21 Levies (IASB and EU endorsement effective date 1 January 2014)

None of the above had any impact on the Partnership.

Endorsed standards, interpretations and amendments, which are not yet mandatorily applicable

The following standards, interpretations and amendments are endorsed, are not mandatorily applicable in these financial statements and were not adopted early:

IAS 19 Amendment: Defined Benefit Plans; Employee Contributions (IASB effective date 1 July 2014, EU endorsement effective date 1 February 2015)

Annual Improvement to IFRSs 2010–2012 Cycle and 2011–2013 Cycle (IASB effective date 1 July 2014, EU endorsement effective date 1 February 2015)

None of the above are expected to have any material impact on the Partnership.

Published standards, interpretations and amendments, which are not yet endorsed

The following published standards, interpretations and amendments were not yet endorsed in European Law:

Amendment to IFRS 11 Accounting for acquisitions of Interests in Joint Operations (IASB effective date 1 January 2016)

IFRS 14 Regulatory Deferral Accounts (IASB effective date 1 January 2016)

Amendments to IAS 16 and IAS 38 Clarification of acceptable methods of depreciation and amortisation (IASB effective date 1 January 2016

Amendments to IAS 16 Property, Plant and Equipment and IAS 41 Bearer Plants (IASB effective date 1 January 2016)

Amendments to IAS 27 Equity method in Separate Financial Statements (IASB effective date 1 January 2016)

Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an Investor and its associate or joint venture (September 2014) (IASB effective date 1 January 2016)

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the consolidation exception (December 2014) (IASB effective date 1 January 2016)

Amendments to IAS 1 Disclosure Initiative (IASB effective date 1 January 2016)

Annual Improvements to IFRSs 2012–2014 cycle (IASB effective date 1 January 2016)

IFRS 15 Revenue from contracts with customers (IASB effective date 1 January 2017)


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IFRS 9 Financial Instruments (2009 and subsequent amendments in 2010 and 2013) (IASB effective date 1 January 2018)

None of the above are expected to have any material impact on the Partnership.

Functional and presentation currency

Items included in the financial statements of the Partnership are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The Partnership’s financial statements are presented in Euro, which is the Partnership’s functional currency and presentation currency. All of the Partnership’s assets and liabilities are denominated in Euro.

Interest income and expense

Interest income and expense are recognised in the income statement for all interest bearing financial instruments using the effective interest method.

Financial assets

The Partnership classifies its financial assets as loans and receivables, as determined by management in accordance with the rules set out in IFRSs.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Financial assets are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or when the Partnership has transferred substantially all risks and rewards of ownership.

Loans and receivables are subsequently carried at amortised cost using the effective interest method. Interest income on financial assets is shown under the line item “Interest and similar income”.

Impairment of financial assets

The Partnership assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Cash and cash equivalents

For the purposes of the cash flow statement, “Cash and cash equivalents” comprise cash reserves with central banks.

Financial liabilities

Financial liabilities are those non-derivative financial liabilities that are not classified at fair value through profit or loss. Financial liabilities are measured at amortised cost. Financial liabilities are recognised in the position “Liabilities to other banks”. Interest expense from financial liabilities is shown under the line item “Interest expense and similar charges”. Financial liabilities are derecognised when they are extinguished – that is, when the obligation is discharged, cancelled or expires.

Issued debt and Preferred Securities

The classification of instruments as a financial liability or an equity instrument is dependent upon the substance of the contractual arrangement. Instruments which carry a contractual obligation to deliver cash or another financial asset to another entity are classified as financial liabilities.

The Preferred Securities issued by the Partnership entitle holders to receive non-cumulative preferential cash distributions subject to certain conditions including the discretion of the Board of Directors of the Guarantor and General Partner. The Partnership has no contractual obligation to make interest payments under the Preferred Securities. Accordingly the carrying amount of the Preferred Securities is classified as equity.


15

Income tax

Taxation has not been recorded in these financial statements as any tax liabilities that may arise, on income or capital, will be borne by the individual partners comprising the Partnership. Accordingly, no provision for taxation is made in the financial statements.

Expenses

Auditor’s remuneration and all other administrative expenses of the Partnership are borne by the Partnership’s General Partner, Manager and Guarantor, DEPFA BANK plc.

