Trinity Capital Regulatory News (TRC)

Trinity Capital PLC

Consolidated financial statements for the year ended 31 March 2011

Trinity Capital PLC (AIM: TRC), a fund created for investing in Indian real estate and infrastructure, announces its Preliminary Results for the year ended 31 March 2011.

- Ends -

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Chairman's Report

29 July 2011

Dear Shareholder

The Directors can report that significant progress was achieved in winding down the affairs of Trinity Capital plc ("Trinity" or the "Company") during the last financial year. The litigation with the Company's former investment manager in England and India was settled. We sold our investments in Fortis Healthcare, DB Hospitality, and Pipavav Shipyard for combined proceeds of £80.3 million. Trinity distributed £100 million to shareholders, equivalent to £0.475 per share. The Board has been strengthened. And Indiareit has made good progress in creating value and realising the remaining investments.

Post financial year end, progress has continued. The Kapstone investment was sold for £12.6 million. Realisation of the Rustomjee investment generated £2.0 million of proceeds for Trinity. The Board announced that it intended to make a further distribution to shareholders of £12.6 million (£0.06 per share) on 1 August 2011. And, earlier this month, claims raised against the Company in Mauritius were dismissed (although this decision is subject to appeal). 

In February 2011, we settled the commercial dispute with our former investment manager. In reaching a settlement, the Company paid £7.5 million and transferred ownership of the Mauritian subsidiary which held the Sankalp asset (valued at £0.9 million at 30 September 2010). Additional sums may become payable to our former investment manager, depending on certain criteria. All additional potential payments have been provided for in the financial statements. Despite the complexities of the dispute over the termination of the original management agreement, the settlement negotiations were handled professionally in a positive and focused manner by the representatives of the former manager. Maintaining the reputational integrity of the senior executives and employees of the former manager was a determining factor in reaching a commercial settlement. The Board is most appreciative of the approach taken and efforts made by the former manager, its owners and executives to reach an amicable settlement and we wish the team individually and collectively every success in their future endeavours.

Since the litigation settled, we have undertaken a thorough review of all of the Company's operating costs. Legal expenses have reduced significantly. All specialist services provided by third parties have been reviewed and a number of contracts have been terminated. Fees payable to the remaining service providers are expected to decline over the next financial year. Annual and interim reports will be published in a non-glossy simple format to reduce printing time and costs. We expect that Trinity's operating cost base including investment management fees in the financial year to 31 March 2012 will be approximately £2.5 million. This compares with operating expenses of £10.4 million incurred in the financial year to 31 March 2010 and £8.9 million incurred in the financial year to 31 March 2011. We expect costs to continue to decline in subsequent years.

During the financial year to 31 March 2011, the Company's net assets reduced from £296.3 million to £112.2 million. Included in this reduction is the cash distributions of £100 million to shareholders. The remainder of the decline in net assets is primarily a reflection of write-downs in the value of investments, most significantly Uppals IT, Luxor and DB Realty. The net asset value per share at year end was £0.47 after the shareholder distributions of £0.475 per share. CBRE continues to advise the Company in relation to the investment valuations and methodology. 

There continues to be uncertainty as to the future prospects for the investments in Uppals IT and Luxor and, accordingly, the valuers have increased the discount rates applied to projected cash flows. Additionally, commencement of development activities on these two projects have been pushed back to reflect current market conditions and changes to the tax regime surrounding Special Economic Zones ("SEZs"). Until recently, SEZs and their tenants benefitted from tax exemptions and reductions. However, under India's Finance Act 2011, SEZs are to be subject to an income tax and investors subject to a new dividend distribution tax. Existing SEZ projects are not exempted from the new tax regime.

The Uppal IT project remains an ambitious development. The market prospects in the region surrounding the land are poor and the negative tax changes mentioned above will also affect the viability of the proposed IT SEZ. The valuation of the Uppal IT holding in Trinity's balance sheet as at 31 March 2011, based on a discounted cash flow analysis, has reduced to £21.9 million from a value of £35.5 million a year ago. Indiareit hopes that proceeds approximating the latest valuation may be achieved in due course, but this will be a long term aspiration and require considerable patience and resources.

With regard to the Luxor investment, which is now valued at £8.2 million compared with £22.2 million a year ago, Indiareit is working towards a clear realisation strategy that will maximise proceeds by negotiating a change in the authorised land use from that of SEZ. Although our Indian partners in Luxor are in complete agreement with Indiareit as to the strategy and a developer has been identified to finance and develop the site, our partners in this project, the SachsenFonds Holding GmbH group of companies ("SF") has, to date, opposed the proposed change in direction. Their rationale for this objection is unclear to the Company.

The investment in DB Realty declined substantially in value during the financial year from £60.9 million to £18.7 million, reflecting the rapid fall in that company's publicly quoted share price. Since year end, the value of the investment has fallen further to £12.8 million as at 27 July 2011. The value of DB Realty has collapsed as a result of both of the group's promoters having been detained by the Indian authorities as part of a wide-ranging criminal investigation into a telecommunications scandal involving allegations of widespread corruption. The timing, conclusion and outcome of the investigation are unknown. According to DB Realty's latest audited accounts for the financial year to 31 March 2011, that company continues to hold and develop an attractive portfolio of properties and gearing is low. The connection between DB Realty and the investigation of its principals regarding their alleged activities outside of the property sector remains unclear to the Company. Although DB Realty does not itself seem to be implicated directly in the investigation, media reports from India suggest that law enforcement authorities may seek to attach properties held by DB Realty to secure a possible future judgment. Trinity's investment in DB Realty had been subject to a lock-in for the first twelve months following listing. During the lock-in period, we had been working with DB Realty and its advisers on the placement of a significant portion of our shares. It was unfortunate that the first arrest of DB Realty's two promoters by the Indian authorities occurred just as the lock-in expired in mid-February 2011. There are two further important factors which complicate the realisation strategy of the investment in DB Realty. Firstly, liquidity in DB Realty's shares is low. Secondly, we hold a £10.3 million mezzanine debt-type investment in MK Malls, which is controlled by DB Realty. DB Realty and its promoters are the counterparties who control the implementation of the various arrangements designed to permit the transfer or redemption of the investment. The counterparties have claimed that the arrangements are themselves subject to legal uncertainty. 

