HDFC MUDARABAH SUKUK Issue No. 02 - AWS

PROSPECTUS 2016

Housing Development Finance Corporation PLC.

HDFC MUDARABAH SUKUK Issue No. 02

PROSPECTUS TO THE ISSUE HDFC MUDARABAH SUKUK ISSUE NO.2

Public offer of 150,000 Sukuk of Maldivian Rufiyaa (MVR) 1000 per Sukuk, to the

total value of MVR 150,000,000 (One Hundred and Fifty Million), with a semi-annual

profit share in the ratio 65:35

Issuer/Offeror

HOUSING DEVELOPMENT FINANCE CORPORATION PLC.

Issue date of the prospectus 06/07/2017

Opening date for application/subscription 24/08/2017

Closing date for subscription 18/10/2017

BANKERS

Maldives Islamic Bank

Bank of Maldives Plc

Bank of Ceylon

Registered Address: 4th Floor, H.Mialani, Sosun Magu, Male', Rep. Of Maldives.

Telephone: 3334666 / 3338810 // 3315897 Fax: 3315138

Email: [email protected]

SHARIAH ADVISOR

Dr. Aishath Muneeza

LEGAL COUNSEL

Mazlan & Murad Law

Associates

AUDITORS

KPMG

HDFC Plc. [incorporated as a state owned enterprise on 28 January 2004 by a Presi-

dential Decree under the Companies Act, Law No: 10/96 ,registered as a public com-

pany on the 9th of February 2006 and privatized with the signing of a shareholders’

agreement for privatization between the GOM (49%), IFC (18%), ADB (18%) and

HDFC-Investments Ltd.-India (15%) on July 23, 2008 and incorporated in the Repub-

lic of Maldives as a Privatized Company- Registration Number C-107/2006]

PROSPECTUS 2016


HDFC PLC. PROSPECTUS TO THE ISSUE

HDFC MUDARABAH SUKUK

Issue no.2

Published: July 2017

Housing Development Finance Corporation Plc.

4th Floor, H. Mialani

Sosun Magu

Male’, Republic of Maldives

Tel: 3334666

Fax: 3315138


www.hdfc.com.mv


This Issue Prospectus has been drawn up in accordance with

the laws of Maldives. The main aim of this Prospectus is to pro-

vide all the information necessary for the investors to make the

right decision regarding this Sukuk Issue. Each investor must

study this Prospectus carefully in order to decide whether it is

appropriate to invest in it by taking into consideration all the

factors relating to the status and circumstances. It is solely the

responsibility of the Issuer to include any essential and accu-

rate information or data in this Prospectus.

If any investor is in doubt about the contents of this document

he/she should consult a person licensed under the Securities

Act who specializes in advising on the acquisition of shares and

other securities.

Mudarabah Sukuk

PROSPECTUS 2016



Table of Contents

1. Introduction 10

1.1. Presentation of Financial Information 11

1.2. Law & Exclusive Jurisdiction 11

1.3. Absolute Responsibility 11

2. Responsibility Statement 12

3. Report by the directors to confirm due inquiry 13

4. Notice to investors 14

5. About the prospectus 14

6. Details of the Sukuk offered 15

7. Mudaraba Sukuk Structure 18

8. Terms & Conditions 19

8.1. Representation and Warrants 20

8.2. Participation in Profits 20

8.3. Loss 20

8.4. Taxation 21

8.5. Management and Control 21

8.6. General Covenants of Mudarib 21

8.7. Transfers 22

8.8. Limited Recourse 22

8.9. Negative Pledge 22

8.10. Termination 22

8.11. Meeting of Sukuk Holders 22

8.12. Force Majeure 22

9. Eligible participants 23

10. Procedure for application 24

10.1. Subscription List 24

10.2. Mode of payment 24

10.3. Dematerialized offering 25

10.4. Allotment 25

10.5. Acceptance and refunds 25

10.6. Payment of Money at Redemption 25

10.7. Rejection of applications 26

10.8. Underwriting and issue costs 26

10.9. Paying Agent 26

11. The Project 27

12. Security 28

13. Listing 28

14. Rights of the Sukuk holder 29

15. The Issuer 29

15.1 HDFC Plc. 29

15.2 Company Overview 30

15.3 Board, Advisory Committees and Senior Management 31

16. Company’s Growth 42

17. HDFC’s Corporate Governance 50

18. Inspection of documents 51

19. Risk Factors 52

20. Material outstanding indebtedness in relation

to the issue 55

21. Litigation and disputes 55

22. Details of shareholding in the company 55

23. Staff Details 55

24. Disclosure of material contracts & conflict of

interest of directors 56

25. Annexes

25.1. Annex - 1. Legal due diligence

25.2. Annex - 2. Accountant’s report

25.3. Annex - 3. Extract of Articles of Association

25.4. Annex - 4. Performance Guarantee Letter by HDFC

25.5. Annex - 5. Audited financial statements for the year ended 31.12.2016

25.6. Annex - 6. Extract of Corporate Governance Code

25.7. Annex - 7. Declaration of Shariah Advisor & Endorsement of HDFC Shariah Committee

25.8. Annex - 8. Glossary of Islamic Financial Terms


9

Prospectus to the Issue HDFC MUDARABAH SUKUK ISSUE NO.2

Introduction

We, at HDFC Plc. Maldives believe that safe and secure housing is

the no.1 priority for the progressive Maldivian society. Therefore, we

wish to offer you an investment opportunity to share in our mission

to make every Maldivian’s dream home a reality through innovative

housing finance products.

Housing Development Finance Corporation (HDFC) Plc. was estab-

lished as a specialized Housing Finance Company in the Maldives in

2004 under state ownership and privatized in July 2008 through a

Public Private Partnership with a joint foreign investment of 51%

shares held by International Finance Corporation (IFC) of the World

Bank Group, Asian Development Bank (ADB) and HDFC Invest-

ments of India. HDFC Plc. is the only specialized Housing Finance

Institution in the Republic of Maldives.

PROSPECTUS 2016


10

Presentation of Financial Information

The only sources of Company-specific financial infor-

mation used in this Prospectus are audited financial

statements of the Company prepared in accordance with

the Companies Act (10/96) and International Financial

Reporting Standards (IFRS) except for the financial

years 31 December 2007 and 31 December 2008, which

were prepared with a modification of the requirements of

IAS 39 - Financial Instrument: Recognition and meas-

urement in respect of loan loss provisioning by MMA’s

circular No- GM-9/96 dated 25 April 1996 on Credit Risk

Grading System and Loss Provision Requirements. The

financial statements for years ended December 31, 2004

to 2008 were audited by Ernst & Young Chartered Ac-

countants and by PricewaterhouseCoopers Chartered Ac-

countants for years ended December 31, 2009-2012. For

years ended December 31, 2013-2016, KPMG audited the

financial statements.

Law and Exclusive Jurisdiction

This Prospectus and the Sukuk shall be governed by and

construed in accordance with the laws and regulations of

the Maldives. Each of the parties hereto irrevocably

agrees that the courts in the Maldives shall have exclu-

sive jurisdiction to hear and determine any suit, action or

proceeding, and to settle any disputes, which may arise

out of or in connection with this Prospectus and the

Sukuk, and for such purposes irrevocably submits to the

jurisdiction of such courts. However, before going to the

Court, the dispute shall be first taken to an arbitration

proceeding.

Absolute Responsibility

Approval to issue these securities has been obtained from

the Registrar of Companies under the companies Act

(10/96). Further HDFC has also obtained consent from

the Capital Market Development Authority (CMDA) to

issue these securities under the Securities Act (2/2006).

However, neither the Registrar of the Companies nor the

Capital Market Development Authority takes any respon-

sibility for the accuracy of any statement made thereof or

for the financial soundness of the Company or the value

of securities concerned. HDFC Plc. takes absolute re-

sponsibility for the accuracy of the information disclosed

in the document.


11

Responsibility Statement

Name Address Passport/ID No

Designa-tion

Signature

Ms. Renu Sud Karnad

HDFC Limited Ramon House 169 Backbay Recla-mation HT Parekh Marg Mumbai 400 020, India

Z 1877392 Nominee Director, –Non Exec-utive

Mr. Conrad D’Souza

HUL House, 6th Floor, A Wing, HT Parekh Marg, 165-166, Backbay Rec-lamation, Churchgate, Mum-bai 400 020, India

Z 2480661 Chairman 30th April 2017 on-wards

Mr. Gaurav Agarwal

PO BOX 939505, Villa 6, Street 8, Springs 14, Dubai, UAE

M2306225 Director—Non– Ex-ecutive

Mr. Asif Cheema

Oakwood Preimi-er, Suite 2211, 17 ADB Avenue, Orti-gas Center, Pasig City 16000, Philip-pines

AG4154424 Alternate Director, Non-Executive

Mr. Nihal Senanayake Welikala

9/1 Hyde Park Res-idencies, 79 Hyde Park Corner, Co-lombo 2, Sri Lanka

N2773623 Director, Non—Executive

Mr. Ismail Ali Manik

HDFC Plc H. Mialani Sosun Magu Male’ Maldives

A045786 Chairman Until 19th April 2017

Mr. Mo-hamed Mauroof Jameel

M. Dhoores, Orchid Magu Male’ Maldives

A039093 Director, Non– Ex-ecutive

Ms. Ra-heema Saleem

HDFC Plc H. Mialani Sosun Magu Male’ Maldives

A033318 Managing Director—Executive

PROSPECTUS 2016


12

Report by the directors to confirm due inquiry

We, the undersigned as Directors of the Company hereby confirm performance of due in-

quiry in relation to the interval between 31st December 2016 (the date to which the last ac-

counts have been made up) and 06th July 2017 (the date which prospectus is being issued)

that:

a. The business of the Company has in our opinion been satisfactorily main-

tained;

b. There have not, in our opinion, arisen since the last Annual General Meet-

ing of the Company any circumstances adversely affecting the trading or

the value of the assets of the Company or any of its subsidiaries;

c. The current assets of the Company and of its subsidiaries appear in its

books at values which are believed to be realizable in the ordinary course

of business;

d. There are no contingent liabilities by reason of any guarantees given by

the Company or any of its subsidiaries; or

e. There are, since the last annual report, no changes in published reserves

or any unusual factors affecting the profit of the Company and its subsidi-

aries.

Name Designation Signature

Ms. Renu Sud Kar-nad

Nominee Director, Non-Executive

Mr. Conrad D’Souza

Alternate Director, Non-Executive

Mr. Gaurav Agarwal

Director, Non - Executive

Mr. Asif Cheema

Alternate Director, Non-Executive

Mr. Nihal Sena-nayake Welikala

Director, Non-Executive

Mr. Ismail Ali Manik

Chairman—Non– Executive

Mr. Mohamed Mauroof Jameel

Director, Non-Executive

Ms. Raheema Saleem

Managing Director—Executive


13

Notice to investors

The Board of Directors of Housing Development Finance Corporation

Plc. (HDFC PLC) on May 21, 2016 passed a resolution approving the

company to raise MVR 150 million through a Sukuk Issuance to the pub-

lic, financial institutions, public corporations, private entities and other

institutions.

About the prospectus

This Issue Prospectus has been drawn up in accordance with the laws of

Maldives. The main aim of this Prospectus is to provide all the infor-

mation necessary for the investors to make the right decision regarding

this Sukuk Issue. Each investor must study this Prospectus carefully in

order to decide whether it is appropriate to invest in it by taking into

consideration all the factors relating to the status and circumstances. It

is solely the responsibility of the Issuer to include any essential and accu-

rate information or data in this Prospectus.

If any investor is in doubt about the contents of this document he/she

should consult a person licensed under the Securities Act who specializes

in advising on the acquisition of shares and other securities.

Invitation to Subscribe

PROSPECTUS 2016


14

Details of the Sukuk offered

The following summary should be read in conjunction with, and is

qualified in its entirety by the detailed information elsewhere in the

Prospectus. Prospective investors in this Sukuk should see the section

in the prospectus under “Risk Factors” that discusses certain factors

that should be considered in connection with an investment in the

Sukuk.

Issuer: Housing Development Finance Corporation Plc.

Issue Price: MVR 1000.00 per Sukuk

Issue Date: 06th July 2017

Subscription Opening: 24th August 2017, 0900hrs

Subscription Closing: 18th October 2017, 1300hrs

Settlement Date: Date of Subscription

Allotment: Within 05 business days from the closure of sub-

scription

Total Issue:

MVR. 150,000,000.00 (One Hundred and Fifty

Million Rufiyaa) (150,000) [One Hundred and Fif-

ty Thousand] Sukuk)

The Project: To fund shari'ah compliant mortgage housing fi-

nance operations under HDFC Amna

Tenure / Maturity

Date: Ten (10) years from the allotment date

Profit: 65% of the gross profit distributed to Sukuk hold-

ers

Profit Payment Dates: Every six months after the date of allotment, until

the Maturity Date

Next Business Day: The first day following a non-working day.

Type of Issue: Dematerialized

MVR1000S U K U K


15

Details of the Previous Sukuk offered

Issuer: Housing Development Finance Corpora-

tion Plc.

Issue Price: MVR 500.00 per Sukuk

Issue Date: 11 September 2013

No. of sukuk issued 45,132

No. of sukuk holders 467

Total value of sukuk issued 22,566,000

Total investments in housing facilities 22,566,000

Profit sharing ratio 65 : 35

Tenure (years) (Maturity Date) 10

PROSPECTUS 2016


16


17

Mudaraba Sukuk Structure

The structure of this Sukuk issuance is based on the Shariáh principle of

Mudaraba (Money Management). In the Mudarabah concept, one party will be

providing the capital (the Rabb al Maal) and the other party will be managing

the capital (the Mudarib) in a proposed Shariáh compliant project. For the pur-

poses of this Sukuk, the Sukuk holders are collectively the providers of capital

(the Rabb al Maal) that purchase Sukuk certificates from the Issuer. HDFC Plc

is the manager of the capital (the Mudarib). The project managed by the

Mudarib is known as the Mudaraba.

PROSPECTUS 2016


18

8 - Terms & Conditions

All the relevant requirements and approvals from the regulatory authori-

ties in the Republic of the Maldives in relation to the issue of this Sukuk

have been obtained. Each Sukuk Certificate evidences an undivided own-

ership interest in the investment made, subject to the terms herein and

has a limited recourse obligation of the Issuer. Each Sukuk Certificate

ranks pari passu, without any preference or priority, with all other Sukuk

Certificates. Proceeds from the Mudaraba are the sole source of payments

to Sukuk holders pursuant to the Certificates. The Sukuk Certificates do

not represent an interest in the Issuer or any of its affiliates. A meeting

with the Sukuk holders can be convened at the discretion of the Issuer to

discuss matters regarding the Mudaraba.

By purchasing Sukuk certificates, the investors/Sukuk holders agree to

accept and abide by the following terms and conditions:

8.1 Representation & Warranties

The Mudarib hereby represents and warrants to the Rabb al Mal, as fol-

lows:

a. The Mudarib possesses all necessary powers and licenses to

conduct its present business and the Project.

b. The Mudarib Information provided under ‘The Issu-

er’ (section 15) is true and correct.

c. The Mudarib is experienced and knowledgeable in all busi-

ness matters relating to the Project.

d. The Mudarib has prepared with all due care the information

provided under ‘The Project’ on his/her experience and

knowledge and has completed all reasonable investigation to

assure that such are true and correct and disclose all facts

relevant to the Rabb al Mal’s evaluation of the Project.

e. The Mudarib Financials are true and correct according to

generally accepted accounting principles consistently ap-

plied accurately representing the Mudarib’s financial status

on the dates and the profit and loss for the periods indicat-

ed, and no liabilities, fixed or contingent exist at the indicat-

ed dates other than as appear in the Mudarib Financials;

f. All transactions for the purpose of which this Sukuk proceed

will be utilized are Shariah-compliant mortgage financing;

and

g. All regulatory, governmental and corporate approvals and

consents (including exchange control approvals) for the due

execution and delivery of, and performance of the work in-

tended to be carried out.


19

8.2 Participation in profit

a. The participation by Sukuk holders in the profit generated by the Mudaraba will be in

accordance with the following ratio:

i. 35% of the profit will be for Management Services and payable to the

Mudarib.

ii. 65% of the profit will be payable to the Rabb al Mal collectively.

b. Profit will be distributed out of the gross profit generated from the sukuk fund.

c. The profits generated by the Mudaraba will be paid by the Mudarib to Rabb al Maal col-

lectively twice every calendar year; until the earlier of the Termination Date and the Ma-

turity Date.

d. Profit calculation date is Six months from the date of allotment, to be payable to Rabb-Al

Mal not less than One month from the profit calculation date.

e. Profit amount to be distributed will be calculated using the formula below:

Distributable Profit = P × r × w

Where:

P = Profit from the Sharia Complaint Housing Mortgage Facilities

r = Profit Sharing Ratio

w = Weighting Factor

f. Profit from Sharia Compliant Housing Mortgage Facilities is calculated using the formu-

la below:

P = RI - TI

Where:

RI = Return on Investment received from Sharia Compliant Mortgage housing as on a

monthly basis. (ie - Revenue)

TI = Total Investment (ie. Principal Amount)

8.3 Losses

a. 100% of any losses in the Project will be borne by the Rabb al Mal except in case of negli-

gence, breach of obligation or willful default by the Mudarib.

b. The Mudarib will receive no compensation for his Management Services, and will be lia-

ble for any loss in the Project if it is proven that he/she has breached his/her obligations

or is proven to be failing in the discharge of his/her obligations under these terms.

c. In the event of the Project showing losses during the continuity of this Sukuk issuance,

the Mudarib shall forthwith give notice of such losses to the Rabb al Mal together with all

accounts and details pertaining thereto and such other information and records as may

be required by the Rabb al Mal.

PROSPECTUS 2016


20

8.4 Taxation

On behalf of the Project, the Mudarib shall be liable for and shall punctual-

ly and regularly pay all taxes, duties and other charges relating to the Pro-

ject’s business and operations.

8.5 Management & Control

The complete management and control of the Project is exclusively vested

in the Mudarib and the Mudarib shall be solely responsible for the man-

agement and control of the Project.

8.6 General Covenants of Mudarib

THE MUDARIB covenants to the the Rabb al Mal that the Mudarib shall:

a. promptly give notice to the Rabb al Mal of any change in the

information disclosed in the section ‘The Issuer’.

b. undertake the Management Services such as providing Islam-

ic financing facilities to third parties with due care and all rea-

sonable commercial diligence expected of an experienced

businessman to ensure the success of the Project according to

the description of The Project.

c. utilize the Project assets exclusively for purposes of the Pro-

ject

d. collect all receivables from third parties arising from the Pro-

ject or the transfer of Project assets or other documents re-

quiring payment from third parties directly to the Account

opened specifically for that purpose.

e. maintain all Project assets in the name of the Mudarib, but

physically segregated from other assets of the Mudarib and

free and clear of all liens and encumbrances except those in

favour of the Rabb al Mal.

f. maintain true and correct books of account relating to the

Project together with all invoices, records contracts and all

other documentation.

g. supply to the Rabb al Mal any information, material or docu-

ment relating to the Project or to Mudarib’s financial status,

and grant access to the Rabb al Mal or its agents to all books

and materials relating to the Project and to the Mudarib’s fi-

nancial statements.

h. immediately disclose in writing to material or document the

Rabb al Mal any business factors of which the Mudarib be-

comes aware and which might adversely affect the success of

the Project.

i. not effect directly or indirectly any transaction on behalf of

the Project in which the Mudarib or any shareholder of the

Mudarib, if a corporation, is interested directly or indirectly

without consent of the Rabb al Mal.


21

J. under its sole responsibility, conduct the Project in conformi

ty with all applicable civil and criminal laws.

K. conduct the Project without violation of the principles of Is

lamic Shariah.

8.7 Transfers

The Issuer makes no representation that the Sukuk may at any time lawful-

ly be sold in compliance with any applicable registration or other require-

ments in any jurisdiction, or pursuant to any exemption available thereun-

der, or assumes any responsibility for facilitating any such sale. Persons

into whose possession this Prospectus or any Sukuk may come must in-

form themselves about, and observe, any applicable restrictions on the dis-

tribution of this Prospectus and the offering and sale of the Sukuk.

8.8 Limited Recourse

By subscribing for or acquiring the Sukuk, Sukuk holders acknowledge that

they will have no recourse to any of the assets of the Issuer (other than the

Mudaraba) to the extent that the Issuer fulfils all of its obligations under

Sukuk. The net proceeds of the realisation of the Mudaraba may not be

sufficient to make all payments due in respect of the Sukuk. If, following

the distribution of such proceeds, there remains a shortfall in payments

due under the Sukuk, no Sukuk holder will have any claim against the Issu-

er to the extent the Mudaraba has been exhausted.

8.9 Negative Pledge

For so long as any payment remains outstanding under any Sukuk, the Is-

suer undertakes not to create or have outstanding any mortgage, charge,

lien, pledge or other security interest upon the whole or any part of the

Mudaraba.

No Sukuk holder can declare anything except at the event of default

8.10 Termination

a. Subject to other provisions of these terms, it is agreed that

upon full payment on Termination Date, if proceeds have

been received, the Mudaraba shall be redeemed.

b. The occurrence of an event of default would entitle the Sukuk

holders to declare the Sukuk immediately due and payable

without any provision for period of grace, while provision for

remedy may be negotiated to the extent appropriate.

PROSPECTUS 2016


22

c. An event of default here means:

(i) No payment is made on the payment of any Periodic Distribution

Amount on the due date mentioned on 8.2 (d) and, such failure to

make a payment continues for a period of three months (90 Calen

dar Days) with out any lawful justification;

(ii) the Issuer is (or is deemed by law or a court to be) insolvent or

bankrupt or unable to pay its debts or a moratorium is agreed or

declared or comes into effect in respect of all or any part of the

debts of the Issuer;

(iii) It is or will become unlawful for the Issuer to perform or comply

with any one or more of its obligations under the Sukuk;

(jjj) The default date is the date where an event of default occurs as

stated in subsection C of this article.

d. While the amount invested by the Rabb al Mal must be repaid on the ma-

turity date, mentioned above, the accounts of the Mudarabah will be

drawn up within 15 days thereof and the agreed share of the Rabb al

Mal’s profit will be paid promptly.

e. The Capital amount will be paid in no less than 30 days after the ac-

counts of Mudarabah have been drawn upon maturity date.