3. Risk management

(a) Strategy in using financial instruments

The Partnership is party to a limited range of financial instruments in the normal course of business.

The Partnership has issued perpetual preferred securities whereby the holders are entitled to receive non cumulative preferential cash distributions at a rate of CMS 10 Year + 0.1% per annum, subject to certain conditions including the discretion of the Board of Directors of the Guarantor and General Partner. The proceeds of the perpetual preferred securities are invested in a floating rate loan to a DEPFA Group company.

The Partnership has a deposit received from the General Partner, DEPFA BANK plc, the proceeds of which were used to terminate a derivative in 2009.

(b) Credit risk

Credit risk is the risk that a counterparty will be unable to pay amounts owed in full when due. Impairment provisions are provided for losses that have been incurred at the reporting date.

The Partnership’s principal credit exposure comprises a subordinated loan to DEPFA Finance N.V., a DEPFA Group company. No impairment provisions are required at year end 31 December 2014 (2013: nil).

The financial asset are neither past due nor impaired.

The credit exposure of financial assets by country is analysed below:

2014 2013

€ €

Netherlands 300,183,380 300,206,023

Total assets 300,183,380 300,206,023

(c) Currency risk

All the Partnership’s assets and liabilities are denominated in Euro, therefore there is no foreign currency risk.

(d) Fair value interest rate risk

Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates.

The Partnership’s interest earning assets are entered into at a floating rate of interest. The Partnership’s assets are primarily funded by the Preferred Securities which entitle holders to initially a structured floating rate of interest, subject to certain conditions including the discretion of the Board of Directors of the Guarantor.

Except to the extent to which payments on the liabilities are not made due to the conditions including the discretion of the Board of Directors of the Guarantor the interest rate risk of the Partnership is considered insignificant.

(e) Liquidity risk

Liquidity risk is defined as the risk of not being able to meet future payment obligations in full or on time.

The Partnership’s assets comprise a single loan funded by the Perpetual Preferred Securities. No additional assets are expected to require funding in the foreseeable future. The Partnership’s borrowings, comprising a deposit from the General Partner, DEPFA BANK plc, while contractually short term in duration are expected to continue to be renewed as required. The Partnership’s liquidity risk is therefore considered insignificant.


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As described above the Partnership is required to make certain interest payments on the Preferred Securities subject to certain conditions including the discretion of the Board of Directors of the Guarantor. The Preferred Securities are perpetual and therefore have no fixed maturity date.

The following table provides a maturity analysis of the cash flows contractually due on the financial liabilities of the

Partnership as at 31 December 2014 and 31 December 2013 comprising a deposit from the General Partner, DEPFA

BANK plc. The analysis has been performed on the basis of gross cash flows due in the future. The effects of taking

into account the time value of money by discounting these flows are not reflected.

Up to 3

months Total

€ €


Liabilities to banks 20,778,606 20,778,606


Up to 3

months Total

€ €




Capital risk management

The Partnership is not subject to any externally imposed capital requirements.

4. Critical accounting estimates

The Partnership believes that of its significant accounting policies and estimates, the following may involve a higher

degree of judgement and complexity. Impairment provisions Where there is a risk that the Partnership will not receive full repayment of the amount advanced, provisions are made in the financial statements to reduce the carrying value of loans and receivables to the amount expected to be recovered. The estimation of credit losses is inherently uncertain and depends on many factors such as general economic conditions, cash flows, structural changes and other external factors.

5. Net interest income

2014 2013

€ €

Interest and similar income

Financial assets of the category loans and receivables 3,243,954 3,168,946

Total interest income 3,243,954 3,168,946

Interest expense and similar charges

Other financial liabilities measured at amortised cost (62,835) (54,033)

Total interest expense (62,835) (54,033)

Interest income on impaired loans amounted to € nil (2013: € nil).

The Guaranteed Non voting Non-cumulative Perpetual Preferred Securities are classified as equity. Accordingly, no interest expense arises on this instrument.


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6. Loans and advances to customers

2014 2013

€ €

Loans and advances to other group undertakings 300,000,000 300,000,000

Accrued interest receivable on loans and advances to other group

undertakings

183,380

206,023

300,183,380 300,206,023

All of the above relates to amounts due from other DEPFA Group undertakings.