At the end of the financial year (and prior to the Kapstone and Rustomjee realisations), the Company held cash of £15.8 million. Following the Kapstone and Rustomjee realisations and a review of projected requirements to meet operating expenses, liabilities and contingent liabilities, the Board has decided that cash surplus to prudent requirements should be distributed. As a result, the Company announced that it intends to distribute a further £12.6 million to shareholders on 1 August 2011. The distribution will take the form of a pro-rata payment of £0.06 per share, to be paid out of the Company's distributable reserves. As the Company continues to realise assets and cash is generated, excess capital will be returned to shareholders after taking fully into account all actual or potential liabilities.

Increasing inflation has adversely affected the profitability of many real estate projects in India through rising costs of labour and materials. In order to try to curb inflation, the Reserve Bank of India has hiked interest rates ten times in eighteen months, which has significantly increased the cost of financing and rationed the availability of credit to the real estate sector. In its report, Indiareit provides further information on the investment environment as well as details of the performance and prospects for each of Trinity's investments held through its Mauritian subsidiary. Indiareit has been managing the Company's investment portfolio for just over a year.

In terms of the operation of the Board, an investment committee and a legal committee were set up in November 2010. The investment committee meets regularly with Indiareit to provide support and guidance in their efforts to create value and realise the remaining investments in India. We were delighted to welcome John Chapman to the Board in November 2010. As chairman of the Board's newly formed legal committee, he was closely involved in all aspects of the settlement with the former investment manager.

John is also leading the Company's defence against claims made by Immobilien Development Indien I GmbH & Co. KG and Immobilien Development Indien II GmbH & Co. KG (the "Immobilien funds"), both of which are managed by SF. Further details of the claims are provided in note 21 to the audited accounts. In March 2010, the Immobilien funds commenced proceedings against Trinity, its former investment manager and the principals of the former investment manager in the Supreme Court of Mauritius in relation to the claims, which totalled EUR127.7 million. In June, 2010, Trinity and the other defendants moved to dismiss these claims on jurisdictional grounds, and earlier this month a ruling in our favour was received. The Immobilien funds have since lodged an appeal to against the decision in the Court of Civil Appeal in Mauritius.

The relationship with SF is proving to be challenging. The Immobilien funds are co-investors in four of our assets: Lokhandwala, Luxor, MK Malls and Uppal IT. Under shareholder agreements, the Immobilien funds appear to have reserved rights to decide on a number of significant matters, including the apparent right to veto decisions that we believe create underlying value and in respect of realisations. SF promoted the Immobilien funds to retail investors in Germany in 2007 and 2008, before the global financial crisis. All of the Immobilien funds' investments with Trinity's Mauritian subsidiary are in development properties. We have been encouraging SF to appoint an investment advisor experienced in managing investments and developing real estate in India to work with their Munich-based professionals. During the last financial year, attractive offers were received by Indiareit in respect of three of the investments jointly owned with the Immobilien funds, but all of these possible exits have, to date, not been accepted by SF. Their apparent objective seems to be their desire to be made whole and avoid realising real estate and currency-related losses. These decisions appear to us to fail to take full account of the significantly changed market realities since 2008 and the limited prospects for improvement in the foreseeable future. In an effort to reconcile our differences, we have put forward to SF a number of possible solutions to restructure or unravel our relationship, but to date, none has been accepted by the Immobilien funds. Moreover, attractive realisation opportunities have diminished due to the significant short-term softening in those segments of the Indian property markets where we have joint exposure with the Immobilien funds. Trinity continues to maintain flexibility concerning its relationship with the Immobilien funds, and we remain hopeful that SF will reciprocate. We believe that doing so would be in the best interests of the Immobilien funds' investors and ours.

Shareholders will be aware that the last two years have been very testing and the Board very much appreciates the support and feedback it has received from investors. I would also like to put on record my personal gratitude for the support and effort of all of the Directors in maximising the value of the Company for shareholders.

Yours faithfully

Martin M. Adams

Chairman

Investment Manager's Report

Indian Real Estate overview

The Indian economy continues to be on a growth curve with the country's GDP growth pegged at around 8.7% for the year 2010-11 and expected to remain at over 8% in 2011-12. The real estate market, which witnessed a revival in 2009 post the economic downturn, saw consolidation in 2010. The overall outlook for 2011 is expected to be stable, with the dynamics playing out differently for the residential and the commercial segments.

After witnessing a rapid rise since 2009, the residential real estate sector is cooling its heels and the rate of growth declined during the second half of 2010. This was essentially on account of lower absorption rates resulting from strong increase in residential unit prices. The withdrawal of teaser interest rates by lenders and the increase in interest rates by the government further served to dampen residential demand. However, it may be noted that properties priced in the range of INR 2,000 - 4,500 per sq. ft were still selling large volumes especially in areas such as Gurgaon, NOIDA, Bangalore, Chennai and Navi Mumbai, with the slowdown more prevalent in the premium market of Mumbai.

Going forward, high growth rate in the Indian economy and rapid urbanisation are expected to be the main drivers of residential real estate. However, in the short to medium term, the socio political environment, inflation and increasing interest rates will continue to check any potential increase in values.

The commercial office space witnessed notable growth in 2010, with absorption of over 32 million sq. ft across the top seven cities, growing from nearly 20 million sq. ft recorded during 2009. (Source: Real Estate Intelligence Service, JLL). As office sector consolidates itself, the risk-return tradeoffs have become attractive, especially for stable income yielding assets. Also, the ongoing urban infrastructure projects - airports, metro rails, expressways, flyovers and ring roads present a unique opportunity to tap into those urban areas, which are slated to become important hubs of the future.

The demand and transaction velocity is expected to remain buoyant on the back of corporate expansion plans, especially renewed hiring by the IT/IT-enabled services, which is a major demand driver for office space in the country. However, this is not likely to result in any price uptake. Further, oversupply in this segment is a cause of concern, especially in select micro markets such as Noida/Greater Noida and Gurgaon.

Inflation continues to remain a challenge in India and has forced the central bank (RBI) to follow a tight monetary policy and raise the key interest rates 10 times since March, 2010. A further rate increase is expected in August, 2011. This has resulted in increasing of bank lending rates, thereby increasing the cost of borrowing for developers as well as an increase in home loan rates for home buyers. These events have adversely impacted Trinity's portfolio resulting in decline in valuation for Lokhandwala, Kapstone and Engima. The increase in cap rates for commercial properties has adversely impacted Luxor and Uppals IT.