8.11 Meeting of Sukuk holders

The Sukuk holders may convene meetings of Sukuk holders to consider any matter

affecting their interests, including the sanctioning by Extraordinary Resolution of a

modification of the Mudaraba Sukuk, those Conditions which are also approved by

the Issuer. Such a meeting may be convened by the Issuer and shall be convened by

the Issuer upon the request in writing of Sukuk holders holding not less than one-

tenth of the aggregate Nominal Amount of such of the Mudaraba Sukuk as are current

as of such date. The quorum at any meeting convened to vote on an Extraordinary

Resolution will be two or more Persons holding or representing at least half of the

aggregate Nominal Amount of such of the Mudaraba Sukuk as are current as of such

date or, at any adjourned meeting, one-quarter of the aggregate Nominal Amount of

such of the Mudaraba Sukuk as are current as of such date.

An Extraordinary Resolution requires the affirmative vote of at least one more Sukuk

holder holding more than half of those represented in the relevant meeting in order

for it to be passed. Any Extraordinary Resolution duly passed at any such meeting

subject to Sukuk regulations shall be binding on all Sukuk holders, whether present or

not.

8.12 Force Majeure

a. Any delays in or failure by a Party hereto in the performance of the obli-

gations hereunder if and to the extent it is caused by the occurrences or

circumstances beyond such Party’s reasonable control, including but not

limited to, acts of God, fire, strikes or other labour disturbances, riots,

civil commotion, war (declared or not) sabotage, any other causes, simi-

lar to those herein specified which cannot be controlled by such Party.


23

b. The Party affected by such events shall promptly inform the other

Party of the occurrence of such events and shall furnish proof of details

of the occurrence and reasons for its non-performance of whole or part

of these terms agreed. The Parties shall consult each other to decide

whether to terminate these conditions or to discharge part of the obliga-

tions of the affected Party or extend its obligations on a best effort and

on an arm’s length basis.

9 - Eligible participants

This issue is open to any individual and any legal entity that is established ac-

cording to the laws of the Maldives. This would include Public Limited Liabil-

ity Companies, Commercial Banks, Pension Authority, Public Corporations

and Insurance Companies.

All supporting documents accompanied with the application should be valid;

this includes copies of national identity cards, passport copies, birth certifi-

cates validating the name and date of birth of the applicant.

For Individuals:

A copy of the National Identity Card (only for Maldivians).

A copy of the birth certificate for minors not having their

national identity card.

For Legal Entities:

A copy of the Certificate of Registration.

A board resolution authorizing the investment in HDFC

MUDARABAH SUKUK- Issue No. 2 and the opening and

operation of an account including appointing authorized

signatory of the account with MSD.

A copy of the Memorandum & Articles of Association and

bylaws that govern the operations of the entity, if any

A copy of the National Identity Card of the authorized sig-

natories

PROSPECTUS 2016


24

Procedure for application

Applications must be made on the Application Form supplied with this Prospectus.

Application can be also be downloaded from our website http://www.hdfc.com.mv.

Applicants using downloaded forms are requested to inspect the Prospectus, which is

on the company website whilst hard copies will be available at HDFC PLC’s Head Of-

fice. All the Application should be submitted directly to HDFC PLC at the following

address;

Housing Development Finance Corporation Plc

4th Floor, H. Mialani

Sosun Magu


Subscription List

The subscription list will open at 0900 hours on 24 August 2017 and remain open for

35 market days and close at 1300 hours on 18 October 2017. The prospectus will be

available upon issuance for 33 market days before subscription will be opened. HDFC

reserves the right to close the issue prior to the closing date in the event of an oversub-

scription following due notice to the public.

Duly completed Application Forms will be accepted by HDFC PLC at its office of busi-

ness. The Prospectus and Application Forms will be made available 14 (fourteen) mar-

ket days prior to the opening of the subscription list.

Subscription via online applications

Online applicants can apply for the offer by accessing the online electronic application

system in https://infinity.depository.mv/

Special consideration must be given to strictly follow the instructions on the website in

filling the online application form.

Mode of payment

Each application should accompany a check/cash/pay-in-slip for the full

payment of the Sukuk applied. The amount payable should be calculated

as per the following formula:

V = Sn

Where V = full payment of Sukuk applied for

S = price per Sukuk (i.e. MVR 1000)

n = number of Sukuk applied for

Payments should be made by check, crossed as “Account Payee Only” and

made payable to Housing Development Finance Corp. PLC or cash

to Housing Development Finance Corp. PLC (7770000007011, Bank

of Maldives Islamic, 9901-01-48000372-101, Maldives Islamic Bank),

where the pay-in slip should be attached to the application form sent to

HDFC head office.


25

All such subscription payments will be deposited to HDFC -

Sukuk 2 account on the ‘Subscription Closing’ date and HDFC Plc

has all the rights to reject the application if a check is not honored

on its first presentation.

An acknowledgement receipt will be issued for the checks/cash/

pay-in-slip received and Application Forms accepted.

Application Forms and the accompanying checks and cash pay-

ments which are incomplete in any way and/or not in accordance

with the terms, conditions and instructions set out in this Pro-

spectus, and application forms which are illegible will be rejected.

Dematerialized offering

This offering of Sukuk will be carried out in a dematerialized environment.

This means that the Sukuk certificates issued by HDFC Plc. will be deposited

with the Maldives Securities Depository (MSD). A record of each Sukuk holder

and Sukuk held shall be maintained by MSD, and statements shall be issued

upon request from time to time to evidence the holding. An MSD account

opening form is enclosed with each Sukuk application form, and must be per-

fected by every applicant subscribing to the Sukuk Issue.

Allotment

The Sukuk will be allotted within 05 (five) business days from the

‘Subscription Closing’ date. All the applications shall be considered for allot-

ment in order of first come first serve basis. The project is for Mortgage Hous-

ing Financing Facilities of HDFC Amna and will continue even if the target

amount is not raised. Over subscription of shares will be allotted on a pro rata

basis.

Acceptance and refunds

Where an application is not accepted in full or in part, the balance of the appli-

cation money, shall be refunded to the applicant within 15 (fifteen) working

days from the closure of the issue. The HDFC PLC reserves the right to accept

subscriptions in full or in part from any subscriber.

Payment of Money at Redemption

The Sukuk holder, whose ownership of the Sukuk is registered

with the MSD, will receive half yearly profit shared in accordance

with the pre-agreed profit sharing ratio.

Profit will only be deposited to the bank account given in the ap-

plication form. The bank account should be in his/her/entity’s

name and should be in a local bank in Maldives Rufiyaa (MVR).

This account must be live and operational all the time during the

tenure of the Sukuk.

PROSPECTUS 2016


26

After the Sukuk allotment, MSD should be contacted for any update to the partic-

ulars provided earlier.

If any Sukuk holder fails to update his/her particulars or refuses to claim and re-

ceive payment of the profit payable to such Sukuk holder, the amount due to such

Sukuk holder shall be deposited by the Paying Agent to a separate bank account at

the end of thirty days after the date of maturity and shall be paid to the holder of

such Sukuk when a claim is lodged no later than six months from the date of final

maturity.

No sukuk, partly or in full, may be redeemed prematurely. It will be redeemed in

full upon maturity.

Rejection of applications

Incomplete applications will be rejected at HDFC’s absolute discretion.

Late Applications (delivered after the closure of the Subscription Period) will be

rejected.

Online Applications which does not conform with the instructions and conditions

set out will be deemed incomplete and be rejected.

Applications considered as ‘oversubscription’ will be rejected and refunded within

15 working days following the closure of the issue.

All applications rejected after having received the payments, will be refunded 15

working days after the closure of subscription period.

The Management and Board of Directors reserve the right to refuse or accept any

application owing to a valid reason.

Underwriting and issue costs

No underwriter has been appointed for this series of Sukuk issue.

All expenses and fees attributable to this series of Sukuk issue, including legal fees, authority

fees, advisory charges, Paying Agent fees and bank charges will be borne by the Issuer.

Paying Agent

Maldives Securities Depository Company Pvt. Ltd. will be appointed as the Paying Agent whose

address is given below;

Maldives Securities Depository Company Pvt Ltd

H. Gadhamoo Building, 3rd Floor,

Boduthakurufaanu Magu,

Male’, Maldives.

Tel: (+960) 3307878, Fax: (+960) 3305034,


Websites: www.mse.com.mv, www.msd.com.mv


27

The Project

The funds raised by the issue of Sukuk will be utilized to give Shariah

compliant mortgage financing facilities under the HDFC Islamic window

HDFC AMNA and no amount of the proceeds will be utilized for any oth-

er purpose other than what is stated in the prospectus. More infor-

mation about this operation can be obtained through the following link:

<http://www.hdfc.com.mv/hdfc/index.php/islamic-finance/amna>.

HDFC Amna was launched in May 2012

in a ceremony held at Nasandura Palace

Hotel, Maldives. “Amna” is an Arabic

word which refers to “security”. Amna is

stated in al Quran to connote peaceful,

protected and secure. HDFC Amna is

neither a separate company detached

from HDFC nor a subsidiary of HDFC.

HDFC Amna is simply and solely an Is-

lamic window of HDFC offering Islamic

home financing facilities to the custom-

ers under the existing license of HDFC to

offer home financing products to Maldiv-

ians in an affordable manner.

This Islamic window can be defined as a department of a conventional

financial institution offering Islamic financial services. Hence, HDFC

Amna will operate as a department of HDFC. HDFC Amna will observe

the following standards to achieve Shari'ah compliance:

Complete Segregation of Funds

Shari’ah Supervisory Board (Shari’ah Committee)

Products fully based on Islamic Concepts including the contracts

Management in accordance with Islamic principles

HDFC – Amna has started its operation in December 2012. As at the

ended of the financial year 2016, HDFC Amna has a housing portfolio of

MVR247 million.

The Sukuk Issue is part of HDFC PLC’s intention to leverage its capital

base with a diversified portfolio of Shariah compliant debt instruments

that would include local investors as well.

Another objective of issuing Sukuk to the public by HDFC is to create a

secured low-risk long-term Shariah compliant investment avenue for the

local takaful /insurance companies, pension authority, government cor-

porations, companies and the members of public. HDFC has embraced

principles of sustainable and responsible finance in all aspects of opera-

tions. HDFC Sukuk with a listing in the Maldives Stock Exchange will

increase vibrancy in the market by giving opportunities for varying in-

vestors to take part in the national housing development endeavor.

PROSPECTUS 2016


28

Security

The purpose of this Sukuk as mentioned is for Sharia Compliant Mort-

gage Housing Facilities, hence the fund is secured by underlying securi-

ty/assets of the facilities it is invested in. HDFC acknowledges that the

Sukuk offered under this prospectus is not given a third party guarantee.

However, Kafalah Performance guarantee from HDFC Plc. is given to

this offer in Annex 4.

Listing

The Sukuk offered under this prospectus will be eligible for trading in

the Maldives Stock Exchange. Application for listing has been made.

Rights of the Sukuk holder

The Sukuk Holder will be entitled to a half yearly profit in accordance

with the terms given in this prospectus. In the event the Sukuk holder

needs liquidity before the Sukuk’s date of maturity, the Sukuk will be

eligible for trading in the Maldives Stock Exchange and the holder has

the right to transfer ownership through secondary markets.


29

Issuer


Our Vision

Our vision is to provide decent and affordable homes in a safe and healthy en-

vironment, and work towards uplifting the living standards of all Maldivians by

becoming the market leader for financial services in the Maldives.

Our Mission

Our mission is to offer financial and social strength to all Maldivians by provid-

ing home finance and other savings and investment products managed profes-

sionally and profitably to the highest International Standards and to the com-

plete satisfaction of all stakeholders.

Our Pledge

HDFC would strive hard and explore all avenues to:

Provide a solution to every single customer.

Process home-finance applications to the highest professional

standard to give a speedy and effective service.

Manage all aspects of customer relationship with due care, com-

munication and sensitivity to ensure 100% home-finance perfor-

mance.

To conduct all affairs as a responsible corporate citizen with good

governance, accountability and transparency.

PROSPECTUS 2016


30

Company Overview

Housing Development Finance Corporation (HDFC) Limited was incor-

porated as a state owned enterprise on 28 January 2004 by a Presiden-

tial Decree under the Companies Act, Law No: 10/96. The commercial

operations commenced on March 29, 2004. HDFC was established with

technical assistance from the World Bank, and initially all shares were

held by the Government of Maldives (GOM).

HDFC Plc. was registered as a public company on the 9th of February

2006.

The HDFC Plc. was privatized with the signing of a shareholders’ agree-

ment for privatization between the GOM, IFC, ADB and HDFC-

Investments Ltd.-India on July 23, 2008. This Public Private Partner-

ship has a joint foreign investment in 51% shares by International Fi-

nance Corporation (IFC) of the World Bank Group, Asian Development

Bank (ADB) and HDFC Investments Ltd of India. The structure of the

shareholding in the privatized HDFC Plc. is given in clause 21 (Detail of

shareholding in the company).

The July 2008 initiative to restructure the capital and recommence the

business of HDFC Plc. became effective on February 10, 2009 with the

first equity disbursement by the International Shareholders. IFC and

ADB’s commitment extended to a multi-lateral funding facility with sev-

en-year tenure. HDFC Ltd of India, with over thirty years of experience

in mortgage finance, is the technical partner of HDFC Plc. With assis-

tance from IFC’s Advisory Service performance based Grant (ASPBG).

In March 2013, the company has issued a listed bond of MVR

51.97million at interest rate of 7.5.p.a. Eight Individuals and one institu-

tion invested with this bonds issue.

Having restructured its capital, and with new lines of long-term credit,

Housing Development Finance Corporation Plc., Maldives (HDFC) re-

entered the market for mortgage home-finance for housing needs of

Maldivian Citizens. HDFC is unique as the only specialized housing fi-

nance institution in the Maldives. In a market where seven commercial

banks too are offering mortgage housing loan, HDFC’s competitive rates

and long repayment terms and income pooled home loans enabled the

achievement of a 50% market share by the end of 2016. Today the com-

pany’s loan portfolio stands over at MVR. 1.3 billion. The demand for

home-finance continues at a rate of growth that outstrips the supply of

matching funds, and long-term Sukuk denominated in MVR is seen as

the way forward to create sustainable housing finance in the Maldives.

The GOM’s policy of improving the infrastructure in focus islands to

facilitate economic development through zonal investment opportuni-

ties for Public, Private, Partnership (PPP) ventures is viewed as a posi-

tive factor in going forward with the development of housing finance.

Such an approach would assist sustainable growth in home ownership

based on mortgage security over properties that will appreciate in value.


31

HDFC Plc’s Board, Advisory Committees

and Senior Management

Board of Directors*

Nominee Directors

Mr. Ismail Ali Manik Government of Maldives (Chairman Feb 2016—April 2017)

Mr. Mohamed Mauroof Jameel Government of Maldives

Ms. Renu Sud Karnad HDFC Investments Ltd. (India)

Mr. Gaurav Agarwal Asian Development Bank

Mr. Nihal Senanayake Welikala International Finance Corporation

Alternate Directors

Mr. Conrad D'Souza HDFC Investment Ltd (India)

Mr. Asif Cheema Asian Development Bank

Managing Director

Ms Raheema Saleem

Company Secretary

Mr. Adam Athif

*Only the Managing Director holds a qualifying share in the stock of HDFC. The Chairman and

Board Directors function in a non-executive capacity.

Shari-ah Committee

Dr. Ibrahim Zakariyya Moosa Chairman

Dr. Rusni Hassan Member

Dr.. Aishath Muneeza Member

Mr. Azmeen Rasheed Secretary

Senior Management

Ms Raheema Saleem Managing Director

Mr. Mohamed Shafeeq Head of Finance and Business Development

Mr. Mohamed Fathy Senior Manager, Information Technology

Mrs. Aishath Rasheedha Senior Manager, Credit

PROSPECTUS 2016


32

Profile of HDFC Plc’s Board

The Board of HDFC comprises five Nominee Directors from the shareholders; the

Government of Maldives, 2 Directors; Asian Development Bank; International Fi-

nance Corporation and HDFC Investments Ltd. (India), each represented by a nomi-

nee Director; and the Managing Director (non-voting) functions in an executive ca-

pacity. The Shareholders’ also have the right to nominate Alternate Directors who

may partake in the Board Meetings but can only vote in the absence of the Nominee

Director representing the Shareholder. As per the shareholders agreement, the Chair-

man of the Board is appointed on rotation from the experienced and qualified Board

of Directors.

Mr. Ismail Ali Manik was appointed as a non-executive Director by

the Government of Maldives on 6 February, 2016.

Mr. Ismail Ali Manik, has represented the Government of Maldives,

as a Nominee Director since privatization of HDFC. He served as

the Chairman of the Board in 2013 before retiring due to his ap-

pointment to the Board of the Maldives Monetary Authority.

He started his professional career in the Ministry of Finance and

Treasury and worked on fiscal policy, public financial management

and economic policy matters. He has served in the government pub-

lic service for over twenty years. In addition he has also severed in

the World Bank, Washington DC office. He also served as Perma-

nent Secretary of the Ministry of Finance and Treasury and as

Board Director of Maldives Monetary Authority.

Mr. Ali Manik did his Master’s Degree in Public Administration ma-

joring in Economic Policy Management from the Columbia Univer-

sity, New York. In addition, he holds a Bachelor of Economics De-

gree from the University of Adelaide, Australia. Further, he has par-

ticipated at various international seminars and workshops conduct-

ed by the World Bank, ADB and other multilateral agencies.

Other appointments - Managing Partner at A2I Consulting LLP, a

Business and Management Consultancy Firm.

HDFC Board Committees - Audit Committee (Since 6 February

2016)

He does not hold any shares in any company in the Maldives that

has or will be perceived as a conflict of interest with HDFC PLC.

Mr. Ismail Ali Manik Chairman since Feb 6, 2016 - April 19, 2017

Non-Executive


33

Ms. Renu Sud Karnad, was appointed as the non-executive Director

by HDFC Investments Ltd. India, on 9 September, 2008.

Ms. Karnad has more than 38 years of experience in Housing Mort-

gage Finance.

She joined HDFC India in 1978. Having spent 20 years in various

post of the Company, Ms. Karnad was instated on to the Board as

Executive Director in 2000 and was re-designated as Managing Di-

rector from January 1st 2010. She is a Pravin Fellow-, Woodrow

Wilson School of International Affairs, Princeton, and University,

USA. She holds Master’s Degree in Economics from Delhi Universi-

ty and is also a Law Graduate from the University of Mumbai.

Over the years, Ms. Karnad has received numerous awards and ac-

colades.

Other appointments - Managing Director at Housing Development

Finance Corp. Ltd, Mrs. Karnad is a member on the following Com-

mittees of the Board of the Bank:

Stakeholders’ Relationship Committee

Corporate Social Responsibility Committee (Chairperson)

Risk Policy and Monitoring Committee (Chairperson)

Premises Committee (Chairperson)

HDFC Board Committees – None

She does not hold any shares in any company in the Maldives that

has or will be perceived as a conflict of interest with HDFC PLC.

Ms. Renu Sud Karnad Nominee Director

Non-Executive

PROSPECTUS 2016


34

Mr. Mauroof Jameel was appointed as the Director by the Government of Maldives on September 2016.

Mauroof Jameel is an architect and specialist on the architectural heritage of Mal-dives. He has wide ranging experience in design and development as well as project and institution management. He holds MSc Architecture, University of Malaysia, Pg Dip Architecture, University of Sheffield, UD and Ba (Hons) Architecture, Manches-ter Metropolitan University, UK. He has been associated with projects such as Hulhumale’, resorts and numerous buildings. Mauroof also served the Maldives gov-ernment in high-level posts and as a cabinet minister and has contributed to the de-velopment of the housing and construction industry. Since 2009 Mauroof has been researching and working in the filed of architectural heritage in both Maldives and Malaysia. At present he works as an architectural consultant, educator and a re-searcher. He is a member of Charted Architect of the Royal Institute of British Archi-tects (RIBA), UK, since 2004.

Mr.Mauroof has received numerous awards and accolades including MACI award for

the service t construction indiusty, President’s and hdc award of appreciation for the

service in development of Hulhumale and British Gas College Award for the Energy

Efficient Design in Housing , UK.

Mr. Mauroof Jameel Director

Non-Executive

Mr. Agarwal started his professional career as a senior officer at Grindwell Norton

Ltd / Saint Gobain (French Co), Bangalore, India in 1995. He then served at Unistar

Internernational LLC, United Arab Emirates (UAE) (Now renamed as Scion)as a

financial analyst in from 1997 to 2000. He has worked in various positions in finan-

cial sector of UAE, including Commercial Bank of Dubai, Ernst & Young / Arthur

Andersen, and as CFO of TAMWELL PJSC, Dubai Islamic Bank. Currently, Mr.

Agarwal works as the CFO of Emirates Investment Bank Pjsc, Dubai.

He holds a Global Executive MBA from INSEAD, France and a Master of Business

Administration from Kurukshetra University, Haryana, India. He received CFA

training from Institute of Chartered Financial Analyst of India (ICFAI), Hyderabad,

and is also a trained Associate of Cost and Works Accountant from Institute of Cost

and Works Accountant of India (ICWA) Calcutta.

Mr. Gaurav Agarwal Director,

Non-Executive


35

Mr. Nihal was appointed as the nominee Director by the IFC on November 2016.

Nihal is a well experienced and respected Senior Banker, having served as the 1st Sri Lankan CEO of Citi Bank, Sri Lanka Branch and CEO of National Development Bank. Currently he works as pro bono Consultant to the Ministry of Public Enterprise Devel-opment of the Government of Sri Lanka and as team leader of the Ministry project to monitor and reform eight state owned banks. He also serves as the Chairman, AMW Capital Leasing Ltd which is owned by the Al-futaim group of Dubai. He is a Non-executive Director of National Development Bank(NDB Bank), Bartleet & Co Ltd and Bartleet Transcapital Ltd. He also work as an independent consultant in the financial sector.