The effective interest rate for the above transaction is 3 month Euribor plus 0.8349% (2013: 3 month Euribor plus 0.8349%).

Loans and advances to customers are broken down by maturity as follows:

2014 2013

€ €

Greater than 5 years 300,183,380 300,206,023

300,183,380 300,206,023

7. Preferred Securities Issued

2014 2013

€ €

Limited partner contribution 1 1

1 1

Preferred securities issued are broken down by maturity as follows:

2014 2013

€ €

No stated maturity 1 1

1 1

8. Liabilities to banks

2014 2013

€ €


20,773,078 23,976,840

Of which due to group companies 20,773,078 23,976,840

Liabilities to banks are broken down by maturity as follows:

2014 2013

€ €

Up to 3 months 20,773,078 23,976,840

20,773,078 23,976,840


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9. Members’ equity

2014 2013

€ €

Capital contribution 1 1

Preferred securities 250,201,398 250,201,398

Retained income at start of period 26,027,785 22,912,872

Income for the year 3,181,119 3,114,913

279,410,303 276,229,184

The Partnership has issued €300,000,000 Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities. The Preferred Securities will entitle holders to receive non-cumulative preferential cash distributions, subject to certain conditions including the discretion of the Board of Directors of the Guarantor and General Partner. The interest rate on the issue is 7% for the first 3 years up to June 2009, and CMS 10 Year + 0.1% thereafter. Payment under this Preferred Securities is only contractually required if creditors of an equal ranking receive interest payments. The Partnership has no contractual obligation to make interest payments under the Preferred Securities. Accordingly the carrying amount of this instrument classified as equity.

In 2014 the Guarantor and General Partner stated that it did not expect the Partnership to make any coupon payments in 2014. Accordingly, no coupon payment was made in 2014.

10. Fair values of financial assets and liabilities

The following tables summarise the carrying amounts and fair values of financial assets and liabilities. All financial assets and liabilities are carried at amortised cost. Bid prices are used to estimate fair values of assets, whereas offer prices are applied for liabilities. Fair value of financial assets and liabilities at 31 December 2014

Carrying Value Fair Value Level 1 Level 2 Level 3

€ € € € €

Financial assets

Loans and advances to customers 300,183,380 168,068,879 - - 168,068,879


Liabilities to banks 20,773,078 20,773,078 - 20,773,078 -

Preferred securities issued 1 1 - - 1

Fair value of financial assets and liabilities at 31 December 2013

Carrying Value Fair Value Level 1 Level 2 Level 3

€ € € € €

Financial assets

Loans and advances to customers 300,206,023 142,578,793 - - 142,578,793


Liabilities to banks 23,976,840 23,976,840 - 23,976,840 -

Preferred securities issued 1 1 - - 1

The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability

in an orderly transaction in the principal (or most advantageous) market at the measurement date under current


19

market conditions (i.e. an exit price). The fair values were determined as of the reporting date based on the market

information available and on valuation methods described here. DEPFA Funding III LP measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements. Level 1 – inputs that are quoted market prices (unadjusted) in active markets for identical assets and liabilities that the entity can access at the measurement date. Level 2 – inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 – inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.

The estimated fair value of nostros, short term placements and short term borrowings at the reporting date is their carrying amount. The table below outlines the valuation methodology of amortised cost positions categorised as Level 2 or Level 3.

Disclosure Requirements for Financial Instruments (FIs) measured at amortised Cost

Classes of

Financial

Instruments

Valuation

Methods for

Fair Value

Level 2

Observable

Parameters

Valuation

Methods for

Fair Value

Level 3

Observable

Parameters

Unobservable

Parameters

Asset

Loans and

Receivables

(LaR)

Discounted

Cash Flow

Models

Credit Spreads

Discounted

Cash Flow

Models

Credit Spreads

Adjustment to

proxies

Benchmark

Interest Rates Benchmark

Interest Rates Risk free Interest

Rate

Future Cash Flows Future Cash Flows

Liabilities

Liabilities to

banks

Discounted

Cash Flow

Models

Future Cash Flows

Benchmark

Interest Rates

Risk free Interest

Rate

11. Related party transactions

Balances due to and from related parties are disclosed in the notes to the statement of financial position. DEPFA BANK plc, the General Partner, Manager and Guarantor, is a related party of the Partnership. Key management is the Board of Directors of DEPFA BANK plc.