We also provide below a brief overview on the real estate markets in Mumbai and Delhi National Capital Region (NCR), since majority of assets in the Trinity portfolio are located in these regions:

After a one-year period starting 3Q 2009, which saw a strong recovery with a record 40%+ increase in prices, the Mumbai residential real estate market has been seeing a slowdown over the last two quarters across various micro markets. The key reasons behind this slowdown are higher prices, higher interest rates impacting affordability, lack of liquidity, financial scams diluting investor sentiment and excess supply in a few micro markets. A few other trends observed in the residential market include launch of smaller sized units and substantial discounts being offered on a higher percentage of down payment. The commercial segment in the city of Mumbai, however, continued to witness buoyant demand and transaction velocity, albeit at locations distant from the Central Business District of the city.

The residential market in the Delhi NCR region is also witnessing reduced sales off take as compared to the levels observed in 2009 since developers are holding onto the high prices, at which demand is limited. On the other hand, absorption in office real estate market of Delhi NCR region is driven primarily by IT/ITES occupiers, with the market leading the leasing activity across the country with 2.3 million sq ft of absorption in 4Q 2010. (Source: Real Estate Intelligence Service, JLL). However, in the Noida/ Greater Noida and Gurgaon micro markets, where Trinity's two largest investments (Uppals IT and Luxor) are located, rentals continue to remain stagnant and vacancy rates high due to huge supply of existing as well as upcoming properties that still needs to be absorbed. Further, the introduction of Minimum Alternate Tax on Special Economic Zones ('SEZs') (which were originally eligible for complete income tax exemption) with effect from April 1, 2011 will adversely impact these two investments.

Thus, the macro-economic conditions prevailing in the country coupled with the applicability of MAT for SEZs (impacting two of Trinity's largest investments) would result in significant challenges for the portfolio going forward. In order to mitigate such risks, the Investment Manager continues to pursue an active exit strategy for Trinity.

Luxor Cyber City

Market overview

Gurgaon is the most preferred IT/ITES destination in the NCR of India. It has an existing Grade A office stock of 27.5 million sq. ft, comprising IT and non-IT space in almost equal proportion. There is prospective stock of over 10 million sq. ft for each of the next three years in the pipeline, which will more than double the office market size in Gurgaon by end 2013. With this kind of supply in different stages of work in progress, rentals are expected to remain stagnant and vacancy rates are expected to remain high in the short to medium term.

Project Location overview

Luxor Cyber City's ('LCC') location just off the major national highway (NH8) is a definitive plus for its commercial acceptance in the future. However, the micro market where the project is located is largely under developed even at this stage.

Partner/ promoter overview

Mr. B.K. Uppal (promoter of Uppal Housing, a leading local developer) and Mr. D.K. Jain (promoter of Luxor Group, a large industrial house active in the NCR) are the other shareholders of LCC, with whom the project is to be developed.

Development overview

The project is a notified Special Economic Zone (SEZ). Since inception, no development work has been undertaken on the site, largely due to lack of agreement between the shareholders. Further, the global meltdown of 2008 - 2009 negatively impacted the IT/ITES sector in India which resulted in a decline in commercial space requirement. Gurgaon, being driven by the IT/ITES sector and, in particular, LCC being a notified SEZ for IT/ITES industry, saw a steep decline in demand thereby rendering commencement of development unviable.

Further, SEZ demand is not expected to improve in the near future due to oversupply in the micro market (as mentioned above) and also due to the applicability of Minimum Alternate Tax with effect from April 1, 2011 under the new Union Budget of India.

As a result, various best use studies and change of land use options are presently being examined for LCC to improve return potential. As per current evaluations, the best land use in today's context is to develop a residential township, however a minimum of 100 acres contiguous land is required to obtain a license for such a development. In addition, a change in land use from IT/ITES SEZ to a residential township may result in the investment being locked in for a further period of three years from the date of receipt of such permission, as per the Indian foreign exchange regulations, unless a specific approval is obtained from the Indian exchange control authorities.

Exit strategy/ timelines

The valuation of the project has seen a decline as compared to the September 2010 value owing to the supply demand dynamics in the micro market and the tax implications on SEZs going forward.

The development mix is being reviewed in the light of the above factors. As a result, realisation of the investment is unlikely prior to 2014, unless a strategic sale or a sale back to the local partners can be crafted. The Investment Manager is supporting Trinity to progress a realisation on these lines and negotiations are ongoing.

However, any exit decision would need to be taken in consultation with Immobilien II who are partners in TC14 together with Trinity, and thereby have "reserved" veto rights pertaining to such decision. Recent indications from Immobilien II are that they are not very receptive to the above strategy under current market conditions and perceptions and considering prospects in the foreseeable future.

Jodhana

Market overview

Jodhpur is a historic city located in the western Indian state of Rajasthan with a population of over 1.0 million and an economy thriving on handicrafts and tourism. The city has witnessed heightened activity in residential real estate segment in last couple of years owing to the development by local and regional developers. The residential development essentially comprises of prime single family gated compounds, with launch of few multi-family apartments over the past few quarters. The buyers are primarily wealthy businessmen residing within Jodhpur and Non Resident Indians who originally belong to Jodhpur and are keen to maintain a link with the city.

Project Location overview

The project site is located in the precincts of the Umaid Bhawan Palace (former residence of the Maharaja (King) of Jodhpur). A large portion of the palace is now being managed as a luxury hotel by the Taj Group. The grandeur and prestige of the palace in the vicinity makes the project location one of the most enviable addresses in town. It also results in a high end market positioning for the related residential developments. 

Partner/ promoter overview

The project is to be developed as a joint venture with Marudhar Hotels Pvt. Ltd. (MHPL), which is also the owner of the project land. The Indian investee company (SPV) has acquired development rights over the land from MHPL and the project would now be developed by the SPV.

Development overview

The Investment Manager had led the re-negotiation of commercial terms of the project with the partner to secure return of capital to Trinity prior to distribution of profits to all shareholders. This was as against the earlier preferred 65% distribution to Trinity till a hurdle rate of return with no guaranteed return of capital. This re-negotiation has resulted in greater security of capital for Trinity as also an improved return potential. The definitive agreements in this regard have been duly executed. As per revised understanding, after return of substantial investment amount to TC17 and payment of dues of the landowner, TC17 will have 49% economic interest in the distributions thereafter.

Further, the development mix for the project has been changed to a residential centric development with plotted residential layout on the 9.7 acre land parcel and a high end villa scheme over the 19 acre land parcel. The Investment Manager advised this change from the original plan of a mix of commercial and residential development due to lack of demand for commercial as an asset class in the area, as also low rentals, higher capital expenditure requirement and longer gestation period for recovery of capital in case of such a development. This again has resulted in improving potential realisation evident in the valuations. The focus is now on development jointly with the partner.