Prior to his retirement in 2008, Nihal was the CEO of NDB Bank group for nearly seven years as Chief Executive Officer and sub-sequently worked for the Group as senior Adviser and Board director until 2011. At NDB he played a leadership role in the complex strategic repositioning of the Group from development bank to a commercial bank with an integrated project finance and capital markets business. Nihal also served as NDB’s nomi-nee Director at MFLC, Maldives and NDB Housing, a housing bank established in 2001 by NDB, IFC, HDFC, India, ADB and FMO in Sri Lanka, which was subsequently merged in to NDB Bank.

Nihal trained as a Chartered Accountant with Ernst & Young in

London. He holds a Bachelor of Law degree of the University of

Sri Lanka and a Fellow member of the Institute of Chartered Ac-

countants in England & Wales and Institute of Chartered Ac-

countants of Sri Lanka

Mr. Nihal S. Welikala Nominee Director

Non-Executive

PROSPECTUS 2016


36

Mr. Asif Cheema was appointed as the Alternate Director by the Asian Develop-

ment Bank on April 2015.

Mr. Cheema started his career at Deutsche Bank Securities, New York as an Equi-

ty Research Associate in 1996. Before joining ADB Asif has worked in various fi-

nancial institutions including J.P. Morgan Securities, New York, HSBC Invest-

ment Bank, Dubai and London, Nomura International, Dubai as Executive Direc-

tor, Corporate Finance and Investment Banking. He also has worked at Alpen

Capital, Dubai, and UAE. Mr. Asif, holds a Master’s degree in Business Admin-

istration (MBA) from Yale University and course work in International Affairs

from Colombia University and Bachelor of Science in accounting and finance

from New York Institute of Technology, New York

Other Appointments- Financial Institutions Investment Specialist at the Asian

Development Bank.

HDFC Board Committees – None

He does not hold any shares in any company of the Maldives that has or will be

perceived as a conflict of interest with HDFC Plc.

Mr. Asif Cheema Alternate Director,

Non-Executive

Mr. Conrad D’Souza was appointed as the Alternate Director by the HDFC Invest-

ments Ltd. India on 9 September 2008.

Mr. D’Souza has more than 30 years of experience in the field of Housing Finance.

He joined HDFC Investment ltd. (India) in 1984 and he was the Treasure of

HDFC India and was responsible for resource mobilization for both domestic and

international and asset liability management. Mr. D’Souza has been a consultant

in the housing finance to UNAID/UNDP and IFC (Washington) and has under-

taken assignments in Asia, Africa and Eastern Europe. He is a member of the Na-

tional Stock Exchange of India Limited’s Committee on Currency Derivatives and

a member of the Association of Finance Professionals of India. Mr. D’Souza has

Masters’ Degree in Commerce and MBA and is a Senior Executive Program (SEP)

graduate of the London Business School.

Other appointments: Senior General Manager, Management Services and Inves-

tor Relations. He also is a Board Director in the following companies.

HDFC Holding Ltd., HDFC Investments Ltd., Chalet Hotels Pvt. Ltd, HDFC Edu-

cation & Development Services Pvt. Ltd. HDFC Sales Pvt. Ltd., Association of Fi-

nance Professionals of India. Kooh Sports Pvt. Ltd., and Nationals Trust Bank Plc.

Sri Lanka. HDFC Board Committees - Audit Committee

He does not hold any shares in any company in the Maldives that has a conflict of

interest with HDFC PLC.

Mr. Conrad D’Souza Alternate Director, Chairman Since April 30, 2017

Non-Executive


37

She was the Operations Director and the Company Secretary since 1

October 2014. She is now the Managing Director of the company from

26th February 2017. Prior to privatization of the Company she was the

founding Managing Director. Ms. Raheema has served the Ministry of

Finance and Treasury for more than 16 years at various senior posi-

tions. She had served as the Chairperson of the National Oil Company

and Board of Director at the State Trading Organization and also as a

Board Director at HDFC before and after privatization. She holds Mas-

ter of Management from Monash University and Master of Tourism

from Monash University Australia and Bachelor of Commerce in Ac-

counting and Marketing (Double Major) from Curtin University, Aus-

tralia.

She does not hold any shares in any company in the Maldives that has

or will be perceived as a conflict of interest with HDFC PLC.

Ms. Raheema Saleem Managing Director

HDFC PLC.

Mr. Adam Athif, joined HDFC Plc. in December 2004. Mr. Athif

started his career in the Government of Maldives in 1990 as a Secre-

tary since then he has worked his way up the ladder and has worked

in areas related to Administration and Human Resources in the Pri-

vate Sector as well as the Government. He holds a Diploma in Busi-

ness Administration and is well versed with local Housing Market

having attended various workshops in relation to Housing Finance.

He has declared that he does not hold any shares in any company of

the Maldives that has or will be perceived as a conflict of interest

with HDFC Plc.

Mr. Adam Athif Company Secretary

PROSPECTUS 2016


38

Profile of HDFC Plc’s Shariah Advisory Committee

The HDFC Amna department is managed and systematized to ensure proper Shari’ah

governance mechanisms both within the department and among its stakeholders. A

Shari'ah Committee consisting of three members will be established to advise the

Board of Directors of HDFC on Shari'ah related matters. The members of the Shariah

Committee are:

Dr Ibrahim Zakariyya Moosa holds a PhD in Fiqh and Usulul Fiqh

and a M.A in Islamic Revealed Knowledge from International Islamic

University Malaysia. He obtained his Bachelor’s Degree in Islamic

Shariáh from Islamic University of Medina, Saudi Arabia. He was the

former Rector of College of Islamic Studies of Maldives. Currently he

is the Dean of Center for Post Graduate Studies of Islamic University

of Maldives. He also served as a Parliament Member for nine years

(from 1989 to 1999); was a Member of the Special Majlis for thirteen

years (from1990 to 2004); was a Member, Supreme council of Islam-

ic Affairs. (from 1995 to 2004); and also was a Member of Quran

translation committee (from 1995 to 2004). He has attended semi-

nars and published articles on different matters related to Shariáh.

Dr. Ibrahim Zakariyya Moosa Shariáh Advisory Committee

Chairman

Assoc. Professor Dr Rusni Hassan is an Associate Professor at the

Ahmad Ibrahim Kulliyyah of Laws (AIKOL), International Islamic

University Malaysia (IIUM). She graduated with LLB (Honours)

and LLB (Shariah) (First Class), Master of Comparative Laws

(MCL) and Ph.D. in Law. Her area of specialization includes Islamic

Banking, Finance and Islamic Documentations, Islamic Capital

Market, Takaful and Islamic Law of Transactions. She is a Board

Member and PhD Selection Committee at IIUM Institute of Islamic

Banking and Finance. Presently she is a member of Shariah Adviso-

ry Council of Central Bank of Malaysia (Bank Negara Malaysia). She

was a member of Shariah Committee for HSBC Amanah Malaysia,

HSBC Amanah (Takaful) Malaysia and a registered Shariah Unit

Trust Advisor with the Securities Commission. She has presented

numerous research papers on Islamic finance in national and inter-

national conferences and she has also written books of Islamic fi-

nance related subjects. She is the co- author of the winning essay of

the worldwide Islamic finance essay competition organized in Kuala

Lumpur Islamic Finance forum (KLIFF) of 2010 for research: “Take

It or Leave It! The Iniquitous Islamic Banking Documents” and has

won a gold medal and a silver medal in IIUM Research Invention

and Innovation Exhibition 2012 for her research on Islamic banking

and finance.

Dr. Rusni Hassan Member


39

Dr Aishath Muneeza is among the key founders of Islamic finance in

Maldives, a small island nation with a hundred percent Muslim popula-

tion. She has experience in multiple aspects of Islamic finance industry.

She is a member of capital market Sharia Advisory Council of CMDA,

an Islamic Finance Consultant, a researcher, a presenter, a regulator, a

speaker, a trainer, an Associate Professor and an attorney who is active-

ly involved in promoting Islamic finance. She is the driving force behind

the establishment of Maldives Hajj Corporation, the Tabung Haji of

Maldives and she has facilitated the establishment of more than ten

financial institutions offering Islamic finance services. She structured

the first corporate sukuk offered in Maldives and she also structured

the Islamic Treasury Instruments for the government of Maldives. The

Islamic Capital Market framework of Maldives has been shaped under

her guidance and the legal framework of Islamic Capital Market in Mal-

dives was developed by her. She has published numerous books on Is-

lamic finance, available in all major bookstores across Malaysia and she

is the first to publish comprehensive books on Islamic finance in

Dhivehi language. She is the co-author of the winning essay of the

worldwide Islamic finance essay competition organized in Kuala-

Lumpur Islamic Finance forum (KLIFF) of 2010. She had won gold and

silver medals in international research exhibitions for research con-

ducted on disciplines related to Islamic banking and finance. Her con-

tribution to Islamic finance industry has been recognised international-

ly and has been conferred several awards of recognition. She has re-

ceived the prestigious “Rehendhi Award” highest award for women,

conferred by the government of Maldives for her contribution in the

development of Islamic finance industry. Currently she is an Associate

Professor at INCEIF & the chairwomen of Maldives Centre for Islamic

Finance that was set up by the government of Maldives to position the

country as the hub of Islamic finance and Halal industry in the South

Asia region.

Dr. Aishath Muneeza Member

PROSPECTUS 2016


40

Mr. Azmeen Rasheed joined HDFC in April 2016, he holds a Juris

Doctor Degree J.D (hons) from Kingdom of Saudi-Arabia, majoring

in Sharia Law and Jurisprudence. He also holds a masters Degree in

the field of Common Law, (Banking and Taxation). He is a regis-

tered attorney in the Maldives. He is currently pursuing his PhD in

Economics from Malaysia.

Prior to his First Professional degree, he worked in State Trading

Organization, Handling Projects related to bids. He is currently the

Manager for HDFC Islamic Window Amna. He has conducted work-

shops and lectures in IUM, MNU and Villa College on Governance

and Sharia Related Subjects as well as Sharia Compliant Finance.

He does not hold shares in any company of Maldives that has or will

be perceived as a conflict of interest with HDFC PLC.

Mr. Azmeen Rasheed Manager - Islamic Finance / Sharia Compliance Officer


41

Mr. Mohamed Shafeeq joined HDFC in 2009. Prior to joining the company he

was the Finance Director at the Society for Health Education (SHE). He holds

MBA from the University of Ballarat, Australia through Unity College Interna-

tional, Malaysia, in addition to a BA (Hons) Accounting and Finance by Univer-

sity of East London, UK, obtained through HELP University College, Malaysia,

he also holds Association of Chartered Certified Accounts (ACCA) through In-

thi International University of Malaysia. He is a member of ACCA and a senior

member of the Certified Practicing Accountants of Maldives (CPA Maldives).

He is also the Information Officer of this Company. He does not hold any

shares in any company in the Maldives that has or will be perceived as a con-

flict of interest with HDFC PLC.

Mr. Mohamed Shafeeq Head of Finance

She joined the HDFC Plc. in March 2004 as part of the initial team. Ms.

Rasheeda began her career with the Maldives Monetary Authority, 1990 and

spend 14 years serving as a Banking Officer in the Banking Section of the Au-

thority. She joined HDFC as a credit officer in 2004 and promoted as a Credit

Manager in 2008, and as a Senior Credit Manager in 2012. She holds Master of

Business Administration from Cardiff Metropolitan University, UK through

International College of Business Technology (ICBT)

Mount Lavinia, Sri Lanka. She is also the Anti Money Laundry (AML) Officer of

the Company.

She does not hold any shares in any company in the Maldives that has or will

Ms. Aishath Rasheedha Senior Manager, Credit

Mr. Fathy joined HDFC Plc. in March 2004 as part of the initial team. He be-

gan his career 2001 in the field of audit and gained experience at local firms

and with the experience gained got engaged in providing consultancy services

as a freelance consultant. While at HDFC he headed the Internal Audit Division

as well as the IT Division, in addition he has provided numerous contributions

in the development of internal controls and systems. He holds M.Sc. in IT Man-

agement from Asia Pacific University Malaysia and Bachelor of Commerce

from Bangalore University of India.

He does not hold any shares in any company in Maldives that has a conflict of

interest with HDFC PLC., except at Bank of Maldives PLC. at which he holds 50

Shares.

Mr. Mohamed Fathy Senior Manager, IT

Profile of other members of the Senior Management

PROSPECTUS 2016


42

Company’s Growth

We are pleased to present this report to the Sukuk prospectus of HDFC Plc. with extracts from the

Audited Accounts for the year ended December 31, 2016 while the full audited financial statements

complete with the auditor’s report is annexed:

The twelve-year financial landscape shows that HDFC has grown with each passing year to reach sta-

bility and sustainability.

The continued success of the Housing Development Finance Corporation PLC of the Maldives

(HDFC) with a strong performance in 2016 reflects the strength of the foundation laid by the share-

holders, led by the International Finance Corporation, upon privatization in July 2008.

The Company made an operating profit of MVR 85.7 million (USD 5.6 million) for 2016, continuing

its upward trajectory. The theme we established in 2015, continued onto 2016 “REWARDING LOY-

ALTY & MOVING FORWARD TO GREATER AFFORDABILITY speaks volumes about what HDFC

stands for in terms of proven resilience, customer centrality and innovation of products for invest-

ment and lending. HDFC’s ability to transform ahead of the trends in the most proactive manner

made it possible for the Company to survive and prosper in the Maldives economy considered to be

an emerging market in the global arena. We have built a strong brand image grounded on trust and

confidence so that, to the thousands of our loyal customers, HDFC represents the best and the most

appealing Housing Finance solution in the Maldives to make their dream of living in a decent home

come true.

FINANCIAL HIGHLIGHTS (MVR million)

Year 2014 2015 2016

Total Income 122.7 130.6 151.9

Profit Before Tax 64.6 71.5 85.7

Profit After Tax 54.9 60.5 72.3

Net worth 434.5 455.2 467.8

Loans and Advances to customers 941.5 1,086.50 1,302.00

FINANCIAL RATIOS

ROAE 13% 14% 19%

Earnings/(loss) per share 34.44 37.99 45.36

Dividend Per Share 25.00 17.50 20.00

Dividend (%) 73% 46% 44%

Net Assets value per Share 272.65 285.63 293.5

Debt/Equity ratio 154% 172% 192%


43

HDFC has been a significant contributor to the economic growth and the

quality of life for the people of Maldives, and this Annual General Meet-

ing 2016 is a significant milestone on the path of progress of our organi-

zation.

The reporting year of 2016 also marked the first year after the Golden

Jubilee of National independence in the Republic of Maldives, and

therefore, an extremely eventful year for the country as well as the finan-

cial services industry of the Maldives. There were many events of finan-

cial significance carried out to coincide with the celebrations, and the

HDFC participated in all the relevant events. Maldives Monetary Au-

thority (MMA) released new polymer banknotes to the market, attrac-

tively designed to reflect the cultural and natural appeal of the Maldives

as one of the prime tourist destinations in the world.

The MMA reduced the minimum reserve requirement (MRR) for com-

mercial banks from 20% to 10% in August 2015, and also brought down

the T-Bill rates by almost 30% with caps introduced in October of the

same year. Both these events had a positive impact on the Rufiyaa li-

quidity and enhanced competitiveness among financial institutions,

which will in time; translate to better access to finance with greater af-

fordability for the people of Maldives.

Based on Census 2014, the resident Maldivian population was 338,434

and 30% of the total population live in the Male’ City Region. However,

when it comes to the number of households, Census 2014 showed a total

of 68,249 households in Maldives, out of which 26,739 or almost 40%

were in Male’ and 40,887 households in the 187 administrative islands

in the Atolls. HDFC PLC estimates that there is a deficit of minimum

15,000 units of housing in the capital region alone. Based on the statis-

tics for approvals and certificates of completion issued over the last sev-

en years, the addition to the housing stock has been less than 500 units

on average per annum. The demand led pricing and rentals have been a

major concern for mortgage lending institutions dominated by HDFC

PLC and Bank of Maldives, but given the current trend, unless the sec-

ond phase of Hulhumale’ and the bridge project, which has already com-

menced to connect Male’ and Hulhumale’ add the necessary momentum

for the annual delivery of greater numbers to swell the housing stock,

the house prices will not go into decline to create a negative equity sce-

nario, which has been the bane of the financial sector in the developed

countries.

With the expansion of the economy, the construction industry marked a

revival by an estimated YOY growth of over 20% compared to the slug-

gish performance of the past. Although the major part of this rebound

was due to new resort projects, many real estate development projects

too contributed in 2016, mainly in Hulhumale’. A landmark residential

development project, Amin Avenue, with 279 apartments constructed by

Amin Construction Pvt. Ltd. took the centre stage with HDFC PLC as its

sole Mortgage Finance Partner. The other major developers that part-

nered HDFC PLC to help relive population congestion in the capital city,

Male’ were Rainbow Construction, Damas Company, Jausa Construction

Maldives, Wiz Company and state-owned Maldives Real Estate Develop-

ment Corporation Pvt Ltd. This new trend of real estate development

companies augmenting family-based construction projects on their own-

land augurs well for the housing finance industry, and offers greater po-

tential for HDFC’s future growth.

PROSPECTUS 2016


44

Lending Operations and the Social Impact

HDFC’s inclusive business model has developed a range of products and

services that involve the cottage industries in the value chain as suppli-

ers of building material such as compressed cement blocks and car-

pentry work carried out at an island level to reduce the cost of construc-

tion. The total number of beneficiaries at the bottom of the pyramid ex-

ceeds 15,000 during the 13-year existence of HDFC. A comprehensive

range of products and services have been innovated to serve the custom-

ers better. Effective counseling service and CRM have helped in achiev-

ing best-fit product development through customer feedback.

Total loans approved and disbursed under various product categories

serve to profile HDFC’s direct contribution to the housing finance mar-

ket. Since its inception, total housing finance injected to the market

stood over MVR 2.4 billion as at the year ended on December 31, 2016.

Approximately 8000, customers under the pooled application process

participated in HDFC’s growth. As at the year end, the total outstanding

capital stood about MVR 1.4 Billion profiled as below:

0

20

40

60

80

100

120

2015 2016

Islamic Mortgages

Home Loan


45

Maldives Country Report on Housing and Housing Finance

Having re-structured its capital in February 2009, and with new lines of long-term

credit, HDFC has re-entered the market for mortgage loans for housing needs of indi-

viduals and families. HDFC is able to offer long repayment terms in a market where

the demand has grown at a pace outstripping the supply of matching funds. The pri-

vatization has transformed the institution to face the future as a commercially viable,

private sector-led company that can grow and develop effective solutions to the ur-

gent housing problems of the Maldives.

The Maldives consist of approximately 1,200 islands covering an area of

90,000 sq. km. of the Indian Ocean, set in an Exclusive Economic Zone

(EEZ) covering 859,000sq km. The island nation has 196 administrative

islands designated for habitation, in addition to which over 100 islands

are allocated as resort properties and 35 islands designated for industry

and agriculture. Maldives is home to approximately 350,000 citizens

living in a dispersed manner with only thirteen islands outside of Male’

region recording a population of more than 5,000 inhabitants. This pre-

sents a formidable challenge to a housing finance institution which in-

tends to operate at a national level due to the diverse needs

of the population that is thinly spread in some regions, with the excep-

tion of the post-tsunami phenomenon of concentration through in-

migration, where the stress of housing is felt the most in the Male’ Atoll.

The nation’s capital Malé, with around 2.5 sq. km. of total land area, has

over one third of the entire population, while approximately seventy per-

cent of the rest of the inhabited islands have less than 1,000 inhabitants

each. Maldives has a relatively young population with almost forty per-

cent under 15 years of age and around three percent over 65 years of age.

This demographic profile translates to a growth in demand for housing

in the foreseeable future as the young population matures to full-fledged

participation in the economy. With regard to human development

trends, the country ranks high among the Asia-Pacific countries.

PROSPECTUS 2016


46

In order to provide a sustainable solution to the limitation

of suitable land to develop much needed housing stock in

the Male’ Atoll, land reclamation in a viable manner began

at the turn of the century with the Hulhumale project

spearheaded by state-owned Hulhumale Development Cor-

poration (renamed as Housing Development Corporation

or HDC in 2009). There is special emphasis on developing

projects to provide modern and sustainable communities.

Here the challenge would be to provide housing develop-

ment finance to match the rapid pace of development as

Hulhumale is scheduled for a second phase of reclamation

in 2013. The government’s concept of developing focus

islands that will create a demand for housing is also a posi-

tive trend. It will assist sustainable development of home

ownership based on mortgage financing of properties that

would appreciate in value to maintain a positive equity sce-

nario. The underlying real estate value and market value of

homes being developed from HDFC mortgage loans is a

highly significant factor as a market characteristic, espe-

cially in the light of the 2008 financial crisis faced by the

developed economies of the world, where subprime home

lending and a property bubble that burst had contributed

to a financial meltdown.

The statistics of households according to Population and

Housing Census 2014 are as follows:

Households:

Male’ 26,739

Atolls 41,510

Total 68,249

Therefore, the density in Malé is around six members per

household with 61,562 people per sq. km., which is one of

the highest in the world. In the outer atolls, this figure is

also around six. However, it is the constraints on buildable

land that has made Male’ one of the most densely populat-

ed capital cities. A desirable family size per unit of four

would lead to an additional housing requirement for the

Male Atoll estimated at present to be 12,000 units, which

can be absorbed by the infrastructure of Hulhumale first

and second phase developments. Therefore, HDFC’s solu-

tion for financing sustainable housing development in the

Maldives is linked to the strategies of the Housing Devel-

opment Corporation (HDC) of Hulhumale. Their Joint

Venture Partnerships with a number of international prop-

erty developers should yield approximately 2,000 units of

housing per annum and, with an additional role as a social

landlord in Hulhumale’, the HDC has shown their commit-

ment to addressing the housing problem facing the Male’

Atoll.


47

Maldives’ Economic Landscape

The national housing policy for outer atolls is one that is linked with the

GOM’s economic development policy. Typical of an island nation, devel-

opment in Maldives is also constrained by the absence of land based

mineral resources. There is limited scope for expansion of the agricul-

ture sector. Certain areas possess vulnerability to natural disasters and

environmental hazards. The major industries driving the Maldivian

economy are fisheries and tourism with the supporting industries of

transport, construction, boat-building, fish processing and finance.

