Conversion into a limited liability company

In January 2005, Danish Ship Finance (Danmarks Skibskreditfond), the Danish Ministry of Economic and Business Affairs and Danmarks Nationalbank (the Danish central bank) signed an agreement to convert Danish Ship Finance (Danmarks Skibskreditfond) into a limited liability company.

The main objective of the conversion was to reform the framework for the company's future operations, including a partial adjustment of the rules to match the rules applicable to other financial businesses.

The conversion into a limited liability company took place through a merger with a wholly-owned subsidiary, which then became the continuing company. The subsidiary Danish Ship Finance A/S (Danmarks Skibskredit A/S) adopted all agreements of the foundation Danish Ship Finance (Danmarks Skibskreditfond) under the principles of universal succession.

The merger was given final approval by the supreme authority of Danish Ship Finance, the Board of Representatives, and by the company's Board of Directors on 12 July 2005, but had retroactive effect from 1 January 2005.

In the conversion agreement, it was emphasised that the conversion would not adversely affect the existing high level of security for issued bonds that exists today. The conversion did not impact on the legal position of the financial counterparties or the bonds issued, including gilt-edged bonds.

The capital base

In connection with the conversion, the share capital of Danish Ship Finance A/S (Danmarks Skibskredit A/S) was raised to DKK 333.3 million. A shares with a nominal value of DKK 300.0 million were offered to Danish Ship Finance's (Danmarks Skibskreditfond) guarantors, which included Danish banks, Danmarks Nationalbank, Danish shipyards and shipowners and Danish insurance companies. B shares with a total nominal value of DKK 33.3 million were granted to a newly established operating foundation – Den Danske Maritime Fond (the Danish maritime fund). The establishment of the fund and the allocation of shares formed part of the agreement between Danish Ship Finance (Danmarks Skibskreditfond), the Danish Ministry of Economic and Business Affairs and Danmarks Nationalbank.

In connection with the merger, the bulk of Danish Ship Finance's (Danmarks Skibskreditfond) capital and reserves at 31 December 2004 was transferred to Danish Ship Finance A/S (Danmarks Skibskredit A/S) as tied-up reserves that may only be used to cover losses in Danish Ship Finance A/S (Danmarks Skibskredit A/S) when all of the company's distributable reserves have been used up. If at any time the company is dissolved or ceases to provide ship financing, the tied-up reserves shall be applied in accordance with the dissolution object clause of Danish Ship Finance (Danmarks Skibskreditfond). If such a situation occurs, the reserve will be transferred to Den Danske Maritime Fond, provided it still fulfills the dissolution object. Dissolution or discontinuation to provide ship financing by Danish Ship Finance A/S (Danmarks Skibskredit A/S) can only be effected if the financing of ships is no longer possible on a financially prudent basis. As a result of this provision, the company will continue to be a long-term and committed provider of loans to the shipping industry.

Locked-up capital

As part of the conversion, it was agreed to repay DKK 1,610 million to the Danish government and Danmarks Nationalbank. The amount equals Danish Ship Finance's (Danmarks Skibskreditfond) profit from prepayment of loans raised on OECD terms. If the loans, granted during the period from 1969 to 1984, had been granted directly by a public body, the profit would have accrued to the Danish government. In connection with the conversion, it was therefore resolved to repay the profit.

Prior to the conversion, it was necessary to amend the rules that related specifically to Danish Ship Finance (Danmarks Skibskreditfond). Among other things, it was necessary to replace the executive order on Danish Ship Finance (Danmarks Skibskreditfond) with the executive order on a ship finance institute.

The new rules are more comprehensive than those that applied to Danish Ship Finance (Danmarks Skibskreditfond), but the primary provisions concerning the company's structure and business base remain unchanged.