Masterplan for the 19 acre land parcel has been finalized in conjunction with a renowned architect from New Delhi (www.morphogenesis.org), and the approval process is in progress. A project manager for supervising the development has also been appointed. The development is going to be managed by the Board of the Indian SPV, relying on the expertise of the Investment Manager.

Exit rationale/ strategy

The valuation of the project has seen significant improvement on account of a change in land use suggested by the Investment Manager, which results in better visibility of cash flows both in terms of timing and quantum, and reduces cost per sq. ft as compared to a commercial development. The reduced risk has also resulted in application of a lower discounting rate by the valuers, thus resulting in a higher value.

The project is expected to be launched in 2011. An exit is envisaged over a period of 3 years through development and sale of residential units. It being a residential development, the project would be self liquidating in nature.

Uppals IT Park "Tech Oasis"

\* Trinity also provided £7.5 million of mezzanine debt to TC1 in October 2008 (included below)

** 1 equity share is held by an affiliate of the former investment manager and the process of transfer is in progress

Market overview

Greater Noida is one of the fastest growing townships in India with high quality infrastructure already in place. However, the micro market suffers from severe excess supply of property, both in residential and commercial segments, due to availability of vast tracts of land with good access.

The situation is particularly grim for commercial (IT/ITES) real estate. Over the past 12 months, 2.215 million sq. ft. of IT/ITES space has been launched in the Greater Noida region. While the region has witnessed negligible absorption during this period, no amount of completed space has been added to the stock and almost the entire stock is lying vacant. The market rentals are at an all time low in the range of INR 25 - 30 per sq. ft per month. (Source: Real Estate Intelligence Service, JLL).

Project location overview

The project land is located with significant frontage on the under construction Yamuna Expressway, which is a 165 km long access controlled six-lane concrete pavement expressway connecting NCR with the northern hinterlands, terminating at Agra (a major town in the northern Indian state of Uttar Pradesh). The expressway is expected to be completed over the next year. In addition, the Formula 1 racetrack (near the project site) is scheduled to host the first edition of the Indian Grand Prix in December 2011. Both these initiatives are leading to an increased real estate activity in the 5-7 km radius around the project site.

Partner/ promoter overview

There is no Indian partner/ promoter in the said project.

Development overview

The project land was originally procured from the local authority on an installment plan. The land is zoned for the IT/ITES industry and has also received approval as a Special Economic Zone (SEZ) from the Indian government. The payment of entire lease premium to the local authority under the lease agreement has now been completed by the Company. An extension of the SEZ approval, which had expired, has also been obtained.

Given the global meltdown over the last couple of years, more specifically slowdown in the IT/ITES sector and the excess supply in the Greater Noida region rendering commercial (IT/ ITES) real estate unviable, the development of the project had been put on hold.

Since the construction work had not commenced on the site in contravention to the land lease agreement, an extension was sought from the local authority to ensure no default. Through multiple letters in the period September - December 2010, the local authorities have provided extended timelines for the project until July 2012 for Phase 1 and July 2015 for Phase 2. Hence the immediate risk of land repossession, referred to in the 2010 Annual Report, has been successfully alleviated.

However, development in the project will remain a challenge till market conditions improve. As mentioned in the case of Luxor, SEZ demand has also been adversely impacted due to the applicability of Minimum Alternate Tax with effect from April 1, 2011.

Also, over the past months, there have been farmer agitations across the Greater Noida region protesting forcible land acquisition by the local authority. The courts have also quashed the land acquisition by the authority in certain cases. This proves a risk to the extent that status of ownership of whole or part of the land on which the project is located may come in doubt if any claim to this effect is made going forward.

Exit/ realization strategy

The above mentioned market conditions and risk factors have led to a decline in valuation as compared to that in September 2010.

Realisation of the investment remains a distant prospect. The current focus is to protect the value of the land, and keep a watch on the market conditions in light of the new infrastructure and social initiatives in the immediate vicinity. It is still early to negotiate an agreement with a development partner and pursue realisation strategies.

However, any exit decision would need to be taken in consultation with Immobilien I and II who are partners in TC1 together with Trinity, and thereby have "reserved" veto rights pertaining to such decision.

Horizon

Market overview

As per the Indian Planning Commission's preliminary assessment of the investment in infrastructure during the financial years 2012-17, the projected investment is estimated to be about USD One trillion. A case in point is the Delhi-Mumbai Industrial Corridor (DMIC), which is a mega infrastructure project of USD 90 billion being developed with financial and technical aid from Japan, covering an overall length of 1,483 kms between the national capital and the business capital of India, i.e., Delhi and Mumbai respectively. This augurs well for the country's logistics industry, the growth outlook for which remains robust. Further, lack of sufficient pan India logistics players provides an opportunity for players like Horizon to capitalise and generate returns for the investors.

Project location overview

The company boasts of a healthy project list comprising of container freight stations, free trade warehousing zones, inland container depots and logistics and warehousing facilities located across the country.

Partner/ promoter overview

SKIL Group, the promoter shareholder of Horizon is one of the leading pan India infrastructure players and their expertise will be of immense value for the purpose of project execution and value creation.

Development overview

There has been satisfactory progress on the projects undertaken/ to be undertaken by the company and the Investment Manager is monitoring the same on a regular basis. In fact, the company is in the process of expanding the initial project list by acquiring fresh land for setting up additional logistics parks in India and as a part of the Sohar SEZ in Oman.

A list of the major projects of the company is as follows:

·; A Container Freight Station to be located near the Jawaharlal Nehru Port, Navi Mumbai (the port handles about 60% of the containerized traffic of the country)

·; A free trade warehousing zone ('FTWZ') in Navi Mumbai, in respect of which a co-developer status has been granted to a subsidiary of the company viz. Chiplun FTWZ Pvt. Ltd. It is proposed to acquire additional land for development of a larger area under the FTWZ

·; The company is also undertaking development of Inland Clearance Depot in National Capital Region and Container Freight Station at Pipavav, Chennai, a Multimodal Logistics Park at Jhansi besides the warehousing facilities in Navi Mumbai

These activities will help in creation of greater substance in the company, and ultimately result in capture of greater value at the time of listing, which is currently being targeted in 2013.

Exit/ realisation strategy

The Investment Manager had earlier negotiated with the promoters, a visible exit from this investment at a base price of INR 22 per share within a three year time period. This price has been used as the basis for the valuation of the asset as at March 31, 2011.

However, there may arise a possible upside where an Initial Public Offer of the company is brought out or it is merged with any other listed entity at a more attractive price within a period of three years. In any case, the downside of the TC is protected at INR 22 per share.