Tourism, fishing and transport are the major sources of foreign ex-

change earnings and government revenue, and which together directly

account for about 60 percent of gross domestic product. In terms of em-

ployment, these three sectors along with construction industry account

for more than 50% of total employment. A large expatriate workforce

plays a key role in the development of the Maldivian economy. Their

needs of accommodation have created a vibrant market for rental in-

come from foreign employment categories that include teachers, ac-

countants, medical personnel and other business and technical profes-

sions including civil construction and infrastructure development. The

Government’s support for the development process is seen from the

large number of employees in the public sector, which accounts for ap-

proximately one third of the working population.

The public sector consists of the government and state owned enterpris-

es (SOEs) covering a wide range of activities including fuel supply, bank-

ing, air and sea transport, international shipping, communications and

the provision of electricity and utilities, fisheries operations, tourism

and importing and distributing a large share of essential foodstuff. The

Maldives’ narrow financial sector is dominated by the banking sector,

which consists of one locally owned commercial bank, BML, Maldives

Islamic Bank, MIB, branches of three Asian commercial banks, SBI,

Habib, MCB. Other Financial Institutions include players in the general

insurance market, Maldives’ Finance Leasing Company, (MFLC), and

the only housing finance institution, HDFC. MMA is the primary source

of domestic financing for the Government’s fiscal operations. The com-

mercial banks mobilize savings and provide credit and foreign exchange

to the private sector. Currently work is underway to promote the Mal-

dives Stock Exchange for raising much needed capital for economic de-

velopment. There is limited secondary market trading activity with

shares of the Bank of Maldives (BML), and two other state owned public

companies, namely the Maldives Transport and Contracting Company

(MTCC) and the State Trading Organization (STO), playing the lead role

out of the six listed entities. The Securities Act paves the way for the es-

tablishment of a formal capital market, with HDFC taking the lead by

issuing the first ever rated bond to be listed in the Maldives Securities

Exchange in February 2013.

PROSPECTUS 2016


48

The open economy of the Maldives has a narrow export base with high

dependence on imports for most of its economic activities. Imports have

averaged around 61% of the GDP in recent years, while domestic ex-

ports, consisting primarily of fish and fish products have ranged be-

tween 11-15% of the GDP. Net surplus on services and transfers has aver-

aged around 34% of the GDP. Service receipts come from tourism and

related activities. There is a significant outflow of transfers from the

economy owing to the large expatriate workforce. Medium and long-

term debt flows and inflows of capital for direct investments dominate

the capital account of the balance of payments. There is no exchange

control legislation in the Maldives. Foreign direct investment in the

country needs prior approval of the government and a negotiated annual

royalty is payable. There are no restrictions on transferring of profits.

The construction sector continued to remain robust in 2016, with 37%

growth during the year.

GDP growth in 2016 was limited to 3.5% despite coming close to the an-

ticipated performance from tourism and construction sector during the

year. This may be attributed to a reality check on the recovery efforts

after the 2009 negative GDP, which cast a long shadow into the future

impacting the structure of the national debt and budget deficit. The Eu-

ropean debacle reflected in the global economic and financial conditions

in 2012 would impact on the Maldives tourism, but the continued suc-

cess of reaching across the globe for all-year-round tourism and innova-

tion to capture new market segments are positive signs for future

growth. Maldives is proactively seeking other avenues of GDP growth

from a diversified field of economic activity, and it signals a future that

would reduce Maldives’ over-dependence on tourism.


49

Acknowledgements

The privatized HDFC Maldives has completed 8 years of growth to lay a

firm foundation of sustainable development to address the housing needs

of the Maldives. To help achieve the aspirations of the people, there is an

urgent requirement to upgrade substandard housing and build up a new

housing stock in this emerging economy. In building capacity of HDFC to

meet these challenges, the greatest asset at our disposal is the commitment

and professionalism of all our employees towards realizing the mission and

vision of HDFC Maldives. I am immensely grateful to our dedicated staff

for their valuable contribution. Our valued customers are essentially the

citizens of Maldives, and the raison d’être and the core of HDFC’s contin-

ued motivation to improve their lives through access to affordable housing

finance so that they can live in decent homes, in safe and healthy environ-

ments. We thank them for forging a lifelong relationship with an institution

they can call their own.

We appreciate the enabling and regulatory environment created by the

Maldives Monetary Authority, Ministry of Finance and Treasury, Ministry

of Housing and Infrastructure, Male’ City Council, Ministry of Economic

Development, Judiciary and all other government agencies, as well as the

officials of international shareholders and investors who monitor and men-

tor our progress. In my personal capacity, as the Managing Director, I

would like to place on record my profound appreciation to all the stake-

holders, especially our staff, shareholders, customers, chairman and the

board of directors, especially Dr. ADP Baddevithana for their support and

cooperation extended to me. The outgoing Chairman of February 2016, Mr.

Conrad D’Souza has been a tower of strength in concluding a successful

year. He was ably supported by his fellow directors Ms. Renu Sud Karnad,

Mr. Sanjaya Gupta, Mr. Ismail Ali Manik, Mr. Russel De Mell, Mr. Hussain

Suhail.

We extend our very sincere gratitude to Mr. Sanjaya Gupta and the out-

going director and IFC nominee Mr. Russel De Mell for completing a two

year directorship of HDFC that came to an end on May 2015. He has left an

indelible mark as a pioneer of the privatized HDFC’s progress, and will al-

ways be remembered for his yeomen service towards the success of the ear-

ly years following privatization. We wish him well in all future endeavors.

We also thank our legal counsel Mazlan and Murad Law Associates as well

as PWC Maldives for their professional input, and our Consultant on Islam-

ic Finance, Dr. Aishath Muneeza, for her passion and dedication to estab-

lishing an Islamic Finance Window at HDFC.

No National Housing Finance Institution could hope to grow and sustain a

sound loan portfolio that adds value to the lives of the people it serves with-

out the participation of sound investment partners. In this regard, we thank

the IFC, ADB, DEG of German, FMO of Netherlands, Bank of Ceylon, the

country’s very own Bank of Maldives, Allied Insurance Company, Allieds

Islamic Window Ayadhy Takaful, Hajj Corporation, HSBC, Maldives Islam-

ic Bank, Bank of Ceylon, Maldives Pension and Administrative Office,

Maldives Post Ltd., and Amana Takaful (Maldives) PLC for their support in

making 2016 a successful year for HDFC. Going forward, a great deal is ex-

pected of HDFC’s partnership with national and international players to

usher an era of model living for Maldivians in decent homes in an environ-

ment as clean, green, and breathtaking as the ocean paradise that defines

the Maldives.

PROSPECTUS 2016


50

HDFC’s Corporate Governance

The essence of corporate governance at HDFC Plc. is the relationship between the

board of directors, management and the shareholders to act in the best interest of

the all the stakeholders. Corporate Governance ensures that companies are di-

rected and managed at Board and management level in a fair and transparent

manner. HDFC’s corporate governance is planned and implemented at the Board

level and led by the Board. It provides guidance on how the objectives of the com-

pany are set and achieved, how risk is monitored and assessed, and how perfor-

mance is optimized. It is concerned with the organization’s policy direction and

implementation in a fair and transparent manner by the board of directors, the

management and the staff of HDFC. The code of corporate governance provides

guidance on how to set the objectives of the company for optimum performance

while managing and monitoring the risks in order to achieve:

i) Creation of value (through entrepreneurism, innovation, and devel-opment)

ii) Implementation of effective control systems commensurate to the risks involved

iii) Accountability and transparency

Corporate governance refers to internal disciplines or systems, which govern the

relationships among the 'key players' or entities that are instrumental in the per-

formance of the organization. The details of which is provided in Annex 9.

Inspection of documents

The Memorandum and Articles of Association of HDFC Plc., Shareholders Agree-

ment and all other documents including audited accounts from inception of the

Company referred to in this Prospectus may be inspected at any time during nor-

mal business hours at the Registered Office of HDFC Plc. until the end of the sub-

scription period.

The Registered office of HDFC Plc;


4th Floor, H. Mialani, Sosun Magu


Tel: 3338810, Fax: 3315138



51

Risk Factors

Risks Related to the Issuer

HDFC activities primarily relate to the provision of mortgage home-finance for the

construction and purchase of residential properties. The company’s activities are

exposed to a variety of financial risks and those activities involve analysis, evaluation,

acceptance and management risk or combination risk.

HDFC’s total Borrowing Balance Sheet value as at the year ended December 31, 2016

stood at MVR 672.08 million.. Million

Corporate Bond 33.58

Netherlands Development Finance Company (FMO) 64.34

Wakala Facility 122.31

Term Loan from HSBC LTD. 45.65

Term Loan From BML 104.25

Listed Sukuk 23.52

Deutsche Investitutions und Entwicklungs 153.78

Gesellschaft MBH (DEG)

Bank of Ceylon (BOC) 124.65

HDFC is exposed to the following risks;

Exchange Rate Risk

Equity Risk

Market Risk

Exchange Rate Risk

Foreign exchange risk is mitigated through a hedging mechanism by entering into

a ‘Currency Swap Agreement’ between HDFC and State Trading Organization Plc.

Equity Risk

Since the stock of HDFC Plc. is not listed on the Maldives Stock Exchange and

held between International Shareholders and the Government of Maldives, the

company does not have an equity risk.

Market Risk

Market risk is the risk that the fair value or the future cash flows of the financial

instruments will fluctuate because of the changes in market prices. HDFC has a

significant concentration of fair value risk on the properties taken as mortgage

security for home -finance. Due to the very nature of the assets funded under the

portfolio, it makes the company exposed to the risks associated with economic

standing of the Maldives particularly as it relates to the cost of construction, rental

market for residential properties, real estate values and sales.

Market risk is mitigated by:

Strict credit criteria that preserves the margin of the amount funded versus

the cost/value on any property.

Prudential criteria that would ensure that the ability to repay debt is reason-

ably assured by customer’s financial circumstances and credit history.

Regular review and assessment of market factors that affect the quality of

the mortgage portfolio.

PROSPECTUS 2016


52

Risks Related to the Issue

Before making an investment decision, prospective purchasers of Sukuk should consider care-

fully, in the light of their own financial circumstances and investment objectives, all of the in-

formation in this Prospectus. The Issuer believes that the factors described below represent the

principal risks inherent in investing in the Sukuk, but the inability of the Issuer to pay any

amounts on or in connection with the Sukuk may occur for other reasons and the Issuer does

not represent that the statements below regarding the risks of holding any Sukuk are exhaus-

tive.

There may also be other considerations, including some which may not be presently known to

the Issuer or which the Issuer currently deems immaterial, that may impact any investment in

the Sukuk.

Payment risk is the risk that the issuer will default on payment of yield and princi-

pal. HDFC’s liquidity management process ensures that it has sufficient liquidity

to pay its creditors and lenders when they fall due.

Difficult macro-economic and financial market conditions could materially ad-

versely affect Issuer’s business, results of operations, financial condition and pro-

spects.

The Sukuk will not be guaranteed by the Government of the Republic of the Mal-

dives.

A more competitive environment in the Republic of the Maldives may adversely

affect the Issuer’s business and results of operations

The Issuer’s business may be adversely affected if there is any disturbance to its

operational systems or a loss of business continuity.

Future events may be different from those reflected in the management assump-

tions and estimates used in the preparation of the Issuer’s financial statements,

which may cause unexpected losses in the future

Absence of secondary market/limited liquidity - there is no assurance that a sec-

ondary market for the Sukuk will develop or, if it does develop, that it will provide

the Sukuk holders with liquidity of investment or that such secondary market will

continue for the life of the Sukuk. Accordingly, a Sukuk holder may not be able to

find a buyer to buy its Sukuk readily or at prices that will enable the Sukuk holder

to realize a desired yield. The market value of the Sukuk may fluctuate and a lack

of liquidity, in particular, can have a material adverse effect on the market value of

the Sukuk. Accordingly, the purchase of the Sukuk is suitable only for investors

who can bear the risks associated with a lack of liquidity in the Sukuk and the fi-

nancial and other risks associated with an investment in the Sukuk. An investor in

the Certificates must be prepared to hold the Sukuk for an indefinite period of time

or until their maturity.

The Sukuk are limited recourse obligations - The Sukuk are not debt obligations of

the Issuer. Instead, the Sukuk represent an ownership interest solely in the

Mudaraba. Recourse to the Issuer in respect of the Sukuk is limited to the

Mudaraba and proceeds of the Mudaraba are the sole source of payments on the

Sukuk.

9. The principal amount that is to be repaid to the sukuk holder on the maturity date

may decline in value if the underlying assets non perform.


53

Risk management policies

The other risk management policies and processes adopted by HDFC are given below:

Credit Risk

The company takes on exposure to credit risk, which is the risk that counterparty

will cause a financial loss for HDFC by failing to discharge an obligation. Credit

risk is the most important risk for HDFC’s business; management therefore care-

fully manages its exposure to credit risk. Credit exposures arise principally in

lending activities that lead to home-finance and advances. There is also credit risk

in off-balance sheet financial instruments, such as home-finance commitments.

Credit policies were formulated covering HDFC's credit activities and establish-

ment of individual limits of authority for initiating, reviewing and approving cred-

it. Prudential due diligence on customers’ creditworthiness is assessed using the

Maldives Credit Information Bureau, physical verification, background screening.

Liquidity Risks

Liquidity risk is the risk that HDFC is unable to meet its payment obligations asso-

ciated with its financial liabilities when they fall due and to replace funds when

they are withdrawn. The consequence may be the failure to meet obligations to

repay depositors and fulfill commitments to lend.

HDFC’s liquidity management process, as carried out within HDFC and moni-

tored by the senior management in HDFC, includes:

Day-to-day funding, managed by monitoring future cash flows to en-

sure that requirements can be met. This includes replenishment of

funds as they mature or are borrowed by customers;

Maintaining a portfolio of deposits with that can easily be liquidated

as protection against any unforeseen interruption to cash flow

Monitoring balance sheet liquidity ratios against internal require-

ments; and

Managing the concentration and profile of debt maturities.

Monitoring and reporting take the form of cash flow measurement

and projections for the next week and month respectively, as these

are key periods for liquidity management. The starting point for

those projections is an analysis of the contractual maturity of the fi-

nancial liabilities and the expected collection date of the financial

assets.

HDFC also monitors unmatched medium-term assets, the level and

type of undrawn lending commitments and undrawn borrowings.

PROSPECTUS 2016


54

Capital Management of HDFC

HDFC’s objectives when managing capital, which is a broader concept

than the ‘equity’ on the face of balance sheets, are:

To comply with the capital requirements set by the lenders

To safeguard HDFC’s ability to continue as a going concern so

that it can continue to provide returns for shareholders and

benefits for other stakeholders

To maintain a strong capital base to support the development

of its business

Capital adequacy and the use of regulatory capital are moni-

tored daily by HDFC’s management, employing techniques

based on the guidelines developed by the Basel II Committee,

for supervisory purposes.

The risk-weighted assets are measured by means of a hierarchy of five risk

weights classified according to the nature of – and reflecting an estimate of

credit, market and other risks associated with each asset and counterparty,

taking into account any eligible collateral or guarantees. A similar treat-

ment is adopted for off-balance sheet exposure, with some adjustments to

reflect the more contingent nature of the potential losses.


55

Material outstanding indebtedness in

relation to the issue

As at December 31, 2016 HDFC PLC does not have any debts in the Compa-

ny’s balance sheet that cannot be serviced from its ordinary course of busi-

ness.

Litigation and disputes

At the date of publication of this Prospectus, to the best of the Company’s

knowledge and understanding, there is no significant on-going litigation by

or against HDFC or any of its Directors.

There has not been any litigation against HDFC or any of its Directors in

the past 05 (five) years, nor are there any penalties imposed by any regula-

tory authority or judicial decision.

Details of shareholding in the company

Details of the shareholding in the company (including Directors of the

Board).

Authorised Share Capital of the company :

MVR 318,750,000 (Issues MVR 159,375,000), MVR 100 per value

Staff Details

At the date of publication of prospectus the company has 32 staff members.

Shareholder's name Value of Share(s) held

No. of Share(s) held

Government of Maldives 78,092,800 780,928

International Finance Corpora-tion 28,687,500 286,875

Asian Development Bank 28,687,500 286,875

HDFC Investment Ltd 23,906,200 239,062

Mr.Ibrahim Naeem 100 1

Mr.Hamid Yoosuf 100 1

Mr.Mohamed Shahudhy 100 1

Ms.Aishath Rasheeda 100 1

Mr.Mohamed Fathy 100 1

Mr.Mohamed Hamdhan Fahmy 100 1

Mr.Ahmed Anwar 100 1

Mr.Nahid Idrees 100 1

PROSPECTUS 2016


56

Disclosure of material contracts &

conflict of interest of directors

The company is not in any breach or violation of, or in default under, any ma-

terial contract.

As of the date of this prospectus, the company has not received any written

notice of default under any material contract.

No event has occurred which would result in a breach or violation of, or a de-

fault under any Material Contract.

No Material Contract has been cancelled by the Company or any other party

There are no claims by any parties pending under any Material Contract

The company does not anticipate any termination of or change to, or receipt of

a proposal with respect to any Material Contract as a result of issuing the Pro-

spectus

The company does not have any material contracts with any of the sharehold-

ers /directors.

The company has entered into contracts worth MVR 672.08 million to facili-

tate the business of HDFC and commence operations.

Director

Mr. Mohamed Mauroof Jameel

Annex: 1 Legal due diligence

Annex: 2 Accountant’s report

Annex: 3 Extract of Articles of Association

EXTRACT OF ARTICLES OF ASSOCIATION POWERS TO ALTER CAPITAL

Section 18 & 19 “The Corporation may from time to time with the sanction of an Ordinary Resolution in a general meeting alter the conditions of the Memorandum relating to Share capital by:- a) Increasing its capital by the creation of new Shares. b) consolidating and dividing all or any of its Share capital into Shares of larger amounts than its existing Shares; c) converting all or any of its paid-up Shares into stock, or reconverting stock into paid-up Shares of any denomination; d) subdividing all or any of its Shares into Shares of smaller amount than is fixed by the Memorandum and so that the resolution whereby any Share is sub-divided may determine that, as between the Holders of the Shares resulting from such sub-division one or more of the Shares may have any such preferred or other special rights over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Corporation has power to attach to unissued or new Shares; or e) cancel any Shares which at the date of the passing of the resolution have not b een taken or agreed to be taken. Section 21 Subject to Section 41 of the Act, the Corporation may, by Special Resolution and with prior written approval of the registrar of companies, reduce its Share capital (and thereby alter the Memorandum and the amount of the Shares) provided that the:- a. capital available for satisfying the claims of creditors shall not be diminished except by ordinary business risks; and b. reduction is equitable as between the various classes of Members.

Section 130 BORROWING POWERS

The Directors may exercise all the powers of the Corporation to borrow money and may mortgage or charge its undertaking property and uncalled capital, and issue debentures, debenture-stock, convertible loan stock and other securities, whether outright or as collateral security for any debt, liability or obligation of the Corporation or of any third party; provided that the aggregate amount at any one time outstanding of moneys borrowed by the Corporation and its subsidiaries (exclusive of inter Corporation borrowings) shall be :- a) any temporary borrowing secured or unsecured from bankers or others in the ordinary course of business to meet temporary requirements; and 1

b) moneys borrowed with or without security for the purpose of conversion, redemption, renewal or payment off of previously existing debentures, debenture-stock or other loan capital; c) The Corporation shall not without the previous sanction of the Corporation in general meeting by ordinary, extra-ordinary or Special Resolution exceed twenty (20) times the total of - d) the nominal amount of the issued and Paid Up Share capital of the Corporation for the time being; and e) the amount for the time being standing to the credit of the Share Premium account in the books of the Corporation.

Section 131 Nevertheless no person dealing with the Corporation shall be concerned to see or inquire whether these limits are observed and no debt incurred or security given in excess of such limit shall be invalid or ineffectual unless the lender or the recipient of the security had, at the time when the debt was incurred or security given, express notice that the limit hereby imposed had been or would thereby be exceeded. Section 132

a) Any bonds, debentures, debenture- stock, convertible loan stock or other securities issued or to be issued by the Corporation shall be under the control of the Directors, who may issue them upon such terms and conditions and in such manner and for such consideration as they shall consider to be for the benefit of the Corporation. b) Bonds, debentures, debenture-stock, convertible loan stock and other securities may be made assignable free from any equities between the Corporation and the person to whom the same may be issued. c) Any bonds, debentures, debenture-stock, convertible loan stock or other securities may be issued at a discount, premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of Shares, attending and voting at general meetings of the Corporation, appointment of Directors and otherwise d) All certificates for debentures, debenture-stock, loan stock or other securities issued in terms of these presents shall be issued under the Seal of the Corporation. Section 103

SHARE QUALIFICATION OF DIRECTORS

The number of Directors comprising the Board shall not be more than seven (7). Each Initial Shareholder holding shares or Share Equivalents representing at least five per cent (5%) of all Shares then outstanding on an as- converted basis shall have the right to nominate one (1) Director and one (1) Alternate Director who shall be elected to the Board, except for the GOM who shall have the right to nominate two (2) Directors who shall be elected to the Board. The Managing Director will have a seat on the Board without any voting right. Section 105 The Directors of the Corporation shall be Shareholders of the Corporation. If the Shareholders are legal entities then the Directors shall be persons nominated by the respective entity 2

REMUNERATION OF DIRECTORS

Section 107 The remuneration of the Directors (excluding any remuneration payable under any other provisions of these Articles) shall be such sum as the Corporation in general meeting shall determine, and such remuneration shall be divided among the Directors in such manner as they shall from time to time determine and shall accrue de die in diem. The Corporation may also by Ordinary Resolution vote extra remuneration to the Directors or to any Director for either one Year or any longer or shorter period. Section 108 The Corporation may repay to any Director all such reasonable expenses as he may incur in attending and returning from meetings of the Directors or of committees of the Directors or general meetings, or which he may otherwise incur in or about the businesses of the Corporation or may pay to any Director such allowances as the Directors think proper in respect of such expenses. Section 109 Any Director who serves on any committee or who otherwise performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director, may in addition to the reimbursement of expenses reasonably incurred by him be paid such extra remuneration by way of salary, percentage of profits or otherwise as the Directors may determine.

POWER OF DIRECTORS TO VOTE ON A CONTRACT ON WHICH HE IS INTERESTED Section 120 A Director who is in any way, whether directly or, indirectly interested in a contract or proposed contract with the Corporation shall declare the nature of his interest.