The key management of the Partnership received no remuneration from the Partnership during the year.

Transactions with related parties consist of:

2014 2013

€ €

Interest income – DEPFA Finance N.V. 3,243,954 3,168,946

Interest expense – DEPFA BANK plc (62,835) (54,033)


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12. Ultimate controlling party

DEPFA BANK plc, a company registered in Ireland, is the general partner of the Partnership. The largest group into which the results of the Partnership are consolidated is that headed by DEPFA BANK plc. The smallest group into which the results of the Partnership are consolidated is that headed by DEPFA BANK plc. DEPFA BANK plc is a wholly owned subsidiary of FMS Wertmanagement AöR, a German State Agency. Copies of the financial statements of DEPFA BANK plc can be obtained from The Secretary, DEPFA BANK plc.1 Commons Street, Dublin 1, Ireland.

13. Events after 31 December 2014

Tender offer on perpetual securities including the Partnership’s issued Preferred Securities

In January 2015 FMS Wertmanagement AöR, the parent company of DEPFA Group, informed DEPFA BANK plc it proposes to launch a tender offer inviting holders of the following securities:

- €400,000,000 6.50% Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (XS0178243332) issued by DEPFA Funding II LP (the “DEPFA II Securities”)

- €300,000,000 Fixed Rate/Variable Rate Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (DE000A0E5U85) issued by DEPFA Funding III LP (the “DEPFA III Securities”); and

- €500,000,000 Fixed Rate/Floating Rate Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (XS0291655727) issued by DEPFA Funding IV LP (the “DEPFA IV Securities”),

each guaranteed by DEPFA BANK plc (together, the “Perpetual Preferred Securities”), to tender those securities for purchase by FMS Wertmanagement AöR on the terms described below and in relation thereto FMS Wertmanagement AöR has entered into a commitment agreement with certain holders of those securities as described below.

FMS Wertmanagement AöR has further informed the DEPFA Group that on 22 December 2014 certain holders of the Perpetual Preferred Securities (the “Committed Holders”) representing approximately 70% of the DEPFA II Securities, 59% of the DEPFA III Securities and 66% of the DEPFA IV Securities entered into an agreement with FMS Wertmanagement AöR pursuant to which the Committed Holders have undertaken to tender their Perpetual Preferred Securities for purchase by FMS Wertmanagement AöR on the terms of a tender offer that FMS Wertmanagement AöR proposed to launch and to vote in favour of certain amendments to the terms and conditions of the Perpetual Preferred Securities in an associated consent solicitation process (the tender offer and consent solicitation are referred to as the “Proposed Transaction”).

The agreement between FMS Wertmanagement AöR and the Committed Holders does not restrict the Committed Holders’ ability to trade Perpetual Preferred Securities, subject to the transferees agreeing to commit to tender those Perpetual Preferred Securities and to vote in favour of those amendments. This agreement is subject to customary provisions including regarding an outside termination date for consummation of the Proposed Transaction, which provisions can be extended by mutual agreement of the parties.

The Committed Holders and FMS Wertmanagement AöR have agreed that the Proposed Transaction will include a tender offer by FMS Wertmanagement AöR for the Perpetual Preferred Securities at a Purchase Price of €0.604509 per €1 of liquidation preference of each DEPFA II Security and DEPFA IV Security as defined in the relevant limited partnership agreement, and €0.584509 per €1 of liquidation preference of each DEPFA III Security as defined in the relevant limited partnership agreement. Following regulatory approval, a Tender Offer Memorandum was issued on 20 April 2015.

Tendering holders of Perpetual Preferred Securities are asked to vote in favour of empowering DEPFA BANK plc as the General Partner to purchase any remaining Perpetual Preferred Securities not purchased by FMS Wertmanagement AöR.

Therefore holders who do not tender their Perpetual Preferred Securities to FMS Wertmanagement AöR will become subject to an acquisition of such Perpetual Preferred Securities at the option of DEPFA BANK plc as General Partner at an acquisition price of €0.595 per €1 of liquidation preference of each DEPFA II Security and DEPFA IV Security as defined in the relevant limited partnership agreement and €0.575 per €1 of liquidation preference of each DEPFA III Security as defined in the relevant limited partnership agreement.