Lokhandwala

Market overview

Mahalaxmi is a premium high-rise residential location in South/Central Mumbai, which is well connected to other parts of the city and suburbs through rail and road linkages. The micro market has the presence of a number of established Mumbai developers and hence has seen a significant rise in under construction as well as ready supply. Most of these projects are targeted at the luxury residential segment and had seen prices rising to all time highs of around INR 30,000/- per sq. ft. in the recent past. However, in light of reduced demand at those price levels, the average prices have now dropped close to INR 18,000/- to INR 23,000/- per sq. ft. over the last 2 quarters.

Project location overview

The project is located centrally within the micro market and in close proximity to well developed social infrastructure including premium hotels such as Four Seasons and the upcoming Shangri-la hotel, as well as a premium high street development known as Phoenix Mills, complete with outlets of all leading clothing brands (such as Zara, Giorgio Armani etc), a multiplex theatre, high end food and beverage outlets, entertainment zone etc.

Promoter/ partner overview

Lokhandwala Infrastructure, a large Mumbai based developer having a strong presence in the slum rehabilitation / redevelopment space, is the majority partner leading the project. The Group, has developed over 10 million sq. ft. of other projects in Mumbai including slum redevelopments.

Development overview

Spread across 7 acres of land, the project was originally an encroached site with slums. As per Slum Redevelopment guidelines of Mumbai city, the project is being developed as a high end residential project which would have a component of re-housing the existing slum dwellers in lieu of which the developer will be entitled to construct residential towers for free sale. The Project had been delayed for over two years, due to various regulatory issues and on account of issues pertaining to clearing over 2,100 slum units which were housed at the site. However, the site has now been cleared of slums and tenants have been relocated. Construction for both the slum rehab area and the free sale area has started.

The project has already been launched in the market, branded as "Minerva" and is being promoted as a high-end residential development. In addition to the slum rehabilitation buildings, the development comprises two proposed towers of around 80 floors each, including stilt and podium parking and amenities. The project has seen an off take of over 100 apartments i.e. almost 28% of proposed stock, albeit at lower price levels ranging from INR. 17,000/- to INR 19,000/- per sq. ft. The project pricing has faced resistance around the INR 22,000/- per sq. ft. level and hence we see reasonable price appreciation over the project life only over the construction and delivery cycle.

Given the complexity of design and the targeted height, the development could take up to 6-7 years to complete and may run into potential cost over-runs as well. The project should get substantial funding for construction from pre-sales and bank financing which has already been tied up.

Exit/ realisation strategy

The valuation of the project has seen a drop since the September 2010 value. This has been due to an increase in costs, and delay in timelines associated with approvals and clearances of slums on site. The project will be completed only in 6 to 7 years and will, in all likelihood, exceed the fund life. Thus, the main realisation option will be a strategic sale / developer buyback which could take place over the next 12 months. The Investment Manager is supporting Trinity to progress a realisation on these lines and negotiations are ongoing.

However, any exit decision would need to be taken in consultation with Immobilien I who are partners in TC5 together with Trinity, and thereby have "reserved" veto rights pertaining to such decision. Recent indications from Immobilien II are that they are not very receptive to the above strategy under current market conditions and perceptions and considering prospects in the foreseeable future.

Kapstone

The first exit out of the portfolio being managed by the Investment Manager was secured on June 30, 2011 from Kapstone at a value of £12.58 million The investment was held through one of Trinity's Mauritian wholly owned subsidiaries. The subsidiary acquired the holding in October 2006 for a total consideration of £ 10.6 million and therefore a profit on investment of approximately £ 1.98 million has been realised.

The valuation of the investment as at March 31, 2011 had declined from the September 2010 value, primarily due to increase in construction cost, drop in sale volumes and delay in delivery timelines. Further, given the scale of the project, it will most definitely extend beyond the fund life of Trinity. A strategic sale/ developer buyback during the development phase of the project was thus the most likely realisation strategy.

Accordingly, the exit involved purchase by a group company of the developer. The exit terms were attractive given that it provided an opportunity for immediate exit at a value which is in line with the current carrying value, thereby doing away with project execution and timeline risks going forward.

Enigma

*Exchange rate used: 1 GBP = 75 INR

Market overview

Located in the Mumbai Metropolitan Region, Virar is one of the last outskirts of Mumbai on the western corridor, at a distance of around 40 kms from downtown Mumba. It is a fast developing low to mid-income suburb. Its importance and growth ahead of other suburbs is primarily given its strategic importance as a railway junction and the origin of the western railway line. The market is gradually developing from a so-called 'affordable housing' location to a low/mid income aspirational lifestyle destination. The market is seeing significant residential activity with township projects under execution by several large Mumbai developers.

Project location overview

The project is ideally located less than 3 kms away from Virar Railway station, which is the origin station on the western railway line. It is around a 2.5 hours drive from the city.

Promoter/ partner overview

Rustomjee Group, a leading Mumbai based developer, is the majority partner leading the project. The group has completed over 3.1 million sq. ft. of development till date and has a development portfolio of approx. 30 million sq. ft. in Mumbai Metropolitan Region, which makes it one of the leading real estate developers in and around Mumbai.

Development overview

Spread across 217 acres, the project is conceptualized as an integrated residential township complete with civic amenities including convenience shopping, schools etc.

Delivery of various phases admeasuring close to approximately 3.2 million sq. ft. are at various stages and expected to be handed over between June 2013 and December 2013. These phases have seen over 90% absorption with majority of the off take at prices significantly lower than current levels. Current price quotes are in excess of INR 3250 - 3500 per sq. ft. Consequently, sale volumes have been declining steadily given that the location by its very nature is price sensitive. Construction cost has been escalating due to labour and raw material issues; however delivery timelines of Ground + Eleven structures seem to be on schedule due to employment of 'MIVAN Shuttering' construction techniques.

It may be noted that the project entails a total magnitude of development of over 12 million sq. ft. over the next 10-12 years, which will pose significant challenges in execution, cost control and delivery timelines. Further, the projected time frame for completion of the project will create challenges in terms of making an effective exit within fund life.

Exit/ realisation strategy

The valuation of the project has declined from the September 2010 value, primarily due to increase in construction cost, debt costs and significant drop in volumes.

A strategic sale/ developer buyback during the development phase of the project is the most likely realisation strategy given the fund life expiry. However, the same can take place only post the expiry of investment lock-in under the Indian exchange control regulations i.e. post September, 2011.