Section 113 ELECTION AND REMOVAL OF DIRECTORS

Each Member shall subject to the provisions of Article 103 hereof, have the power at any time and from time to time to appoint any person to be a Director. However the total number of Directors and the number of Directors appointed by a Member shall not any time exceed the maximum numbers appointable as fixed by these Articles. Section 114 Subject to the provisions of Article 113 no Director can be removed from office except by the Member that appointed him. 3

Section 115 A letter from the party having the power to appoint Directors under Article addressed to the Corporation appointing or removing their respective appointees shall be sufficient for such appointment or removal and such appointment or removal shall become effective immediately upon the delivery of such letter at the registered Office of the Corporation. Section 116 The office of Director shall be vacated upon the happening of any one of the following events, namely – a. if he becomes prohibited by law from acting as a Director; b. if (not being an executive Director holding office as such for a fixed term) he resigns by writing under his hand left at the Office; c. if a receiving order is made against him or if he compounds with his creditors or is adjudicated an insolvent; d. if he be lunatic or becomes of unsound mind; e. if he be absent from three consecutive meetings of the Directors without leave and the Directors resolve that his office be vacated; f. if (being required to hold any qualification) he does not obtain his qualification within two Months after his appointment, or at any time thereafter ceases to hold his qualification, and so that a Director vacating office under this provision shall be incapable of being re-appointed a Director until he shall have obtained his qualification; g. by death.

Section 87 VOTING RIGHTS OF SHAREHOLDERS

Subject to any rights or restrictions attached to any Shares or class of Shares, on a show of hands every Member who is present in person (or by proxy) shall have one vote and on a poll every Member present in person (or by proxy) shall have one vote for every Share of which he is the Holder. Section 88 No Member shall be entitled to vote at a general meeting either personally or by proxy or by attorney or by representative or to exercise any privilege as a Member unless all calls or other sums presently payable by him in respect of Shares in the Corporation have been paid. Section 91 No objection shall be raised to the qualification of any person to vote except at the meeting or adjourned meeting at which the vote objected to is tendered, and every vote not disallowed at the meeting shall be valid. Any objection made in due time shall be referred to the chairman whose decision shall be final and conclusive. Section 92 On a poll votes may be given either personally or by proxy. Section 93 An instrument appointing a proxy shall be in writing 4

Annex: 4 Performance Guarantee Letter by HDFC

Annex: 5 Audited financial statements for the year ended

31.12.2016

HOUSING DEVELOPMENT

FINANCE CORPORATION PLC

(INCORPORATED IN THE REPUBLIC

OF MALDIVES)

FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31ST DECEMBER 2016

HOUSING DEVELOPMENT FINANCE CORPORATION PLC

(INCORPORATED IN THE REPUBLIC OF MALDIVES)

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31ST DECEMBER 2016

CONTENTS Page

Independent Auditors' Report 1-3

Financial Statements

Statement of Comprehensive Income 4

Statement of Financial Position 5

Statement of Changes in Equity 6

Statement of Cash Flows 7

Notes to the Financial Statements 8-39

Independent Auditors’ Report

To the Shareholders of

Housing Development Finance Corporation PLC

Opinion

We have audited the accompanying financial statements of Housing Development Finance Corporation

PLC (the “Company”), which comprise the statement of financial position as at 31st December 2016 and

the statement of comprehensive income, changes in equity and cash flows for the year then ended and notes,

comprising a summary of significant accounting policies and other explanatory information set out in pages

4 to 39.

In our opinion, the separate financial statements give a true and fair view of the financial position of the

Company as at 31st December 2016 and of its financial performance and its cash flows for the year then

ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities

under those standards are further described in the Auditor’s Responsibilities for the Audit of the financial

statements section of our report. We are independent of the Company in accordance with the International

Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and

we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the

audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matter

Key audit matter is this matter that, in our professional judgment, was of most significance in our audit of

the financial statements of the current year. This matter was addressed in the context of our audit of the

financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate

opinion on this matter.

• Impairment of loans and advances to customers

(Refer to the significant accounting policies in note 3.7 (i) (2) of the financial statements).

Description

How the matter was addressed in our audit

Determining the adequacy of impairment

allowance on loans and advances to customers is a

key area of judgment for the management. Given

the complexity and the high level of estimation

uncertainty such as the identification of

impairment events, the determination of

appropriate parameters, the assumptions used in

calculation of impairment and the significance of

loans and advances to customers representing 96%

of the total assets, the estimation of impairment on

loans and advances to customers was considered to

be a matter that require significant attention of us.

In this area, our audit procedures included, among

others;

• Tested the accuracy and completeness of the key

inputs to the impairment model.

• Re-performed certain calculations over the

computation of impairment provision.

• Considered whether the disclosures in the

financial statements appropriately reflect the

Company’s credit exposure.

Independent Auditors’ Report

To the Shareholders of Housing Development Finance Corporation PLC

(Continued)

Other Information

The Board of Directors (the “Board”) is responsible for the other information. The other information

comprises the information included in the annual report, but does not include the financial statements and

our auditors’ report thereon. The annual report is expected to be made available to us after the date of this

auditors’ report.

Our opinion on the financial statements does not cover the other information and we do not express any

form of assurance or conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information

identified above when it becomes available and, in doing so, consider whether the other information is

materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise

appears to be materially misstated.

When we read the annual report, if we conclude that there is a material misstatement therein, we are required

to communicate the matter to the Board.

Responsibilities of the Board of directors for the Financial Statements

The Board of directors (“the Board”) is responsible for the preparation and fair presentation of these

financial statements in accordance with International Financial Reporting Standards, and for such internal

control as the Board determines is necessary to enable the preparation of financial statements that are free

from material misstatement, whether due to fraud or error.

In preparing these financial statements, the Board is responsible for assessing the Company’s ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the going

concern basis of accounting unless the Board either intends to liquidate the Company or to cease operations,

or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether these financial statements as a whole are

free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes

our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted

in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise

from fraud or error and are considered material if, individually or in the aggregate, they could reasonably

be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional

skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of these financial statements, whether due to fraud

or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that

is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that

are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by the Board.

2

4



STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31ST DECEMBER 2016 2016 2015

Note MRf. MRf.

Interest Income 6 121,228,951 114,146,641

Interest Expense 6 (36,811,313) (37,379,712)

Net Interest Income 6 84,417,638 76,766,929

Net Income on Shari'ah Products 7 14,438,581 6,054,653

Fee Income 8 4,311,927 7,364,119

Other Income 9 1,915,739 122,001

Operating Income 105,083,885 90,307,702

Provision for Impairment Loss on Loans and Advances 17.1 (4,021,155) (1,860,044)

Personnel Expenses 10 (9,596,634) (10,439,354)

Other Operating Expenses 11 (5,802,791) (6,522,812)

Profit Before Tax 85,663,305 71,485,492

Tax Expense 12 (13,363,900) (10,942,716)

Profit for the Year 72,299,405 60,542,776

Basic and Diluted Earnings Per Share 13 45.36 37.99

Figures in brackets indicate deductions.

The Financial Statements are to be read in conjunction with the related notes which form an integral part

of the Financial Statements of the Company set out on pages 8 to 39. The Report of the Independent

Auditors is given on pages 1 to 3.

6



STATEMENT OF CHANGES IN EQUITY


Share Advance General Staff Retained Total

Capital for Share Reserve Education Earnings Equity

Capital Reserve

MRf. MRf. MRf. MRf. MRf. MRf.

As at 1st January 2015 159,375,000 51,407,100 15,000,000 2,122,626 206,623,656 434,528,382

Total Comprehensive Income

Profit for the Year - - - - 60,542,776 60,542,776

- - - - 60,542,776 60,542,776

Utilized during the Year - - - (391,245) 391,245 -

Transactions with Owners, Recorded Directly in Equity

Dividend Paid (Note 24.3) - - - - (39,843,750) (39,843,750)

Total Transactions with Owners, Recorded Directly in Equity - - - - (39,843,750) (39,843,750)

As at 31st December 2015 159,375,000 51,407,100 15,000,000 1,731,381 227,713,927 455,227,408

As at 1st January 2016 159,375,000 51,407,100 15,000,000 1,731,381 227,713,927 455,227,408

Total Comprehensive Income

Profit for the Year - - - - 72,299,405 72,299,405

- - - - 72,299,405 72,299,405

Utilized During the Year - - - (446,627) 446,627 -

Transactions with Owners, Recorded Directly in Equity

Proposed Dividends (Note 24.3) - - - - (31,875,000) (31,875,000)

Dividend Paid (Note 24.3) - - - - (27,890,625) (27,890,625)

Total Transactions with Owners, Recorded Directly in Equity - - - - (59,765,625) (59,765,625)

As at 31st December 2016 159,375,000 51,407,100 15,000,000 1,284,754 240,694,334 467,761,188


The Financial Statements are to be read in conjunction with the related notes which form an integral part of the Financial Statements of the Company set out on pages 8 to 39. The Report

of the Independent Auditors is given on pages 1 to 3.

7



STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31ST DECEMBER 2016 2016 2015

Note MRf. MRf.

Cash Flow from Operating Activities


Adjustments for:

Depreciation on Property, Plant and Equipment 18 523,844 606,554

Provision for Impairment on Loan and Advances 17.1 4,021,155 1,860,044

Amortization of Intangible Assets 19 8,994 29,701

Gain on Disposals of Property, Plant and Equipment 9 - (12,799)

Net Interest Income 6 (98,856,219) (82,821,582)

Operating Cash Flow Before Working Capital Changes (8,638,921) (8,852,590)

Working Capital Changes

Change in Loans and Advances to Customers (218,050,132) (143,358,681)

Change in Other Assets 2,828,556 (931,396)

Change in Other Liabilities 10,537,858 50,614,691

Change in Deposits from Customers 5,067,307 19,604,509

Change in Derivatives Held for Risk Management 2,633,377 7,471,758

Cash Used in Operations (205,621,955) (75,451,709)

Interest Received 143,261,396 120,800,219

Interest Paid 22 (45,085,930) (41,019,036)

Income Tax Paid (11,467,816) (10,105,638)

Net Cash Used in Operating Activities (118,914,305) (5,776,164)

Cash Flows from Investing Activities

Acquisition of Property, Plant and Equipment 18 (319,105) (530,215)

Proceeds on Disposal of Property, Plant and Equipment - 18,576

Investments Matured During the Year 64,826,185 28,349,883

Net Cash from Investing Activities 64,507,080 27,838,244

Cash Flows from Financing Activities

Repayments of Borrowing During the Year 22 (128,416,184) (145,149,846)

Borrowings During the Year 22 189,440,256 186,998,521

Dividend Paid 24.3 (27,890,625) (39,843,539)

Net Cash from Financing Activities 33,133,447 2,005,136

Net (Decrease)/ Increase in Cash and Cash Equivalents (21,273,778) 24,067,216

Cash and Cash Equivalents at the Beginning of the Year 49,891,605 25,824,389

Cash and Cash Equivalents at End of the Year 14 28,617,827 49,891,605


The Financial Statements are to be read in conjunction with the related notes which form an integral part of

the Financial Statements of the Company set out on pages 8 to 39. The Report of the Independent Auditors

is given on pages 1 to 3.



NOTES TO THE FINANCIAL STATEMENTS

1. REPORTING ENTITY

The Housing Development Finance Corporation PLC (the “Company”)/ “HDFC” is a Company incorporated as a Public Limited Liability Company under the Companies’ Act No. 10 of 1996, in the Republic of Maldives with its registered office at 4th floor, H Mialani, Sosun Magu, Male’, Republic of Maldives.

The Company engages in the business of granting housing loans for residential and commercial purpose.

2. BASIS OF PREPARATION

(a) Statement of Compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs).

(b) Basis of Measurements

The financial statements have been prepared on the historical cost basis except for the following item, which are measured on an alternative basis.

Items Measurement Basis

Derivative Financial instrument at fair

value through profit or loss

Fair value

(c) Functional and Presentation Currency

These financial statements are presented in Maldivian Rufiyaa, which is the Company’s functional currency. All financial information presented in Maldivian Rufiyaa, has been rounded to the nearest Rufiyaa, except otherwise indicated.

(d) Use of Estimates and Judgments

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the Company’s financial statements is included in the respective notes.

Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements.

8



NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by the Company.

3.1 Transactions in Foreign Currency

Transactions in foreign currencies are translated into the functional currency of the Company at the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into the functional currency at the spot exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the spot exchange rate at the end of the period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the spot exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

3.2 Interest Income and Expenses

Interest income and expenses are recognized in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial Instrument, but not future credit losses.

The calculation of the effective interest rate includes all fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

Interest income and expense presented in the statement of comprehensive income includes interest on financial assets and financial liabilities measured at amortized cost calculated on an effective interest basis.

3.3 Fees and Commission

Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Other fees and commission income, including loan processing fees and fund management fees are recognized as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, the related loan commitment fees are recognized on a straight-line basis over the commitment period.

Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.

3.4 Income from Amna Assets

Income on Amna’s financing is recognized on time apportioned basis over the period and the profit rate is determined in advance upon agreement of all parties.

9




3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.5 Tax Expense

Tax expense comprises current and deferred tax. Current tax and deferred tax is recognized in profit or loss.

Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the tax rate enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits deductible temporary difference to the extent that it is probable that future taxable profits will be available against which they can be

utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it no longer probable that the related tax benefits will be provided.

3.6 Financial Assets and Financial Liabilities

(i) Recognition The Company initially recognizes loans and advances, deposits, debt securities issued and subordinated liabilities on the date at which they are originated. Regular way purchases and sales of financial assets are recognized on the trade date at which the Company commits to purchase or sell the asset. All other financial assets and liabilities are initially recognized on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

A financial asset or financial liability is measured initially at fair value plus, transaction costs that are directly attributable to its acquisition or issue.

(ii) Classification

Refer accounting policies 3(6), 3(7), 3(8) and 3(9).

(iii) De-recognition

The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for de-recognition that is created or retained by the Company is recognized as a separate asset or liability in the statement of financial position.

10





3.6 Financial assets and financial liabilities (Continued)

(iii) De-recognition (Continued)

If the Company enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them, then the transferred assets are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions.

In transactions in which the Company neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Company continues to recognize the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

In certain transactions the Company retains the obligation to service the transferred financial asset for a fee. The transferred asset is derecognised if it meets the de recognition criteria. An asset or liability is recognised for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing.

The Company de recognizes a financial liability when its contractual obligations are discharged or cancelled or expire.

(iv) Offsetting

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to set off the recognized amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRSs, or for gains and losses arising from a Company of similar transactions such as in the Company’s trading activity.

(v) Amortised cost Measurement

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

(vi) Fair value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

When available, the Company measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm's length basis.

11





3.7 Measurement of Impairment

(i) Impairment of Financial assets

(a) Non-derivative Finance Assets

The finance assets not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there is an objective evidence that it is impaired. A finance asset is impaired if there is objective evidence of impairment as a result of one or more event that occurs after the initial recognition of the asset, and that loss event (s) had an impact on the estimates future cash flows of that asset that can be estimated reliably.

Objective evidence that financial asset are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indicating that a debtor or issuer will enter bankruptcy, adverse changes in the payment status borrowers or issuers, cash flow difficulties experienced by the borrower, breach of loan covenants or conditions, deterioration in the value of collateral and economic condition that correlate of with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline it its fair value below its cost is objective evidence of impairment. Loans, where interest or principal repayment is past due for 90 days or more, are identified by the Company as non-performing loans.

(b) Financial assets measured at amortised cost

The Company considers evidence of impairment for finance assets measured at amortised cost loan and receivables and held-to-maturity investment at both a specific assets and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics.

In assessing collective impairment, the Company uses historical trend of the probability of default,the timing of the recoveries and the amount of loss incurred, adjusted for management’ judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the different between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit and loss and interest on the impaired asset continued to be recongnised.

(ii) Impairment of Non-Financial Assets

The carrying amounts of the Company's non-financial assets and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated.

In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognized.

12





3.7 Measurement of Impairment (Continued)

(iii) De-recognition of Impairment Provision

When an event occurring after the impairment was recognized causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

3.8 Cash and Cash Equivalents

Cash and cash equivalents include notes and coins on hand and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Company in the management of its short-term commitments.

3.9 Loans and Advances

Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Company does not intend to sell immediately or in the near term.

Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method, except when the Company chooses to carry the loans and advances at fair value through profit or loss.

3.10 Held-To-Maturity Investments

Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Company has the positive intent and ability to hold to maturity, and which are not designated at fair value through profit or loss or as available for sale.

Held-to-maturity investments are carried at amortized cost using the effective interest method. A sale or reclassification of more than an insignificant amount of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as available for sale, and would prevent the Company from classifying investment securities as held to maturity for the current and the following two financial years.

However, sales and reclassifications in any of the following circumstances would not trigger a reclassification:

• Sales or reclassifications that are so close to maturity that changes in the market rate of interest would not have a significant effect on the financial asset's fair value.

• Sales or reclassifications after the Company has collected substantially all of the asset's original principal.

• Sales or reclassifications attributable to non-recurring isolated events beyond the Company’s control that could not have been reasonably anticipated.

3.11 Derivative assets

Derivatives assets include all derivative assets and liabilities that are not classified as trading assets or liabilities.

When a derivative is not held for trading, all changes in fair value are recognized immediately in profit or loss.

13





3.12 Property, Plant and Equipment

(i) Recognition and Measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalized borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized net within other income in profit or loss.

(ii) Subsequent Costs

The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

(iii) Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

The estimated useful lives for the current and comparative periods are as follows:

Leasehold Improvements 10 Years Furniture and Fixture 5 Years Computer Equipment 5 Years Motor Vehicles 4 Years Office Equipment 3 - 8 Years

Depreciation methods, useful lives and residual values are reassessed at the reporting date.

14



NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.13 Intangible Assets

(i) Recognition and Measurement

Intangible assets that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses.

(ii) Subsequent Expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognized in profit or loss when incurred.

(iii) Amortization

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:

Computer Software Over 4 year

Amortization methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

3.14 Deposits and Subordinated Liabilities

Deposits and subordinated liabilities are the Company's sources of debt funding. The Company classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments.

Deposits and subordinated liabilities are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method, except where the Company chooses to carry the liabilities at fair value through profit or loss.

3.15 Provisions

A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost' of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.

15





3.16 Employee Benefits

(i) Defined Contribution Plans

A defined contribution plan is a post-employment benefit plan under which Company pays fixed contributions and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss when they are due.

The Company contributes to the Maldives Retirement Pension Fund. All the local employees of HDFC are the members of this Fund to which the Company contributes 7% of employees' monthly basic salary. This contribution is recognized as employee benefit expense when they are due.

(ii) Short-Term Benefits

Short-term employee benefit obligations of the Company are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

3.17 Operating Expenses

All operating expenses incurred in the running of the Company and in maintaining the capital assets in a state of efficiency has been charged to the revenue in arriving at profits or loss for the period.

Expenses incurred for the purpose of acquiring, expending or improving assets of a permanent nature by means of which to carry on the business or for the purpose of increasing the earning capacity of the Company have been treated as capital expenses.

Gains or losses of a revenue nature on the disposal of property and equipment have been accounted for in the profit or loss.

Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the operating expenses in the income statement on a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

3.18 Segment Reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenue and incur expenses, whose operating results are reviewed regularly by the chief operating decision maker and for which discrete financial information is available. The Company’s operations are looked at as a single operating segment.

16




4. DETERMINATION OF FAIR VALUES

A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(i) Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.

(ii) Financial liabilities (Non-derivative)

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements.

5. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1st January 2017. The Company is currently in the process of evaluating the potential impact these standards and interpretation may have on the financial statements.

• Amendment to IAS 1 – Disclosure Initiative.

• IFRS 9 – Financial Instruments.

• IFRS 15 – Revenue from contracts with customers.

• IFRS 16 - Leases

17

18





6 NET INTEREST INCOME 2016 2015

MRf. MRf.

Interest Income

Housing Loans 120,720,395 111,579,951

Treasury Bill and Other Bank Deposits 508,556 2,566,690

Total Interest Income 121,228,951 114,146,641

Interest Expense

Deposits from Customers 1,060,440 957,586

Borrowings 33,544,308 33,955,171

Bonds 2,206,565 2,466,955

Total Interest Expense 36,811,313 37,379,712

Net Interest Income 84,417,638 76,766,929

7 NET INCOME ON SHARI'AH PRODUCTS 2016 2015

MRf. MRf.

Revenue from Housing Facilities 22,801,868 7,940,809

Revenue from Short Term Investments 249,563 627,505

Fee Income 1,263,866 1,413,521

Amna Investors' Profit Share (9,876,716) (3,927,182)

14,438,581 6,054,653

8 FEE INCOME 2016 2015

MRf. MRf.

SWAP Commitment Fees (Note 8.1) 2,350,101 3,676,410

Housing Loan Processing Fee (Note 8.2) 1,357,984 1,861,142

Management Fee (Note 8.3) 603,842 666,609

4,311,927 6,204,161

8.1 SWAP Commitment Fees

8.2 Housing Loan Processing Fee

8.3 Management Fee

Management Fee is computed based on the outstanding due to Ministry of Housing and Urban

Development fund as at the end of each month at a rate of 1.75% per annum.

In the initial SWAP agreement signed in 2009, the commitment fees, as stipulated in the agreement was

1% per annum.

In the second SWAP agreement signed in 2011, the commitment fees, as stipulated in the agreement was

3% per annum.

SWAP commitment fees are computed on a daily basis on the outstanding US$ balance committed to be

sold back by State Trading Organization Plc. The fee percentage is stipulated in the respective SWAP

agreements.

Housing Loan Processing Fee is computed based on the approved loan value subject to a maximum

amount of MRf. 50,000/-.

19





9 OTHER INCOME 2016 2015

MRf. MRf.

Penalty Income on Late Payments 1,809,366 1,159,958

Insurance Commission 106,373 109,202

Gain on Disposal of Property, Plant and Equipment - 12,799

1,915,739 1,281,959

10 PERSONNEL EXPENSES 2016 2015

MRf. MRf.

Salaries 5,703,858 6,542,349

Allowances and Bonus 3,337,984 3,401,590

Staff Insurance 100,800 102,150

Pension Contribution 273,965 310,474

Amortization of Prepaid Staff Cost 180,027 82,791

9,596,634 10,439,354

11 OTHER OPERATING EXPENSES 2016 2015

MRf. MRf.