FMS Wertmanagement AöR has informed DEPFA BANK plc that acceptance of the tender by FMS Wertmanagement AöR will be made subject only to the conditions that in each class/meeting of the Perpetual Preferred Securities valid tenders are received in an amount of not less than 50 per cent of the nominal amount of Liquidation Preference plus one Perpetual Preferred Security of each such class and that regulatory approval has been obtained. Otherwise the Tender Offer Memorandum contains only standard tender conditions.

FMS Wertmanagement AöR has informed DEPFA BANK plc that it has agreed to pay the Committed Holders a Commitment Fee of €22,139,320 in aggregate due on completion of the purchase of Perpetual Preferred Securities by FMS Wertmanagement AöR pursuant to the tender offer.

The effects on the DEPFA Group will depend on the extent to which holders do not tender their Perpetual Preferred Securities, which could then be acquired by the DEPFA Group at the prices set out above.


21

As the Partnership’s Preferred Securities would remain in issue in their entirety after the Proposed Transaction, no effects on the Partnership are expected.

Amendment to constitutive documents of DEPFA BANK plc

On 13 March 2015, DEPFA BANK plc announced that it received notice from its shareholder, FMS Wertmangement AöR, of their intention to amend the Memorandum of Association of DEPFA BANK plc by way of written special resolution. The proposed amendment read as follows:

That the Memorandum of Association of the Company be and is hereby amended by the insertion of the following new Clause 3(2) into the Company’s Memorandum of Association after the existing Clause 3 (1) and the renumbering of the remaining clauses accordingly:

“To carry on business of the Company and its subsidiaries in pursuance of the above object and all of the objects described in this Memorandum of Association, and to exercise the powers exercisable in relation to the Company and its subsidiaries pursuant to this Memorandum of Association, for the purpose of, or in a manner which facilitates, or which is not otherwise inconsistent with winding down the activities of, and realising the value of the assets of, the Company and its subsidiaries and discharging any and all liabilities of the Company and its subsidiaries.”

The directors have assessed the impact of the amendment in the context of considering the appropriateness of the going concern basis of accounting in the preparation of the financial statements of the DEPFA Group and of the Partnership. The directors have concluded based on discussions with FMS Wertmangement AöR in relation to the continuation of the DEPFA Group’s principal activities, being the wind down of its portfolios in a manner designed to maintain value, that it is appropriate to continue to prepare the financial statements of the DEPFA Group and the Partnership on a going concern basis.

Apart from the above, there have been no other notable events after 31 December 2014.

14. Commitments

The Partnership had no commitments as at 31 December 2014 (31 December 2013: nil).

15. Approval of financial statements

The financial statements were approved by the General Partner on 21 April 2015.

Other information

22

Manager and General Partner

DEPFA BANK Plc,

1 Commons Street,

Dublin 1.

Ireland

Directors of the Manager and General Partner

Board of Directors in office at date of signing of the financial statements and changes to the Board

of Directors during 2014 and up to the date of signing.

Mr. P. Ryan1)

(Chairman) (appointed 1 January 2015)

Ms. M. Better1)

(German) (resigned 5 June 2014)

Dr. J. Bourke1)

(Chairman) (resigned 31 December 2014)

Mr. E.A. Brockhaus1)

(German) (appointed 12 September 2014)

Ms. F. Flannery

Mr. T. Glynn (American) (resigned 19 December 2014)

Dr. C. Pleister1)

(German) (appointed 7 April 2015)

Mr. W. Groth1)

(German) (resigned 31 March 2015)

Mr. F. Hellwig1)

(German) (appointed 19 December 2014)

Dr. H. Horn (German) (appointed 19 December 2014)

Mr. A. Kearns1)

Mr. C. Müller1)

(German) (appointed 19 December 2014)

Mr. N. Reynolds

Dr. P. Schad (German) (appointed 19 December 2014)

Mr. A. von Uslar-Gleichen1)

(German) (resigned 16 May 2014)

Dr. H. Walter1)

(German) (resigned 4 February 2014)

1) Non-Executive

Independent Auditor

KPMG

Chartered Accountants, Statutory Audit Firm

1 Harbourmaster Place

IFSC

Dublin 1

Ireland

depfa funding iii lp members report and financial ...€™ report and financial statements 31...

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