A non binding term sheet has been signed with the developer for sale of Trinity investment by at 1.1x of the investment amount to be completed in October, 2011 after expiry of the lock-in period. The offer is attractive given that it provides an opportunity for a visible exit at a value which is higher than the current carrying value, thereby doing away with project execution and timeline risks going forward. The definitive agreements detailing with the precise terms and timing of the exit are yet to be negotiated.

Rustomjee

The project was faced with initial teething troubles on account of being a redevelopment project which required consonance of over 168 families who are presently residing in the premises. This, added to the market meltdown, further delayed the project.

The promoter is still at the agreement negotiation stage with the housing societies, which marks the first step prior to commencement of work. The requisite approvals are also in the process of being obtained from the relevant local authorities. Thus, commencement of development on site is still some time away and would be subject to successful negotiation with the housing societies.

A strategic sale/ developer buyback during the development phase of the project was thus the most likely realisation strategy. The promoter and developer of this project is part of the same group as that for the Kapstone project. As with Kapstone, a sale of the Mauritius company's holding to a group company of the developer was secured after the year-end. 

The exit terms were attractive given that it provided an opportunity for immediate exit at a value which is in line with the current carrying value, thereby doing away with project execution and timeline risks going forward.

Trinity's interest in the Mauritius company, TC15, is 45%. The consideration to TC15 amounted to INR 322 million, which generated a GBP equivalent of 4.4 million. TC15 has put into effect a share capital reduction process to return the proceeds to its shareholders. The Group therefore is due to receive GBP 2 million, equal to the valuation applied at 31 March 2011.

MK Malls

TC10's investment in DB (BKC) Realtors Private Limited ("MK Malls") consists of (a) equity; (b) redeemable optionally convertible cumulative preference shares ("ROCCPS; and (c) compulsorily convertible preference shares ("CCPS"). In 2007 and 2008, the capital structure of TC10 was reorganised such that the shares acquired by Immobilien I and Immobilien II in TC10 provided the economic interest in the equity and ROCCPS. Trinity was issued with shares in TC10 which provide the economic interest in the CCPS, with a return on equity capped at an IRR of 20%. The figures below refer only to the economic interest in the CCPS.

MK Malls is engaged in a commercial office development in the Bandra Kurla Complex business district of Mumbai.

The CCPS in which Trinity owns the economic interest were originally structured to resemble mezzanine debt with an IRR capped at 20% pa. TC10 had a right to sell all (but not less than all) CCPS to the Indian Promoters after the expiry of three years from date of allotment. The said right has now been exercised since the lock-in period had expired. However, the requisite payment has not been made by the promoters. Complications include a legal challenge by DB Realty/ MK Malls and the arrest of the promoters by the Indian authorities in connection with an investigation into the issue of a telecommunications licence to a company they set up.

The Investment Manager and TCML are, however, in constant touch with representatives of the promoters to ensure a timely and optimal exit.

Also, the fact that TC10 is 88% owned by Immobilien I and II poses several challenges in negotiating an exit. It was most unfortunate that an offer for sale of the whole company received during the year was turned down by Immobilien I and II.

Directors' Report

The Directors have pleasure in presenting their report and financial statements of the Group for the year ended 31 March 2011.

Principal activity and incorporation

The Company is a closed-end investment company, incorporated on 7 March 2006 in the Isle of Man as a public limited company. Its shares were admitted to trade on the Alternative Investment Market of the London Stock Exchange on 21 April 2006.

The Group has invested in real estate and real estate related entities in India, primarily in commercial development in the office and business space, residential, retail, hospitality, and infrastructure sectors deriving returns from development, long-term capital appreciation and income.

The Group has no employees.

The consolidated financial statements comprise the results of the Company and its subsidiaries (together referred to as the "Group").

Results and dividends

The Group's results for the financial year ended 31 March 2011 are set out in the Consolidated Statement of Comprehensive Income.

A review of the Group's activities are set out in the Chairman's Report and investment summaries respectively.

During the year, the Company paid distributions of £99,955,434 (2010: £nil).

Directors

The Directors of the Company during the year and to date of this report, were as follows

None of the Directors had interests in the shares of the Company at 31 March 2011 (2010: none)

Details of the Directors' remuneration are given in note 13.

Company Secretary

The secretary of the Company during the year and to the date of this report was Philip Scales.

Auditors

The auditors, KPMG Audit LLC, being eligible, have expressed their willingness to continue in office in accordance with Section 12(2) of the Isle of Man Companies Act 1982.

On behalf of the Board

Philip Scales

Director

29 July 2011

Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

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

Company law requires the Directors to prepare financial statements for each financial year, which meet the requirements of Isle of Man company law. In addition, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards.

The financial statements are required by law to give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Group for that period. 

In preparing these financial statements, the Directors are required to:

·; select suitable accounting policies and then apply them consistently;

·; make judgements and estimates that are reasonable and prudent;

·; state whether they have been prepared in accordance with International Financial Reporting Standards; and

·; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and to enable them to ensure that its financial statements comply with the Companies Acts 1931 to 2004. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another.

Corporate Governance Statement

The UK Corporate Governance Code does not directly apply to companies incorporated within the Isle of Man but the Company's Board has developed its internal procedures to be in line with the recommendations of the UK Corporate Governance Code where appropriate and these are monitored on a regular basis. The Directors will continue to comply with the relevant requirements of the UK Corporate Governance Code to the extent that they consider it appropriate having regard to the Company's size and the nature of its operations. The Board is not aware of any reason that would cause it to reconsider its current approach adopted throughout the year under review.

Responsibilities of the Board

The Board of Directors is responsible for the implementation of the investment policy of the Company and for its overall supervision via the investment policy and objectives approved by shareholders. At each of the Company's regular Board meetings, the financial performance of the Company and its portfolio investments are reviewed.

The Board is also ultimately responsible for the Company's day-to-day operations, but in order to fulfil its obligations, the Board has delegated operations through arrangements with the Investment Manager and the Administrator. All Board members are non-executive.

Audit Committee

The Audit Committee is a sub-committee of the Board and makes recommendations to the Board which retains the right of final decision. The Audit Committee has primary responsibility for reviewing the financial statements and the accounting policies, principles and practice underlying them, liaising with the external auditors and reviewing the effectiveness of internal controls. The Audit Committee maintains a risk register to help it identify, evaluate, monitor and control risks. The Committee members are Stephen Coe (Chairman), Philip Scales, Pradeep Verma and Arvind Pahwa.

The terms of reference of the Audit Committee covers the following:

• The composition of the Committee and quorum of meetings.

• Appointment and duties of the Chairman.

• Duties in relation to external reporting, including reviews of financial statements, shareholder communications and other announcements.