Professional Fees 1,273,990 985,101

Premises, Equipment and Establishment Expenses 1,145,218 1,287,188

Board, Remuneration and Meeting Expenses 582,024 830,213

Advertising and Marketing Expenses 207,966 378,261

Depreciation on Property, Plant and Equipment 523,844 606,554

Amortization on Intangible Assets 8,994 29,701

Communication Expenses 297,037 359,524

Printing and Stationary Expenses 179,615 154,763

Bank Charges 145,149 386,149

Other Expenses 1,438,954 1,505,358

5,802,791 6,522,812

12 TAX EXPENSE 2016 2015

MRf. MRf.

Tax Expense (Note 12.1) 13,367,230 10,928,976

(Recognised)/ Reverse of Deferred Tax Asset (Note 12.2) (3,330) 13,740

13,363,900 10,942,716

In accordance with the provisions of the Business Profit Tax Act No. 5 of 2011 and subsequent

amendments and the regulations thereto, the Company is liable for income tax on its taxable income

at the rate of 15%.

20





12 TAX EXPENSE (CONTINUED)

12.1 Reconciliation Between Accounting Profit and Taxable Income: 2016 2015

MRf. MRf.


Aggregate Disallowable Items 6,455,707 5,169,206

Aggregate Allowable Items (2,504,148) (3,294,859)

Tax Free Allowance (500,000) (500,000)

Taxable Income 89,114,864 72,859,839

Income Tax @ 15% 13,367,230 10,928,976

12.2 Deferred Tax Assets 2016 2015

MRf. MRf.

As at 1st January 48,101 61,841

Recognised/ (Reversed) During the Year 3,330 (13,740)

As at 31st December 51,431 48,101

Deferred Tax Assets are Attributable to the Following Temporary Differences:

Temporary Tax Temporary Tax

Differences Effect Differences Effect

MRf. MRf. MRf. MRf.

Property, Plant and Equipment 344,182 51,627 329,667 49,450

Intangible Asset (1,308) (196) (8,994) (1,349)

342,874 51,431 320,673 48,101

13 BASIC AND DILUTED EARNINGS PER SHARE

2016 2015

Profit for the Year Attributable to Shareholders (MRf.) 72,299,405 60,542,776

Weighted Average Number of Ordinary Shares in Issue 1,593,750 1,593,750

Basic and Diluted Earnings Per Shares (MRf.) 45.36 37.99

14 CASH AND CASH EQUIVALENTS 31/12/2016 31/12/2015

MRf. MRf.

Cash in Hand 9,500 9,500

Balances with Other Banks 28,608,327 49,882,105

28,617,827 49,891,605

31/12/201531/12/2016

Basic and Diluted Earnings per share is calculated by dividing the profit attributable to shareholders by the

weighted average number of ordinary shares in issue during the year.

21





15 FINANCIAL ASSETS HELD TO MATURITY 31/12/2016 31/12/2015

MRf. MRf.

Investments in Treasury Bills (Note 15.1) 19,964,616 59,847,413

General Investments - 25,069,766

19,964,616 84,917,179

15.1

16 DERIVATIVE ASSET 31/12/2016 31/12/2015

MRf. MRf.

Opening Balance 3,007,608 10,479,366

Fair Value Realized During the Year (2,633,377) (7,471,758)

Closing Balance 374,231 3,007,608

17 LOANS AND ADVANCES TO CUSTOMERS 31/12/2016 31/12/2015

MRf. MRf.

Housing Loans to Customers 1,067,654,331 975,931,470

Housing Loans to Staff 5,841,408 3,198,299

Amna Assets 247,487,479 121,394,087

1,320,983,218 1,100,523,856

Less: Impairment Provision for loans and advances (Note 17.1) (18,005,208) (13,984,053)

1,302,978,010 1,086,539,803

17.1 Impairment Provision for loans and advances

Opening Balance 13,984,053 12,124,009

Provision made for the Year 4,021,155 1,860,044

Closing Balance 18,005,208 13,984,053

The Company has initially calculated and recognized the fair value of three currency SWAPs entered

with State Trading Organization, based on the outstanding notional amounts as at the respective

inception dates.

At each reporting year the Company estimates the fair value of the respective SWAPs and adjusts any

gain/ (loss) arising, in profit/ (loss).

The fair value gain is realized as and when a repurchase transaction in accordance with the agreement

takes place.

Treasury Bills will mature on 16th and 23rd January 2017 and carry an interest rate of 3.5% per

annum.

22





18 PROPERTY, PLANT AND EQUIPMENT

Leasehold Office Computer Furniture and Motor Total Total

Improvements Equipment Equipment Fixtures Vehicles 2016 2015

MRf. MRf. MRf. MRf. MRf. MRf. MRf.

Cost

As at 1st January 1,006,144 896,377 2,413,136 630,773 66,250 5,012,680 4,698,087

Additions During the Year - 4,697 156,948 157,460 - 319,105 530,215

Disposals During the Year - - - - - - (215,622)

As at 31st December 1,006,144 901,074 2,570,084 788,233 66,250 5,331,785 5,012,680

Accumulated Depreciation

As at 1st January 687,963 483,321 1,804,117 525,500 33,125 3,534,026 3,137,317

Charge for the Year 100,614 89,781 247,368 69,518 16,563 523,844 606,554

Disposals During the Year - - - - - - (209,845)

As at 31st December 788,577 573,102 2,051,485 595,018 49,688 4,057,870 3,534,026

Net Carrying Value

As at 31st December 2016 217,567 327,972 518,599 193,215 16,562 1,273,915

As at 31st December 2015 318,181 413,056 609,019 105,273 33,125 1,478,654

23





19 INTANGIBLE ASSETS 31/12/2016 31/12/2015

MRf. MRf.

Cost

Opening Balance 744,214 744,214

Additions During the Year - -

Closing Balance 744,214 744,214

Accumulated Amortization

Opening Balance 732,605 702,904

Amortization During the Year 8,994 29,701

Closing Balance 741,599 732,605

Net Book Value 2,615 11,609

20 OTHER ASSETS 31/12/2016 31/12/2015

MRf. MRf.

Accounts Receivable 354,372 1,917,166

Pre-payment of Fees 7,882,935 8,048,161

Advance Paid to Supplier - 745,446

Advances to Staff 293,693 648,783

8,531,000 11,359,556

21 DEPOSITS FROM CUSTOMERS 31/12/2016 31/12/2015

MRf. MRf.

Monthly Installment Deposits (Note 21.1) 60,092,971 52,991,012

Borrowers Deposits 4,410,802 6,445,454

64,503,773 59,436,466

21.1 Monthly Installment Deposits

22 BORROWINGS 31/12/2016 31/12/2015

MRf. MRf.

Opening Balance 609,453,952 567,317,419

Borrowings During the Year 189,440,256 186,998,521

Repayments During the Year (128,416,184) (145,149,846)

Interest Expenses for the Year 46,688,029 41,306,894

Interest Paid During the Year (45,085,930) (41,019,036)

Closing Balance 672,080,123 609,453,952

The purchase cost of accounting software has been recognized as an intangible asset and is amortized over a

period of four years.

Equated monthly installment deposits are held as contingency to settle the monthly installments of

borrowings in case the borrower defaults the payment. These deposits carry fixed interest at 2.5% per annum.

24





22 BORROWINGS (CONTINUED)

22.1 Sources of Funds

International Finance Corporation - 12,382,668

Asian Development Bank - 10,674,422

Netherlands Development Finance Company (FMO) (Note 22.3) 64,344,552 85,818,942

Corporate Bonds (Note 22.4) 33,577,806 29,302,115

Wakala Facilities (Note 22.5) 122,316,295 76,186,632

45,635,711 75,126,595

Bank of Maldives (Note 22.7) 104,250,000 119,250,000

Listed Sukuk (Note 22.8) 23,521,619 23,320,939

153,784,047 177,391,639 Bank of Ceylon (Note 22.10) 124,650,093 -

672,080,123 609,453,952

22.2 Maturity Analysis of Borrowings

Payable Within One Year 301,732,248 181,849,307

Payable After One Year 370,347,875 427,604,645

672,080,123 609,453,952

22.3 Netherlands Development Finance Company (FMO)

22.4 Corporate Bond

22.5 Wakala Facilities

Deutsche Investitutions und Entwicklungs Gesellschaft MBH (DEG)

(Note 22.9)

Hongkong and Shanghai Banking Corporation Limited (Note 22.6)

During 2012, Maldives Islamic Bank has invested MRf. 20,000,000/- with HDFC under a Wakalah

arrangement with a profit target of 11.5% for a year of 12 months. This has been rolled over for the

fifth term during 2016. Amana Takaful Maldives has invested a total of MRf. 10,000,000/- during 2012

under a wakalah arrangement with an annual profit target of 11.5% for a year of 12 months and out of

this a facility for a value of MRf. 5,000,000 /- was settled during the year. Balance has been rolled over

for the fourth term during 2016.

During 2015, Maldives Hajj Corporation Limited has invested MRf. 30,000,000/- with HDFC with a

profit target of 8% per annum for 5 years. During 2015, Maldives Islamic Bank has invested MRf.

10,000,000/- under a wakalah arrangement with a profit 8.5% per annum for a year. Further, Amana

Takaful Maldives has invested MRf. 5,000,000/- with a profit target of 8% for a year under wakalah for

granting home financing facilities in accordance with the rules and principles of Sharia. These facilities

were rolled over during the year for another year.

During the year 2016, Maldives Hajj Corporation Limited, Ayady Takaful Maldives, Amana Takaful

Maldives has invested MRf. 30,000,000/- , MRf. 15,000,000/- and MRf. 5,000,000/- respectively with

HDFC at a profit sharing ratio of 35% : 65% between HDFC and Investor.

During the year 2016, the Company has issued bonds for a value of MRf. 15,000,000 which are to be

matured in 2017. These bonds carry an interest rate of 6% to 6.5%

The borrowings from FMO carry an interest at LIBOR + 4.25%. The term loan from FMO is repayable

in 16 half yearly installments commencing from 15th April 2012 and ending on 15th April 2019. The

FMO loan is secured by all rights of HDFC under any security obtained by HDFC pursuant to the

mortgage loans given by HDFC from the funds disbursed under the FMO loan.

25





22 BORROWINGS (CONTINUED)

22.6 Term Loan from The Hongkong and Shanghai Banking Corporation Limited (HSBC)

22.7 Term Loan from Bank of Maldives PLC

22.8

22.9 Deutsche Investitutions und Entwicklungs Gesellschaft MBH (DEG)

22.10 Bank of Ceylon - Male' Branch

23 OTHER LIABILITIES 31/12/2016 31/12/2015

MRf. MRf.

Ministry of Housing and Urban Development Fund (Note 23.1) 7,055,421 18,394,665

Ministry of Housing and Infrastructure Fund (Note 23.2) 86,214,588 70,000,000

Ministry of Housing and Infrastructure Social Housing Fund 8,299,408 5,275,217

Amounts Received from Customers in Advance 6,441,436 5,498,916

Dividends Payable 31,875,247 247

Insurance Premium Payable 9,059,076 7,279,139

Employees Pension Contribution 48,409 44,924

Accruals and Other Liabilities 552,234 639,853

149,545,819 107,132,961

The Company has obtained a loan facility of MRf. 150,000,000/- as per the agreement dated 15th March

2016 from Bank of Ceylon for the purpose of providing mortgage housing loans. The loan carries an

interest payable monthly during the grace year at the rate of 1 month treasury bill rate + 2.3% per annum

and second year onward 6 month treasury bill rate + 2.3% per annum (Floor rate - 5.5% and cap rate -

9.00%) repayable in bi-annual instalments commencing after an one year grace Year and ending in 2022.

The Company has obtained a loan of MRf. 150,000,000/- as per the agreement dated 3rd April 2013 from

Bank of Maldives for the purpose of providing mortgage housing loans. The loan carries an interest at a rate

of 8.5% per annum and repayable in monthly instalments commencing from the first utilization date for 5-

years, ending in 2018.

Listed Sukuk

The borrowings from DEG carry an interest at LIBOR + 5%. The loan is repayable in 18 half yearly

installments commencing from 15th January 2015 and ending on 15th June 2023. The DEG loan is secured

by a first ranking mortgage on HDFC’s mortgage portfolio and charged over the account in the Maldives

into which proceeds of the loan was disbursed and from which housing loans were disbursed.

The Company has obtained a loan of MRf. 150,000,000/- as per the agreement dated 6th February 2013

from HSBC Maldives Branch for the purpose of financing mortgage housing loan programs as set out in the

agreement dated 28th June 2012 between the Company and the Government of Maldives. The loan carries

an interest at MTBR + 1.5% and repayable in ten semi annual installments commencing from six month

after the first utilisation date. The loan is secured by a guarantee from the Government of Maldives.

The Company has issued transferrable Sukuk amounting to MRf. 22,566,000/- on 27th January 2014 at a

price of MRf. 500/- per anum of Ten (10) years from allotment date and profit will be paid every six

months after the date of allotment, until maturity date, the funds are utilized in order to fund shari'ah

compliant mortgage housing finance operations under principles and rules of shari'ah. The profit will be

shared between Sukuk holder (Rabb al Mal) and Company (Mudarib) at a rate of 65% and 35%

respectively.

27





25 RESERVES

25.1 General Reserve

25.2 Staff Education Reserve

26 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

26.1 Overview

26.2 Credit Risk

26.3 Risk Limit Control and Mitigation Policies

General reserve has been created by the discretion of the board of directors and will be utilized for any

purpose decided by the board of directors.

HDFC’s activities expose it to a variety of financial risks and those activities involve the analysis,

evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core

to the financial business, and the operational risks are inevitable consequence of being in business. HDFC’s

aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse

effects on HDFC’s financial performance.

HDFC’s risk management policies are designed to identify and analyse these risks, to set appropriate risk

limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date

information systems. HDFC regularly reviews its risk management policies and systems to reflect changes in

markets, products and emerging best practices.

Risk management is carried out by HDFC under policies approved by the Board of Directors. HDFC

identifies and evaluates financial risks in close co-operation with the HDFC's operating unit. The Board

provides written principles for overall risk management, as well as written policies covering specific areas,

such as credit risk and liquidity risk. In addition, internal audit is responsible for the independent review of

risk management and the control environment. The most important types of risk are credit risk, liquidity risk,

market risk and other operational risk. Market risk includes currency risk and interest rate risk.

HDFC manages, limits and controls concentrations of credit risk wherever they are identified – in particular,

to individual counterparties and groups, and to corporates. HDFC structures the levels of credit risk it

undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of

borrowers, and to corporates. Such risks are monitored on a revolving basis and subject to an annual or more

frequent review, when considered necessary.

The Company takes on exposure to credit risk, which is the risk that a counterparty will cause a financial

loss for HDFC by failing to discharge an obligation. The credit risk is the most important risk for HDFC’s

business, management therefore carefully manages its exposure to the credit risk. Credit exposures arise

principally from lending activities. There is also credit risk in off-balance sheet financial instruments, such

as loan commitments.

The credit policies were formulated covering HDFC's credit activities and establishment of individual limits

of authority for initiating, reviewing and approving credit.

A credit Committee comprising the Managing Director / Acting Managing Director, Operations Director,

Head of Finance, Senior Manager Credit, Senior Manager Islamic Finance and Senior Manager IT meets

regularly to discuss credit proposals in line with credit policies. The credit Committee also reviews non-

performing assets, documentation and other credit related issues.

The Company has created the staff education reserve for the purpose of providing finance assistance for

higher education of HDFC staff members.

28





26 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

26.3 Risk Limit Control and Mitigation Policies (Continued)

Some other specific control and mitigation measures are outlined below;

(a) Collateral

(b) Credit-Related Commitments

26.4 Impairment and Provisioning Policies

Maximum Exposure to Credit Risk Before Collateral Held or Other Credit Enhancements

31/12/2016 31/12/2015

MRf. MRf.

Neither Past Due nor Impaired (Less than 30 days) 1,264,834,119 1,070,313,189

Past Due but Not Impaired (Outstanding 30 - 90 days) 49,010,598 7,414,935

Impaired (Outstanding for more than 90 days) 9,290,349 22,795,732

Gross Loans and Advances 1,323,135,066 1,100,523,856

Less: Provision for Impairment (18,005,208) (13,984,053)

Net Loans and Advances 1,305,129,858 1,086,539,803

HDFC employs a range of policies and practices to mitigate the credit risk. The most traditional of these is

the obtaining security for housing loans, which is a common practice. HDFC implements guidelines on the

acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for

housing loans are mortgage over housing units that is financed by HDFC.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of

loans. With respect to credit risk on commitments to extend credit, HDFC is potentially exposed to loss in

an amount equal to the total unused commitments. However, the likely amount of loss is negligible than the

total unused commitments, as most commitments to extend credit are contingent upon customers

maintaining specific credit standards and since generally these exposures are secured against adequate

collateral. HDFC monitors the term to maturity of credit commitments.

• All the housing loans are backed by collateral.

• 95.59% of the loans and advances portfolio are considered to be neither past due nor impaired (2015:

97.25%);

Set out below is an analysis of the gross and net (of allowances for impairment) amounts of loans and

advances to customers.

During the year ended 31st December 2016, the Company’s total value of loans and advances increased by

20.23% (2015: 15.41%) as a result of new disbursements of housing loans. In order to minimise the

potential increase of credit risk exposure, HDFC focused more on lending house purchase and construction

loans providing high value collateral and strong repayment capacity from employment, other business and

rental income.

Impairment provisions are recognised for financial reporting purposes based on expected future losses

calculated based on historical default rates.

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to

the HDFC resulting from its loan portfolio and based on the following:

Maximum exposure before collateral equals to the net carrying value of all the assets in the Statement of

Financial Position except cash and bank balances representing a worse case scenario of credit risk exposure

to HDFC at 31st December 2016 and 31st December 2015, without taking account of any collateral held.

29






26.4 Impairment and Provisioning Policies (Continued)

(a) Loans Neither Past Due nor Impaired

MRf. MRf. MRf. MRf.

A+ 0.2% 1,264,834,119 100.00% 1,031,693,894 96.39%

A 0.2% to 0.5% - 0.00% 10,635,368 0.99%

A- 0.5% to 1% - 0.00% 6,513,665 0.61%

B+ 1% to 1.5% - 0.00% 5,036,014 0.47%

B 1.5% to 2% - 0.00% 6,953,762 0.65%

C above 2% - 0.00% 9,480,486 0.89%

1,264,834,119 100% 1,070,313,189 100%

31st December 2016 (MRf. '000) Male' Hulhumale Outer Atoll Total

Past Due 31 - 60 days 10,735 32,928 3,352 47,015

Past Due 61 - 90 days - 1,520 475 1,995

Total 10,735 34,448 3,827 49,010

31st December2015 (MRf. '000) Male' Hulhumale Outer Atoll Total

Past Due 31 - 60 days 1,771 898 1,681 4,350

Past Due 61 - 90 days 414 2,164 487 3,065

Total 2,185 3,062 2,168 7,415

Loans and advances less than 90 days past due are not considered impaired, unless other information is

available to indicate the contrary. Gross amount of loans and advances by areas to customers that were

past due but not impaired were as follows:

Loans to

customers

Loans to

Customers

Percentage

of Total

Loans

Percentage of

Total Loans

Maximum Exposure to Credit Risk Before Collateral Held or Other Credit Enhancements

(Continued)

(b) Loans and Advances Past Due but Not Impaired

Internal Ratings Basis for Grading

(B/A)

31/12/201531/12/2016

Currently HDFC maintains an internal credit rating system for loans neither past due or impaired.

Internal rating is calculated by taking total receipts for the Year (A) and total late penalty for the Year

(B), and arriving at a percentage by dividing B by A, (i.e. B/A). Percentages are graded as follows;

30






26.4 Impairment and Provisioning Policies (Continued)

(c) Loans and Advances Impaired

31st December 2016 (MRf. '000) Male' Hulhumale' Outer Atoll Total

2,566 4,097 2,627 9,290

31st December2015 (MRf. '000) Male' Hulhumale' Outer Atoll Total

14,505 3,767 4,524 22,796

26.5 Concentration of Risks of Financial Assets with Credit Risk Exposure

(a) Geographical Sectors

31/12/2016 31/12/2015

MRf. MRf.

Residential - Conventional 1,071,735,487 976,026,010

Residential - Islamic 247,487,490 120,257,411

Commercial 3,912,089 4,240,435

Grand Total 1,323,135,066 1,100,523,856

26.6 Market Risk

HDFC takes on exposure to market risk, which is the risk that the fair value or future cash flows of a

financial instrument will fluctuate because of changes in market prices. Market risks arise from open

positions in interest rate and currency, all of which are exposed to general and specific market

movements and changes in the level of volatility of market rates or prices such as interest rates,

credit spreads and foreign exchange rates.

Non-trading portfolios primarily arise from the interest rate management of HDFC's housing and

cost of funds.

The market risks arising from non-trading activities are concentrated in HDFC’s Assets and

Liabilities Management Committee (ALCO).

Impaired Loans

Impaired Loans

The impaired loans and advances to customers before taking into consideration the cash flows from

collateral held is MRf. 9,292,185/- (as compared to on 31st December 2015 when impaired loans

and advances to customers were MRf. 22,795,732-).

The breakdown of the gross amount of impaired loans and advances by areas are as follows:

HDFC’s lending activities are limited to Maldives.

(b) Sectors

The following table breaks down HDFC's main credit exposure at their carrying amounts, as

categorised by the sectors of our counterparties.

31






26.7 Foreign Exchange Risk

31/12/2016 31/12/2015

US$ US$

Assets

Cash and Balances with Other Banks (39,516) 92,027

Derivative Financial Instruments 24,269 195,046

Total Assets (15,247) 287,073

Liabilities

Borrowings 14,066,176 18,441,977

Total Liabilities 14,066,176 18,441,977

Net on-Balance Sheet Financial Position (14,081,423) (18,154,904)

Commitments 13,950,791 19,538,268

Net (130,632) 1,383,364

All the transactions except transactions carried out in local currency, Maldivian Rufiyaa (MRf.), are

carried out mainly in United States Dollars (US$) for which exchange rate was pegged. However, with

effect from 10 April 2011, the government declared a managed float of the currency within a 20% band

(1 US$ = MRf. 10.28/- to MRf. 15.42/-). The Corporation takes on exposure to the effects of

fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows.