• Duties in relation to the external auditors, including appointment/ dismissal, approval of fee, discussion of the audit.

• Duties in relation to internal systems, procedures and controls.

Remuneration and Nomination Committee

The Remuneration Committee is a sub-committee of the Board and makes recommendations to the Board which retains the right of final decision. The Committee members are Stephen Coe (Chairman), Philip Scales and Martin Adams.

The purpose of the Committee is to:

·; set the remuneration of Directors of the Company;

·; demonstrate to the shareholders of the Company that the remuneration of the non-executive Directors of the Company and its subsidiaries (the "Group") is set by a committee of the Board whose members have no personal interest in the outcome of the decisions of such committee and who will have due regard to the interests of shareholders; and

·; to the extent that any executive or non-executive director may be invited to join meetings of the Committee as appropriate he shall absent himself and take no part in any discussions concerning his own remuneration or other benefits or matters within the province of the Committee.

·; consider the appropriateness of the Board's composition, and assess the suitability of potential Board member.

The Committee is authorised by the Board to:

·; when the fulfilment of its duties requires, obtaining any outside legal or other professional advice including the advice of independent remuneration consultants, to secure the attendance of external advisers at its meetings, if it considers this necessary, and to obtain reliable, up-to-date information about remuneration in other companies, at the expense of the Company. The Committee shall have full authority to commission any reports or surveys which it deems necessary to help it fulfil its obligations.

·; when the fulfilment of its duties requires, to obtain any outside legal or other professional advice including the advice of independent recruitment consultants and to secure the attendance of external advisers at its meetings, if it considers this necessary, at the expense of the Company. The Committee shall have full authority to commission any reports or assistance which it deems necessary to help it fulfil its obligations.

Legal Committee

The legal Committee is a sub-committee of the Board and makes recommendations to the Board which retains the right of final decision. The Legal Committee's primary responsibility is to oversee the disputes which the Group is currently involved in. The Committee members are John Chapman (Chairman), Martin Adams and Graham Smith from the Administrator.

Investment Committee

The Investment Committee is a sub-committee of the Board and makes recommendations to the Board which retains the right of final decision. The Investment Committee's primary responsibility is to oversee the realisation of the Company's portfolio in accordance with the Company's investment policy. The Committee members are Martin Adams (Chairman), John Chapman, Pradeep Verma and Arvind Pahwa.

Report of the Independent Auditors, KPMG Audit LLC, to the members of Trinity Capital PLC

We have audited the financial statements of Trinity Capital plc for the year ended 31 March 2011 which comprise the Group Statement of Comprehensive Income, the Group and Parent Company Statements of Financial Position, the Group Statement of Cash Flows and the Group and Parent Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs).

This report is made solely to the Company's members, as a body, in accordance with Section 15 of the Companies Act 1982. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditor

As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of financial statements that give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

 Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.

Opinion on the financial statements

In our opinion the financial statements:

·; give a true and fair view of the state of the Group's and Parent Company's affairs as at 31 March 2011 and of the Group's loss for the year then ended;

·; have been properly prepared in accordance with IFRSs; and

·; have been properly prepared in accordance with the provisions of Companies Acts 1931 to 2004.

Matters on which we are required to report by exception 

We have nothing to report in respect of the following matters where the Companies Acts 1931 to 2004 require us to report to you if, in our opinion: 

·; proper books of account have not been kept by the Parent Company and proper returns adequate for our audit have not been received from branches not visited by us; or 

·; the Parent Company's statement of Financial Position and Statement of Comprehensive Income are not in agreement with the books of account and returns; or 

·; certain disclosures of directors' remuneration specified by law are not made; or

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

KPMG Audit LLC

Chartered Accountants

Heritage Court

41 Athol Street

Douglas

Isle of Man IM99 1HN

Consolidated Statement of Comprehensive Incomefor the year ended 31 March 2011

Consolidated Statement of Financial Positionas at 31 March 2011

Company Statement of Financial Positionas at 31 March 2011

The Company made a loss of £3,797,000 (2010: loss of £14,592,000).

Statements of Changes in Equityfor the year ended 31 March 2011

Statements of Changes in Equityfor the year ended 31 March 2011

Consolidated Statement of Cash Flowsfor the year ended 31 March 2011

Notes to the Financial Statementsfor the year ended 31 March 2011

1. General information

The Company is a closed-end investment company incorporated on 7 March 2006 in the Isle of Man as a public limited company. The address of its registered office is IOMA House, Hope Street, Douglas, Isle of Man.

The Company is listed on the Alternative Investment Market (AIM) of the London Stock Exchange. 

The Company and its subsidiaries (together the "Group") invest in real estate and real estate related entities in India, primarily in commercial development in the office and business space, residential, retail, hospitality and infrastructure sectors deriving returns from development, long-term capital appreciation and income.

The Group has no employees.

2. Summary of significant accounting policies

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs).

The consolidated financial statements were authorised for issue by the Board of Directors on 29 July 2011.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss are measured at fair value in the statement of financial position.

(c) Functional and presentation currency

These consolidated financial statements are presented in Sterling, which is the Company's functional currency. All financial information presented in Sterling has been rounded to the nearest thousand.

(d) Use of estimates and judgements

The preparation of the consolidated 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.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.

(a) Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries and subsidiary undertakings). Control is achieved where the Company has the power to govern the financial and operating policies of a portfolio company so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

 (b) Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the portfolio company, plus any costs directly attributable to the business combination. The portfolio company's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the portfolio company's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

The Directors are of the opinion that the Group is engaged in a single segment of business being property investment business in one geographical area being India.

Revenue includes interest receivable, dividend income and fair value gains and losses.

Interest receivable is accrued on a time basis by reference to the principal outstanding and the effective interest rate applicable.

Fair value gains and losses are recognised in the period of revaluation

Dividend income from investments is recognised when the Company's right to receive payment has been established, normally the ex-dividend date.

All expenses are accrued for on an accruals basis and are presented as revenue items except for expenses that are incidental to the disposal of an investment which are deducted from the disposal proceeds.

Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

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, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.

Deferred tax is recognised 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 not recognised for:

·; temporary differences on the initial recognition of assets or liabilities in a transaction that is

not a business combination and that affects neither accounting nor taxable profit or loss;

·; temporary differences related to investments in subsidiaries and jointly controlled entities to

the extent that it is probable that they will not reverse in the foreseeable future; and

·; taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by 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 realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(a) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured usingthe currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Sterling, which is the Company's functional and presentation currency.