The management has set up a policy to manage their foreign exchange risk against their functional

currency, by entering into forward contracts.

HDFC has borrowed US$ 7.5 million from Asian Development Bank (ADB) and US$ 4 million out of

total US$ 7.5 million from International Finance Corporation (IFC). HDFC also received share capital

amount from foreign investors amounting to US$ 6.875 million. The proceeds from these were sold to

State Trading Organisation PLC (STO) for equivalent Rufiyaa at 1 US$ = MRf. 12.85/-. HDFC has

entered into a SWAP agreement with STO by which STO will sell equal amount of US$ at the rate of 1

US$ = 12.85/- MRf. to honour the US$ requirement of HDFC.

The Company's exposure to currency risk as at reporting date is as follows;

HDFC has also borrowed balance US$ 3.5 million out of total US$ 7.5 million from International

Finance Corporation (IFC) and US$ 7 million from Netherlands Development Finance Company

(FMO). HDFC has also borrowed US$ 4.5 million from Deutsche Investitions- und (DEG). The

proceeds from these were sold to State Trading Organisation PLC (STO) for equivalent Rufiyaa at 1

US$ = MRf. 15.38/- and 1 US$ = MRf. 15.42/- respectively. HDFC has entered into three SWAP

agreements with STO by which STO will sell equal amount of US$ to honour the US$ requirement of

HDFC at the rate of 1 US$ = MRf. 15.38/- and MRf. 15.42/-.

By virtue of the SWAP agreement, HDFC will be able to service the US$ loans obtained from ADB,

IFC, FMO and DEG. As at the reporting date, the outstanding balance in borrowings, with regard to the

money provided for this SWAP agreement, amounts to US$ 14,066,176/-, against which the amounts of

US$ to be purchased from STO PLC is US$ 13,950,791/-.

32






26.8

As at 31st December 2016 (MRf. '000)

Assets

Cash and Balances with Other

Banks 13,640 - - - - 14,977 28,617

Financial Assets Held to Maturity 19,965 - - - - - 19,965

Loans and Advances to Customers 4,041 8,201 38,968 270,287 983,575 - 1,305,072

Derivative Financial Instruments

374 - - - 374

Other Assets - - - - - 6,365 6,365

Total Financial Assets 37,646 8,575 38,968 270,287 983,575 21,342 1,360,393

Liabilities

Deposits from Customers - - - - 58,510 5,994 64,504

Borrowings 16,513 79,180 161,912 327,284 87,191 - 672,080

Other Liabilities - - - - - 112,206 112,206

Bank Overdraft - - - - - -

Total Financial Liabilities 16,513 79,180 161,912 327,284 145,701 118,200 848,790

Total Interest Repricing Gap 21,133 (70,605) (122,944) (56,997) 837,874 (96,859) 511,603

As at 31st December 2015 (MRf. '000)

Assets

Cash and Balances with Other

Banks 14,787 - - - - 35,104 49,891

Financial Assets Held to Maturity 54,969 20,039 9,909 - - - 84,917

Loans and Advances to Customers 3,879 9,849 64,899 295,559 712,354 - 1,086,540

Derivative Financial Instruments

1,578 1,163 267 - - - 3,008

Other Assets - - - - - 11,360 11,360

Total Financial Assets 75,213 31,051 75,075 295,559 712,354 46,464 1,235,716

Liabilities

Deposits from Customers - - - - 50,719 8,717 59,436

Borrowings 19,177 40,288 120,696 347,833 81,460 - 609,454

Other Liabilities - - - - - 113,136 113,136

Total Financial

Liabilities 19,177 40,288 120,696 347,833 132,179 121,853 782,026

Total Interest Repricing Gap 56,036 (9,237) (45,621) (52,274) 580,175 (75,389) 453,690

TotalNon -

Interest

Bearing

1 Month

1 Month 1-3

Months

3-12

Months

1-5 Years Over 5

Years

Non -

Interest

Bearing

Total

1-3

Months

3-12

Months

1-5 Years Over 5

Years

The table below summarises HDFC’s exposure to interest rate risks. It includes the Company’s financial instruments at carrying

amounts, categorised by the earlier of contractual repricing or maturity dates.

Interest Rate Risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market

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

interest rates. HDFC takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on cash flow risks.

Interest margins may increase/ decrease as a result of such changes but may reduce losses in the event that unexpected movements

The extent of the interest rate risk depends on the value and year of the maturity mismatch between interest bearing assets and

liabilities and the ability and speed of HDFC in re-pricing them. ALCO regularly reviews these gaps to ensure that they are within

acceptable norms. HDFC regularly monitors the market behaviour and products are appropriately re-priced when necessary.

HDFC does not carry a trading portfolio or does not generally invest in stocks or shares other than Government treasury bills, for

which investments are generally less than 3 months and held to maturity. Therefore HDFC is not open to any price fluctuation risks.

33






26.8 Interest Rate Risk (Continued)

Exposure to Interest Rate Risk – Loans and Advances

Sensitivity Analysis of Net Interest Income

31/12/2016 31/12/2016 31/12/2015 31/12/2015

1% Increase 1% Decrease 1% Increase 1% Decrease

MRf. MRf. MRf. MRf.

Average for the Year 5,691,341 (5,691,341) 10,865,398 (10,865,398)

26.9 Liquidity Risk

Liquidity Risk Management Process

a.)

b.)

c.)

d.)

Funding Approach

Sources of liquidity are regularly reviewed by the ALCO.

Monitoring balance sheet liquidity ratios against internal requirements; and

Managing the concentration and profile of debt maturities.

Liquidity risk is the risk that HDFC is unable to meet its payment obligations associated with its

financial liabilities when they fall due and to replace funds when they are withdrawn. The

consequence may be the failure to meet obligations to repay depositors and fulfil commitments to

lend.

HDFC’s liquidity management process, as carried out within HDFC and monitored by the senior

management in HDFC, includes:

Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be

met. This includes replenishment of funds as they mature or are borrowed by customers;

Maintaining a portfolio of deposits with bank and treasury bills that can easily be liquidated as

protection against any unforeseen interruption to cash flow;

Monitoring and reporting take the form of cash flow measurement and projections for the next

week and month respectively, as these are key Years for liquidity management. The starting point

for those projections is an analysis of the contractual maturity of the financial liabilities and the

expected collection date of the financial assets.

HDFC also monitors unmatched medium-term assets, the level and type of undrawn lending

commitments and undrawn borrowings.

34






26.9 Liquidity Risk (Continued)

Liabilities

Deposits 64,504 64,504 - - 5,994 - 58,510

Borrowings 672,080 793,513 19,496 93,487 191,167 386,419 102,945

Other Liabilities 149,546 (149,546) - - - (149,546) -

Total Liabilities 886,130 708,471 19,496 93,487 197,160 236,873 161,455

Assets

Non-Derivative Assets

28,618 28,618 28,618 - - - -

19,965 20,000 20,000 - - - -

1,302,978 2,468,281 16,934 33,868 152,407 1,016,043 1,249,029

Derivative Asset 374 374 374 - - - -

Other Assets 8,531 6,365 - - - 6,365 -

Total Assets 1,360,466 2,523,638 65,926 33,868 152,407 1,022,408 1,249,029

Net 3,232,109 85,422 127,355 349,567 1,259,281 1,410,484

Liabilities

Deposits 59,436 (70,848) - - (8,717) - (62,131)

Borrowings 609,454 (670,852) (14,651) (41,549) (142,185) (385,792) (86,675)

Other Liabilities 113,136 (103,378) - - - (103,378) -

Total Liabilities 782,026 (845,078) (14,651) (41,549) (150,902) (489,170) (148,806)

Assets

Non-Derivative Assets

49,892 49,892 49,892 - - - -

84,917 85,157 55,030 30,127 - - -

1,086,540 1,918,914 12,382 24,764 111,438 594,336 1,175,994

Derivative Asset 3,008 6,531 1,254 1,255 1,854 2,168 -

Other Assets 11,360 14,063 - - - - 14,063

Total Assets 1,235,717 2,074,557 118,558 56,146 113,292 596,504 1,190,057

Net 1,229,479 103,907 14,597 (37,610) 107,334 1,041,251

Over 5

Years

Maturity Analysis of Financial Assets and Liabilities

Over 5

Years

The table below set out the remaining contractual maturities of the Company's financial assets and financial liabilities.

As at 31st December

2015 (MRf. '000)

As at 31st December

2016 (MRf. '000)

Carrying

Amount

Cash and Balances with

Other Banks

Financial Assets Held to

Maturity

3-12

Months

1-5 Years1 Month 1-3 Months

3-12

Months

1-5 Years1-3 Months

Carrying

Amount

Gross Nominal

Inflow/

(Outflow)

Loans and Advances to

Customers

Loans and Advances to

Customers

1 MonthGross Nominal

Inflow/

(Outflow)

Cash and Balances with

Other Banks

Financial Assets Held to

Maturity

35






26.10 Capital Management

• To comply with the capital requirements set by the lenders;

• To safeguard HDFC’s ability to continue as a going concern so that it can continue to

provide returns for shareholders and benefits for other stakeholders; and• To maintain a strong capital base to support the development of its business.

31/12/2016 31/12/2015

Capital MRf. MRf.

159,375,000 159,375,000

51,407,100 51,407,100

240,694,334 227,713,927

16,284,754 16,731,381

467,761,188 455,227,408

467,761,188 455,227,408

670,280,209 571,382,788

670,280,209 571,382,788

70% 80%

Total Risk-Weighted Assets

Basel Ratio

Retained Earnings

Reserves

Total Qualifying Capital

Total Capital

Risk-Weighted Assets

On-Balance Sheet

Share Capital

Advance for Share Capital

The table below summarises the composition of capital and the ratios of HDFC for the year ended

31st December 2016. HDFC complied with all of the externally imposed capital requirements to

which they are subjected.

HDFC’s objectives when managing capital, which is a broader concept than the ‘equity’ on the

face of statement of financial position, are:

Capital adequacy and the use of regulatory capital are monitored daily by HDFC’s management,

employing techniques based on the guidelines developed by the Basel I Committee, for

supervisory purposes.

The Asian Development Bank and International Finance Corporation require HDFC to maintain a

ratio of total capital to the risk-weighted asset (the ‘Basel ratio’) at or above 10%.

HDFC’s capital as managed by its management comprises of share capital, retained earnings and

reserves created by appropriations of retained earnings and current Year earnings.

The risk-weighted assets are measured by means of a hierarchy of five risk weights classifiedaccording to the nature of – and reflecting an estimate of credit, market and other risks associated

with each asset and counterparty, taking into account any eligible collateral or guarantees. A

similar treatment is adopted for off-balance sheet exposure, with some adjustments to reflect the

more contingent nature of the potential losses.

36






26.11 Analysis of Financial Instruments by Measurement Basis

As at 31st December 2016

Financial Assets Fair Value Through Held-to- Loan and Total

Profit or Loss Maturity Receivables MRf.

Cash and Cash Equivalents - - 28,617,827 28,617,827

Financial Assets Held to Maturity - 19,964,616 - 19,964,616

Derivative Asset 374,231 - - 374,231

Loans and Advances to Customers - - 1,302,978,010 1,302,978,010

Total 374,231 19,964,616 1,331,595,837 1,351,934,684

Financial Liabilities Other Total

Liabilities MRf.

Borrowings 672,080,123 672,080,123

Deposits from Customers 64,503,773 64,503,773

Total 736,583,896 736,583,896


Financial Assets Fair Value Through Held-to- Loan and Total

Profit or Loss Maturity Receivables MRf.

Cash and Cash Equivalents - - 49,891,605 49,891,605

Financial Assets Held to Maturity - 84,917,179 - 84,917,179

Derivative Asset 3,007,608 - - 3,007,608

Loans and Advances to Customers - - 1,086,539,803 1,086,539,803

Total 3,007,608 84,917,179 1,136,431,408 1,224,356,195

Financial Liabilities Other Total

Liabilities MRf.

Borrowings 609,453,952 609,453,952

Deposits from Customers 59,436,466 59,436,466

Total 668,890,418 668,890,418

26.12 Financial Instruments Measured at Fair Value – Fair Value Hierarchy


Assets Level 1 Level 2 Total

MRf. MRf. MRf.

Derivative Asset - 374,231 374,231

Total - 374,231 374,231


Assets Level 1 Level 2 Total

MRf. MRf. MRf.

Derivative Asset - 3,007,608 3,007,608

Total - 3,007,608 3,007,608

The following table analyses financial instruments of HDFC measured at fair value at the reporting date, by the level in the fair

value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the

statement of financial position.

According to the information available, the valuation technique used, Inputs to valuation and Fair value Hierarchy have not

significantly changed from the previous year and requirements imposed by IFRS 13.

HDFC has used Level 2 in valuating Derivative Assets, since this is not trading in an active market and the input is observable.

(Exchange rates are readily available at the market). The Company has used 1 US$ = MRf. 15.42/- which is the exchange rate as

at the reporting date.

HDFC has used the market value approach since the market price and other relevant information are generated by the market

transactions that are available.

37






26.13 Fair Value Versus Carrying Amount

31/12/2016 31/12/2016 31/12/2015 31/12/2015

Fair Value Fair Value

MRf. MRf. MRf. MRf.

Assets Carried at Fair Value

Derivative Asset 374,231 374,231 3,007,608 3,007,608

Assets Carried at Amortized Cost

Cash and Cash Equivalents 28,617,827 28,617,827 49,891,605 49,891,605

Financial Assets Held to Maturity 19,964,616 19,964,616 84,917,179 84,917,179

Loans and Advances to Customers 1,302,978,010 1,302,978,010 1,086,539,803 1,086,539,803

1,351,560,453 1,351,560,453 1,221,348,587 1,221,348,587

Liabilities Carried at Amortized Cost

Deposits from Customers 64,503,773 64,503,773 59,436,466 59,436,466

Borrowings 672,080,123 672,080,123 609,453,952 609,453,952

736,583,896 736,583,896 668,890,418 668,890,418

a)

b)

c)

d) Deposits from customers and Borrowings - borrowings have variable interest rates determined under the

contract, which reflects the current market interest rate. Hence the carrying amount of such financial

instrument approximates its fair value.

Carrying

Amount

Carrying

Amount

The fair value of financial assets and liabilities, together with the carrying amount shown in the statement of

financial position, are as follows:

The methods and assumptions used to estimate the fair value of the financial instruments not carried at fair

value are as follows:

Cash and cash equivalents - The carrying amount of cash and cash equivalents approximate its fair value

due to the relatively short maturity of the financial instruments.

Financial Assets Held to Maturity - The carrying amount of Financial Assets Held to Maturity approximate

its fair value due to the relatively short maturity of the financial instruments.

Loan and advance to customers - The fair values of fixed rate loans and advances with remaining maturity

of less than one year are estimated to approximate their carrying amounts. For fixed rate loans with

remaining maturity of more than one year, the fair values are estimated based on discounted cash flows

using market rates of loans of similar credit risks and maturity. The fair values of impaired loans are

represented by their carrying amounts, net of any individual assessment allowance, being the expected

recoverable amount.

38





27 RELATED PARTY TRANSACTIONS

Name of Related Relationship Amount Amount Balance Balance

Party Due from/ (to) Due from/ (to)

As at As at

2016 2015 31/12/2016 31/12/2015

MRf. MRf. MRf. MRf.

Asian Development Shareholder (18%) Loan Repayments 10,524,150 21,025,170 - (10,674,422)

Bank

(54,721) (672,438) - -

Interest Paid 204,994 - - -

Dividend Paid 5,020,313 7,171,875 - -

Shareholder (49%) 13,666,240 19,523,200 - -

Shareholder (18%) Loan Repayments 12,164,667 24,329,333 - (12,382,668)

(17,953) (675,963) - -

Interest Paid 235,954 - - -

Dividend Paid 5,020,313 7,171,875 - -

Payments - - - -

HDFC Investments Shareholder (15%) Dividend Paid 4,183,585 5,976,550 - -

Limited (India) Payments - - - -

27.1 Transactions with Key Management Personnel

31/12/2016 31/12/2015

MRf. MRf.

Executive Management Salaries (Note 27.2) 2,351,002 3,288,306

Sitting Fees 95,000 56,000

2,446,002 3,344,306

27.2 Executive Management Salaries

Managing Director 1,541,743 2,312,433

Operations Director/ Company Secretary 529,405 541,528

Chief Financial Officer/ Head of Finance 279,854 434,345

2,351,002 3,288,306

28 EVENTS SUBSEQUENT TO THE REPORING DATE

29 DIRECTORS' RESPONSIBILITIES

30 COMPARATIVE FIGURES

Nature of

Transactions

The Managing Director, Board of Directors, Chief Financial Officer and Operational Director/ Secretary of the Company are the members

of the key management personnel. The Company has paid MRf. 2,446,002/- (2015: MRf.3,344,306/-) to the key management personnel

during the six month year ended 31st December 2016 as follows,

Government of

Maldives

Dividend Paid

Comparative figures of the financial statements have been reclassified to conform with current Year's classifications, wherever necessary.

International

Finance

Corporation

The board of directors' of the Company is responsible for the preparation and presentation of these Financial Statements.

Interest for the

Year

Interest for the

Year

No circumstances have arisen since the reporting date which require adjustments to/or disclosure in the Financial Statements.

39





31 COMMITMENTS 31/12/2016 31/12/2015

MRf. MRf.

31.1 Undrawn/ Partly Drawn Facilities of Contracted Loans and Advances 25,559,744 150,185,038

31.2 Operating lease Commitment 31/12/2016 31/12/2015

MRf. MRf.

Not later than one year 780,000 660,000

Later than one year and not later than five years 1,120,000 775,000

1,900,000 1,435,000

32 CONTINGENT LIABILITIES

33 OPERATING SEGMENTS

33.1

33.2 Geographical Information

Interest Income/ Profit Share 31/12/2016 31/12/2015

MRf. MRf.

Male 92,039,074 80,472,744

Hulhumale 39,708,780 27,234,543

Other Atolls 11,579,957 11,813,473

143,327,811 119,520,760

Housing Facilities (Gross) 31/12/2016 31/12/2015

MRf. MRf.

Male 815,000,450 755,583,729

Hulhumale 400,618,828 248,862,272

Other Atolls 107,515,769 96,077,855

1,323,135,047 1,100,523,856

33.3 Major Customer

The Company's operations are solely providing Housing loans. The operations of the Company are looked at as a

single operating segment.

Since the Company provides housing loans to a large customer base, the Company does not have major individual

customers who account for more than 10% of the entire revenue.

The Company has terminated an employee for breach of contract in February 2012. Subsequently, the employee

filed a case alleging wrongful termination with the Employment Tribunal, which decided in favor of the employee

with reinstatement and compensation. The Company appealed this decision of the Tribunal at High Court and was

successful in securing a favorable judgment that the Company’s decision to terminate the employee was legitimate.

However, the second part of the judgment requested that compensation be reviewed by the Employment Tribunal

against which, the Company appealed at the Supreme Court challenging the High Court’s decision to assess the

quantum merit of damages to be awarded to the employee though it was proven that the termination was legitimate

and legal. Appeal case at the Supreme Court is ongoing, and the Company is anticipating a favorable judgment.

Nevertheless, if we take into consideration the scenario where the Supreme Court upholds the decision of the High

Court, the, Company will be able to challenge and argue as to what would be fair and just compensation to be

awarded to the ex-employee during the sessions that will be held at the Employment Tribunal. Thus, giving

leverage to minimize the compensatory damages to be awarded to the employee.

Housing facilities and their corresponding interest income/ Profit Share based on geographical location is as

follows;

Annex: 6 Extract of Corporate Governance Code

EXTRACT OF CORPORATE GOVERNANCE CODE General principles The policy requires that the directors and management comply with the following general principles: i) Conduct all affairs adhering to the highest standards of ethics, transparency

accountability, honesty and integrity. ii) Provide accurate, fair, timely, full and meaningful disclosures in the periodic reports

to be filed by HDFC with the stakeholders and regulatory agencies. iii) Timely disclosure of conflicts and potential conflicts of interest that the directors or

management may have in the discharge of their duties and responsibilities on corporate governance. iv) Prevent the misuse of misapplication of HDFC’s assets and resources. v) Comply with applicable laws, rules and regulations. The Capital Market Development Authority (CMDA), which was established in 2006, is

the prime mover of promoting corporate governance in the Maldives. HDFC is also bound by Capital Market Development Authority’s Corporate Code on Corporate Governance. However, the benchmarks established by the shareholders’ agreement upon privatization of HDFC are far reaching and cover all the essential features of the Maldives’ approach to corporate governance. CMDA has a vision and framework that recognizes the shareholders’ rights and ownership functions, the role of stakeholders, disclosure and transparency standards and critical duties and responsibilities of the Board. HDFC has implemented Corporate Governance as stipulated by the Article II of the shareholders agreement of July 2008 in the following manner: Board composition (a) The number of Directors comprising the Board shall not be more than seven (7).

Each Initial Shareholder holding Shares or Share Equivalents representing at least five per cent (5%) of all Shares then outstanding on an as-converted basis shall have the right to nominate one (1) Director and one (1) Alternate Director who shall be elected to the Board, except for the Sponsor who shall have the right to nominate two (2) Directors who shall be elected to the Board. The Managing Director will have a seat on the Board without any voting right. Within the earlier of (i) one year from the date of this Agreement; or (ii) the occurrence of an IPO, the Initial Shareholders shall elect to the Board one (1) Independent Director and one (1) Alternate Independent Director. The Alternate Directors shall be invited to, and may be present at, any Board meeting provided that an Alternate Director shall only be allowed to vote while acting in the absence of the Director who appointed him/her. (b) The Board shall constitute such Committees (the "Committees") as required by Applicable Law or as the Board sees fit, including an audit committee (the "Audit Committee") which shall be comprised at least by two (2) of the three (3) Directors

appointed by the International Investors. Any financial audit of the Company shall be approved by the Audit Committee. Exercise of Rights. The Initial Shareholders agree to vote their Shares and to take all other action as may be reasonably necessary to ensure compliance with and to fully and effectually implement the provisions of the Shareholders Agreement. In exercise of their rights, the shareholders have elected to the board, one director each, and with the exception of IFC, where currently the investment is monitored by portfolio team in IFC Regional Office, in Colombo. The details of these appointments are given in the preceding section on Corporate Information.

Removal/Resignation of Directors/Alternate Directors. Any Initial Shareholder may require the removal of the Director or Alternate Director or, in the case of the Sponsor, Directors or Alternate Directors, nominated by any of them at any time and shall be entitled, subject to Section 2.01 (Board Composition), to nominate another Person as its Director or Alternate Director in place of any such Director or Alternate Director so removed, and the other Initial Shareholders shall exercise their rights in such manner so as to cause the election of that Director or Alternate Director as aforesaid. In the event of the resignation, retirement or vacation of office of a Director or Alternate Director appointed by any Initial Shareholder, such Initial Shareholder shall be entitled, subject to Section 2.01 (Board Composition), to nominate another person as its Director or Alternate Director in place of such Director or Alternate Director and each of the other Initial Shareholders shall exercise their rights in such manner so as to cause such election. Remuneration of directors & directors interest on contracts and/or shares held by directors As of the date of this Prospectus, none of the Board Directors and none of the senior management staff of HDFC PLC, for at least the previous five years has had any convictions in relation to fraudulent offences; has held any executive function in the form of a Senior Manager or a Member of the Administrative Management of any company at the time of or preceding any bankruptcy, receivership or liquidation; or has been subject to any official public incrimination and/or sanction by any statutory or regulatory authority (including any designated professional body) nor has even been disqualifies by a court

from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of a company. Chairman The Board shall appoint one of the Directors as Chairman of the Board (the "Chairman"). The Chairman shall be appointed for periods of six (6) months, in rotation, and shall preside at all meetings of the Board or any Committees where he is a member, and at all General Meetings. The Chairman shall not have a casting or second vote at any meeting of the Board or any committee in the event of an equality of votes. The board resolved that the Chairman could hold office up to one year with a review every six months. Meetings of the Board (a) The Board shall meet at least once every two months subject to an annual schedule

(Board resolved to change the annual schedule to meet once every three months), with confirmation of the date of the next Board meeting made

(b) at the previous Board meeting. Meetings of the Board shall be in Male, Republic of Maldives or at such other place as may be reasonably determined by the Board of Directors.

(c) Written notice of each meeting of the Board or a committee shall be given to each Director and the alternate, if any, at the address notified from time to time by such Director and the alternate, at least fifteen (15) days in advance of such meeting, unless otherwise agreed in writing by such Director or the alternate. (d) An agenda setting out in detail the items of business proposed to be transacted at a meeting of the Board or committee together with necessary information and supporting documents shall be circulated to each of the Directors and their respective alternates at least fifteen (15) days prior to the date of the relevant meeting. (e) The Company shall indemnify its Directors to the maximum extent permitted under Applicable Law. The reasonable costs incurred by a non-employee Director in attending a meeting of the Board or committee or a General Meeting (including the reasonable costs of travel and attendance of the Directors appointed by the International Investors) shall be reimbursed by the Company. Quorum at Board Meetings

(a) The quorum for a meeting of the Board, duly convened and held, shall be a majority of the Directors, which majority shall include at least two (2) Directors appointed by the International Investors. Subject to (b) below, all actions taken by the Board shall require the approval of a majority of the Directors present at the relevant Board meeting.

(b) In the absence of a valid quorum at a meeting of the Board, duly convened, the meeting shall be adjourned to the same time and place not earlier than ten (10) days but no later than twenty-one (21) days thereafter as the Chairman may determine. The quorum requirements as set out in Section 2.06(a) above shall also be applicable at such adjourned meeting of the Board.

(c) Any Director shall be entitled to participate in a meeting of the Board in which he or she is not physically present, by telephone or video conference or similar electronic means which allows all the Directors to communicate simultaneously and the Chairman of such meeting shall record such Director's observations in the minutes of such meeting. Resolution by Circulation or Written Consent

No resolution shall be deemed to have been duly passed by the Board or a committee by circulation or written consent, unless the resolution has been circulated in draft, together with the information required to make a fully-informed good faith decision with respect to such resolution and appropriate documents required to evidence passage of such resolution, if any, to all Directors or to all members of the committee, and to all other Directors or members at their usual address, and has been unanimously approved in writing by such of them as are entitled to vote on the resolution. Any such resolution may consist of several documents in like form, each signed by one (1) or more of the Directors. The expression “in writing” and “signed” includes approval by telex, cable, and telegram, wireless or facsimile transmission. General Meetings (a) Not less than thirty (30) days prior written notice of all General Meetings shall be given

to the shareholders of the Company at their respective addresses notified by them to the Company in writing. (b) An agenda setting out the business proposed to be transacted at a General Meeting shall be circulated by the Company to each shareholder at least fifteen (15) days prior to the date of the General Meeting. No business shall be transacted at any General Meeting duly convened and held other than that specified in the notice without the prior consent of shareholders holding a majority of the Shares then outstanding. (c) The Board shall provide the Company's previous Financial Year's audited financial statements to all shareholders at least thirty (30) days before the AGM is held to approve and adopt such audited financial statements. (d) The quorum for a General Meeting shall be shareholders holding a majority of the Shares then outstanding. Subject to Section 9 (a) below, all actions taken at a General Meeting shall require the approval of the Initial Shareholders holding a majority of the Shares then outstanding. (e) In the absence of a valid quorum at a General Meeting, duly convened and held, the meeting shall be adjourned to the same time or place not earlier than ten (10) days but no later than twenty-one (21) days thereafter as the Chairman may determine. Supermajority Matters

(a) The Company shall not take the following decisions and actions without the affirmative vote of all Initial Shareholders, provided that after the occurrence of an IPO, the following decisions and actions shall require the affirmative vote of the Initial Shareholders holding at least seventy-five per cent (75%) of the Shares then outstanding:

(i) Amend or repeal in any manner the Charter of the Company or any Key Subsidiary; (ii) Change the designations, powers, rights, preferences or privileges, or the

qualifications, limitations or restrictions of the Shares or Share Equivalents; (iii) Create, authorize or issue any Shares, Share Equivalents or other equity

security (other than as required by the Subscription Agreement or this Agreement);

(iv) Authorize or undertake any Trade Sale or Liquidation Event, or any public offering of Shares or Share Equivalents of the Company or any Key Subsidiary;

(v) Authorize or undertake any reduction of capital or any redemption or buyback of Shares or Share Equivalents;

(vi) De-register or de-list the Company, or any of its listed shares or Share Equivalents;

(vii) Change the primary business of the Company or commence a new line of business not contemplated in the Charter;

(viii) Change the composition of the Board or the number of Directors; (ix) Appoint or remove the Independent Director; (x) Approve any lending operation below market pricing; (xi) (A) Enter into any agreement, arrangement or transaction with any Related

Party of the Company or the Sponsor, or (B) any agreement that is not on an arm’s length basis including, the Technical Services Agreement and any secondment agreements with HDFC Investments Ltd; or

(xii) Any decision or action set forth in paragraph (b) of this point 9 submitted to the General Meeting by the Board.

(b) The following decisions and actions shall not be taken and/or implemented by the Company or, where applicable, any of its Key Subsidiaries, whether by the Board or any Committee thereof at any meeting of the Board or a Committee thereof or by resolution by circulation with respect to any of the following matters, without the approval of all the Directors appointed by the Initial Shareholders: (i) create, authorize or issue any Shares, Share Equivalents or other equity

security (other than as required by the Subscription Agreement or this Agreement);

(ii) enter into any strategic alliance, joint venture or acquisition or undertaking, compromises or settlements with creditors and investors;

(iii) enter into any agreement, arrangement or transaction with any Related Party of the Company or the Sponsor, the Managing Director or any Key Employees; (iv) approve or amend the annual Business Plan or the Company's dividend policy; (v) change the composition of the Board or modify the terms of appointment of the Directors; (vi) appoint, remove or replace the Auditors and internal auditors or Change the Financial Year of the Company;

(vii) determine of the remuneration of Key Employees and profit sharing scheme for employees of the Company;

(viii) determine the accounting policies of the Company and any changes thereto; (ix) determine the timing and the terms of a Company Offering;

(x) purchase or sell Shares, debentures, bonds in other companies or businesses; (xi) relocate the main office of the Company or Operations outside the Country; (xii) issue any guarantee or indemnity to any third party exceeding such limits as

the Board may determine from time to time; (xiii) enter or amend any existing collaboration/business agreements of any kind

(other than agreements in the ordinary course of business involving an amount up to two hundred fifty thousand Dollars ($250,000) equivalent);

(xiv) approve the annual accounts of the Company or its Key Subsidiaries; (xv) establish any Committee or sub-committee of the Board; decide their

composition, the delegation of powers to such Committee or subcommittee and any changes thereto;

(xvi) form a Subsidiary or acquire or invest in one or more corporations, partnerships, associations or other business organizations or similar Persons; or (xvii) directly or indirectly declare, authorize or make any Distribution on any Shares or Share Equivalents (or shares or share equivalents of any Key Subsidiary)] inconsistent with a dividend policy previously approved by the Board of Directors. (c) The designation or removal of the Managing Director shall be approved by a simple majority of the Directors, which majority shall include at least two (2) Directors nominated by the International Investors. Information Rights

(a) The Company shall furnish to the Initial Shareholders the following information: (i) Within ninety (90) days after the end of each Financial Year, annual financial

statements (a balance sheet as of the end of such Financial Year and the related statements of income, stockholders’ equity and cash flows for the Financial Year then ended) for the Company on a consolidated basis and for each of its Key Subsidiaries, audited in accordance with the Accounting Standards and certified by the Auditors, along with a consolidating statement prepared by the Auditors, and a copy of all management letters delivered by the Auditor;

(ii) Within forty-five (45) days after the end of each quarter of each Financial Year, quarterly financial statements (a balance sheet as of the end of such quarter and the related statements of income, stockholders’ equity and cash flows for the quarter then ended) for the Company on a consolidated basis and for each of its Key Subsidiaries, prepared in accordance with the Accounting Standards;

(iii) No later than forty-five (45) days before commencement of each Financial Year, the proposed annual Business Plan;

(iv) A copy of the letter from the Company to the Auditors, in the form of Schedule 1, irrevocably authorizing the Auditors (whose fees and expenses shall be for the account of the Company) to communicate directly with any of the Initial

Shareholders at any time regarding the Company's financial statements (both audited and unaudited), accounts and operations; and (v) A copy of a similar letter sent by the Company to any new Auditors no later

than thirty (30) days after any change in Auditors; (b) Following the IPO, the Initial Shareholders may, by notice to the Company, elect not

to receive any of the information described in Section 10 (a). In this case, the Company shall provide each of the Initial Shareholders with copies of all information publicly disclosed and/or filed, so long as such information complies with the rules and regulations of any securities exchange or automated quotation system on which the securities are listed and any Applicable Law.

(c) The Company shall promptly provide to each Initial Shareholder such information as any Initial Shareholder from time to time requests with regard to any material developments in or affecting the Company's business. (d) Upon any Initial Shareholder's request, and with reasonable prior notice to the Company, the Company shall permit representatives of such Initial Shareholder or the CAO (in the case of IFC), during normal office hours, to: (i) visit any of the sites and premises where the business of the Company or its Subsidiaries is conducted; (ii) inspect any of the sites, facilities, plants and equipment of the Company or its

Subsidiaries; (iii) have access to the books of account and all records of the Company and its

Subsidiaries; and (iv) have access to those employees, agents, contractors and subcontractors of

the Company and its Subsidiaries who have or may have knowledge of matters with respect to which such Initial Shareholder seeks information; provided that (i) no such reasonable prior notice shall be necessary if special circumstances so require and

(ii) in the case of the CAO, such access shall be for the purpose of carrying out the CAO's Role. Policy Covenants.

(a) Environmental. The Company and its Key Subsidiaries shall, and the Sponsor hereby agrees to cause the Company and its Key Subsidiaries to: (i) comply with the Safeguards Policies; (ii) periodically review the form of the annual monitoring report and advise ADB

as to whether revision of the form is necessary or appropriate in light of changes to the Operations, or in light of environmental or social risks identified by the Environmental Management System; and revise the form of the annual monitoring report as agreed with ADB;

(iii) use all reasonable efforts to ensure the continuing operation of the Environmental Management System to assess and manage the social and environmental performance of the Operations and to comply with the Safeguard Policies;

(iv) within ninety (90) days after the end of each Financial Year, deliver to ADB an annual monitoring report, in form satisfactory to ADB, consistent with the

requirements of this Agreement confirming compliance the social and environmental covenants of this Agreement or, as the case may be, identifying any non-compliance or failure, and the actions being taken to remedy any such deficiency; and

(v) within three (3) days after its occurrence, notify ADB of any social, labor, health and safety, security or environmental incident, accident or circumstance having, or which could reasonably be expected to have, any material impact on the implementation or operation of the Operations in compliance with the Safeguard Policies or a Material Adverse Effect, specifying in each case the nature of the incident, accident, or circumstance and the impact or effect arising or likely to arise therefrom, and the measures the Company is taking or plans to take to address them and to prevent any future similar event; and keep ADB informed of the on-going implementation of those measures. (b) Sanctionable Practices. Each of the parties to the Agreement (other than the

International Investors) agreed that no party shall engage in (and no party hereto shall authorize or permit any Affiliate or any other Person acting on its behalf to engage in) with respect to any transaction contemplated by this Agreement or the Company’s business and operations, any Sanctionable Practice. Each of the parties to this Agreement (other than the International Investors) further covenants that should any of the ADB or IFC notify the Company or the Sponsor of its concern that there has been a violation of the provisions of this paragraph, the Company and the Sponsor shall cooperate in good faith with it and its representatives in determining whether such a violation has occurred, and shall respond promptly and in reasonable detail to any notice from ADB or IFC, and shall furnish documentary support for such response upon ADB's or IFC's request.

(c) AML/CFT Covenants. The Company shall and the Sponsor agrees to cause the Company to institute, maintain and comply with internal procedures and controls satisfactory to the International Investors, and following national law and best international banking standards including the standards promulgated by the Basel Committee on Banking Supervision and correspondent and private banking standards, including the standards promulgated by the Basel Committee on Banking Supervision and the Wolfsberg Standards, for the purpose of: (i) Preventing the Company or any of its respective Affiliates from being used for

Money Laundering, the Financing of Terrorism, fraud, or other corrupt or illegal purposes or practices;

(ii) Ensuring that (A) any financial institution with which the Company conducts business or enters into any transaction, or through which the Company transmits any funds, does not have correspondent banking relationships with any Shell Bank; and (B) that the Company shall not conduct business or enter into any transaction with, or transmit any funds through a Shell Bank; and

(iii) Ensuring that the Company will not enter into any transaction with, or for the benefit of, any individuals or institutions named on lists of sanctioned persons promulgated by the United Nations Security Council or its committees resolutions in connection with money laundering or anti-terrorism matters.

(d) AML/CFT Reporting Requirements. The Company shall and the Sponsor agrees to cause the Company to provide to each International Investor with the following: (i) a management letter and any other communication from its auditors

commenting, inter alia, on the adequacy of the Company's financial control procedures, policies and controls for anti-money laundering and combating the financing of terrorism, accounting systems and management information system;

(ii) the annual report prepared by the AML Officer for the Company's senior management concerning anti-money laundering, combating the financing of terrorism and the AML/CFT Program and related matters; and

(iii) promptly upon becoming aware of (A) any litigation, administrative, regulatory or criminal investigations or proceedings before any Authority or arbitral body which has or may reasonably be expected to have a Material Adverse Effect, (B) any litigation, administrative, regulatory or criminal investigations or proceedings or freezing of assets by any Authority involving the Company or its employees with regard to Money Laundering or Financing of Terrorism, or (C) any violation of the provisions of paragraph (b) or (c) above, notify each of the International Investors by facsimile of that event specifying the nature of the action, litigation, investigation or proceedings and the steps the Company is taking or proposes to take with respect thereto.

(f) Insurance. The Company shall obtain and maintain a directors and officer liability insurance for each of the Directors appointed by the International Investors. Affirmative Covenants

The Company covenants and agrees to: (a) Undertake its business activities and investments, and cause each of its

Subsidiaries to undertake their business, activities and investments, in compliance with Applicable Law;

(b) Obtain and maintain all applicable regulatory authorizations and otherwise stay in compliance with Applicable Law;

(c) Maintain adequate accounting, management, financial control, compliance and risk management systems;

(d) Create an Audit Committee, which shall report directly to the Board of Directors; (e) Conduct its business in accordance with the Business Plan; (f) Not register any transfer of shares in contravention of the provisions of this Agreement or its Charter; (g) Not engage in activities set out in the Prohibited Investment Activities (h) Maintain appropriate insurance with financially sound and reputable insurers for

losses and/or damages that may occur with respect to its property and business; (i) provide each of the Initial Shareholders with full and equal access to its books and

records and cooperate, and cause its employees to cooperate, with any Initial Shareholder desiring to undertake an inspection/audit of the Company; and

(j) Abide by best practices based on the recommendations of HDFC India as the technical partner and which practices HDFC India may audit as appropriate.

Annex: 7 Declaration of Shariah Advisor & Endorsement of

HDFC Shariah Committee

Housing Development Finance Corporation P lc., 4th floor, H.Mialani, Sosun Magu, Male`, Republic of Maldives P hone: (960) 3338810, Fax: (960) 3315138, Email: [email protected], www.hdfc.com.mv , Reg.No. C-107/2006

Housing Development Finance Corporation P lc., 4th floor, H.Mialani, Sosun Magu, Male`, Republic of Maldives P hone: (960) 3338810, Fax: (960) 3315138, Email: [email protected], www.hdfc.com.mv , Reg.No. C-107/2006

Annex: 8 Glossary of Islamic Financial Terms

A AAOIFI AAOIFI stands for the Accounting and Auditing Organization for Islamic Financial Institutions (www.aaoifi.com) Adadiyyah

Countable items measured in individual units rather than by volume, weight or length. An example is eggs, which are customarily purchased by the dozen or half dozen rather than by weight.

Amanah Reliability, trustworthiness, loyalty, honesty. An important value of Islamic society in mutual dealings. It

also refers to deposits in trust, where a person may hold property in trust. Aqd A contract, consisting of all tenets of a contract. Arbun A down payment deposit in order to retain a right to transact. B Bithaman Ajil / Bai Muajjal A deferred payment sale, generally over a period of time. Bai al Salam A trust sale. Primarily dealing with future delivery. This is a contract where the payment is made in cash

at the point of contract but the delivery of asset purchased will be deferred to a predetermined date. Frequently used in agricultural contracts.

D Darura The Shariah principal of necessity, which may be applied in certain circumstances to achieve approval of a concept

F Fiqh Islamic jurisprudence Fiqh al-muamalat Islamic commercial jurisprudence H Hibah A gift. Hiwalah A remittance or bill of exchange, This is a contract which allows a debtor to transfer his debt obligation to a third party who owes the former a debt. The mechanism of Hiwalah is used for settling international accounts by book transfers, thus obviating the need for a physical transfer of cash.

I Ibra’a A rebate. IFSB Islamic Financial Services Board, which is a Kuala Lumpur based international standard setting

organization that was set up in 2003 to promote the stability of the Islamic Financial Services Industry by issuing global prudential standards and guidelines. The IFSB helps regulators govern Islamic Financial institutions in compliance with Basel II and III and evolving global standards.

Ijarah Leasing: Ijarah is a form of leasing. It involves a contract where the bank buys and then leases an item –

perhaps a consumer durable, for example, to a customer for a specified rental over a specific period. The duration of the lease, as well as the basis for rental, are set and agreed in advance. The bank retains ownership of the item throughout the arrangement and takes back the item at the end

Ijarah with diminishing Musharakah Leasing with diminishing Joint Venture. The principle of Ijarah with diminishing Musharakah can be used

for home-buying services. Diminishing Musharakah means that the bank reduces its equity in an asset with any additional capital payment made, over and above the rental payments. Customer ownership in

the asset increases and that of the bank’s decreases by a similar amount each time the customer makes any additional capital payments. Ultimately, entire ownership of the asset is passed to the customer.

Istisna’a A sale contract, in which an institution or individual (Al Saanee) sells an asset to be developed using its

own materials to a customer (Al Mustasnee) according to a pre-agreed specification, with price, instalment dates and delivery date also all pre-determined. This developed asset can be either developed directly or through a subcontractor, and then it is handed over to the customer on the pre- agreed upon date.

J Jualah A service charge K Kafalah A guarantee or pledge to perform.

M Mudharabah Profit Sharing: Mudharabah refers to an investment by a client in a more skilled person. It takes the form of a contract between two parties, one who provides the funds and the other who provides the expertise and who then agrees to the division of any profits made in advance. Thus, the bank would make Sharia'a compliant investments and share the profits with the client, in effect charging for the time and effort. If no profit is made, the loss is borne by the customer and client takes no loss and the bank takes no fee.

Mudharib In a Mudharabah contract, the expert who manages the investment is known as a Mudharib. Murabahah Cost Plus: (Also Murabaha) is a contract for purchase and resale and allows the customer to make

purchases without having to take out a loan and pay interest. The bank purchases the goods for the customer, and re-sells them to the customer on a deferred basis, adding an agreed profit margin. The

customer then pays the sale price for the goods over instalments, effectively obtaining credit without paying interest.

Musharakah Joint Venture: This means partnership. It involves the placing of capital with another person and both

sharing the risk and reward. The difference between Musharakah arrangements and normal banking is that you can set any kind of profit sharing ratio, but losses must be proportionate to the amount invested.

S Sukuk

These are capital market type instruments which may be "Islamic bonds", "Islamic asset securitizations" or "Islamic whole business securitizations". The Sukuk holder is granted a fractional undivided ownership in the assets or business being financed. Presently AAOIFI recognizes 14 categories of Sukuk.

T Takaful

Generally meaning to combine efforts in assistance to a process or activity; mutual assistance. U Ujrah Also Ujra'a is a compensation or service charge. W Wa'ad A promise.

Wakala Also Wakhala, is an agency contract, which usually includes in its terms a fee for the expertise an agent.

It may be used when the capital invested in a bank which is appointed as an agent and payable as a fee for the agent’s expertise. Also Wakeel, is the agent in a Wakala relationship

Zakat Giving alms. A religious obligation on a Muslim that literally means blessing, purification, or cultivation

of good deeds.