(b) Transactions and balances

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity investments, a financial liability designated as a hedge of the net investment in a foreign operation that is effective, or qualifying cash flow hedges, which are recognised in other comprehensive income.

(c) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Sterling at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to Sterling at exchange rates at the dates of the transactions.

The income and expenses of foreign operations in hyperinflationary economies are translated to Sterling at the exchange rate at the reporting date. Prior to translating the financial statements of foreign operations in hyperinflationary economies, their financial statements for the current year are restated to account for changes in the general purchasing power of the local currency. The restatement is based on relevant price indices at the reporting date.

Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and presented in the translation reserve in equity.

Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of a financial instrument. Financial assets and financial liabilities are offset if there is a legally enforceable right to set off the recognised amounts and interests and it is intended to settle on a net basis.

Investments of the Group where the Group does not have control are designated as at fair value through profit or loss on initial recognition. They are measured at fair value. Unrealised gains and losses arising from revaluation are recognised in profit or loss.

Investments in entities over which the Group has control are consolidated in accordance with IAS 27.

The fair value of unquoted securities is estimated by the Directors using the most appropriate valuation technique for each investment.

Securities quoted or traded on a recognised stock exchange or other regulated market are valued by reference to the last available bid price.

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation, and the obligation can be reliably measured. If the effect is material, 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.

At the date of authorisation of the financial statements, the following standards and interpretation were in issue, but not yet effective. The impact of these statements on the Group's financial statements in the period of initial application is not known at this stage. These statements, where applicable, will be applied in the year when they are effective.

*Amendments resulting from May 2010 Annual Improvements to IFRSs

** Original issue May 2011

3. Critical accounting estimates and assumptions

These disclosures supplement the commentary on financial risk management (see note 22).

Key sources of estimation uncertainty

Determining fair values

The determination of fair values for financial assets for which there is no observable market prices requires the use of valuation techniques as described in accounting policy note 2.8. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affection the specific instrument. See also "Valuation of financial instruments" below.

Critical judgements in applying the Company's accounting policies

Critical judgements made in applying the Company's accounting policies include:

Valuation of financial instruments

The Company's accounting policy on fair value measurements is discussed in accounting policy note 2.8. The Company measures fair value using the following hierarchy that reflects the significant of inputs used in making the measurements:

·; Level 1: Quoted market price (unadjusted) in an active market for and identical instrument.

·; Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category included instruments valued using: quoted market prices in active markets for similar instruments: quoted market prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

·; Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Company determines fair values using valuation techniques, as described in detail in note 11.

The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurements are categorised:

The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in level 3 of the fair value hierarchy:

Estimated performance fee (carried interest) on investments

As described in note 4, a provision has been established for performance fees. In previous financial years, this was based on the fair value gains recognised, to reflect the terms of the Portfolio Management Agreement in force at that time. With the appointment of a new investment manager, the provision is calculated by reference to the total fair value of those assets covered by the new investment management agreement, and not just the gains, in accordance with the terms of the new agreement.

Estimated future legal fees

As described in note 19, the Company is engaged in litigation. A provision has been made for the associated legal costs, but this amount cannot be calculated with any certainty. The actual amount may differ significantly, and will depend on the duration and complexity of the litigation, and the success or otherwise in reaching settlement with the other parties.

4. Investment Management fees and performance fees

On 18 June 2010, Trinity Capital Mauritius Limited ("TCML"), a wholly owned subsidiary of the Company, entered into an investment management agreement (to which the Company is also a party) appointing Indiareit Investment Management Company ("Indiareit") as investment manager to TCML. Indiareit is entitled to an investment management fee of USD 2.2 million in the first year of the contract, USD 1.89 million in the second year, and USD 1.69 million in the third and subsequent years. In addition Indiareit is entitled to a performance fee of 7.5 per cent of the realised net proceeds received by the Group for the disposal of its investments other than DB Realty, DB Hospitality, and Pipavav Shipyard. After the third anniversary of the contract, 50% of the investment management fees will be set-off against the performance fees.

The provision for the performance fees to which Indiareit would be entitled based on the fair value of all investments, apart from the excepted assets noted above, amounted to £5,475,000 (2010: £7,940,000) at 31 March 2011. The prior year comparatives include a release from provisions and liabilities arising under the investment management agreement with the former investment manager, terminated in March 2010. The movements of the performance fee charge in the Statement of Comprehensive Income are made up as follows:

5. Settlement with former Investment Manager

The Company entered into a settlement agreement with Trikona Advisers Limited, its former Investment Manager, in February 2011, following a dispute about the termination of the investment management agreement. In accordance with the settlement agreement, the Company made a cash payment to Trikona Advisers Limited, transferred ownership of Trinity Capital (Sixteen) Limited, and both parties waived all claims against each other. The cost to the Company is made up as follows.

The Company had made a provision for legal costs associated with this dispute in March 2010, and upon settlement in February 2011, the unused part of the provision was released and credited back to the profit or loss, as described in note 19.

6. Other administration fees and expenses

7. Taxation

There is no liability for income tax in the Isle of Man.

The Group is subject to income tax in Mauritius at the rate of 15% on the chargeable income of Mauritian subsidiaries. They are, however, entitled to a tax credit equivalent to the higher of the foreign tax paid and a deemed credit of 80% of the Mauritian tax on their foreign source income. No provision has been made in the financial statements due to the availability of tax losses.

8. Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to equity shareholders of the parent by the weighted average number of ordinary shares outstanding during the year.

There is no difference between fully diluted earnings per share and basic earnings per share.

9. Distributions

On 23 December 2010, the Company made a distribution of 16.6p per share, equivalent to£35 million. Furthermore, on 9 March 2011, the Company made a distribution of 30.9p per share, equivalent to £65 million. The distributions were paid out of reserves created upon the cancellation of the share premium reserve which arose at the time of the Company's admission to AIM.

10. Investments in subsidiaries

The subsidiaries of Trinity Capital PLC are recorded at cost in the financial statements of the Company.

In addition to above, the Company has the following subsidiaries in India:

(a) Uppals IT Projects Private Limited: Trinity Capital (One) Limited held 99.99% of the total equity share capital at 31 March 2011.

(b) Jodhana Developers Private Limited: Trinity Capital (Seventeen) Limited held over 98% of the total equity share capital but only 48.48% of the voting rights at 31 March 2011.

(c) Nirmaan Buildwell Private Limited: Trinity Capital (Fourteen) Limited held 99.99% of the total equity share capital at 31 March 2011.

The financial statements of the subsidiaries in India are not consolidated in these financial statements, as they do not meet all the criteria for consolidation as required by IAS 27.

11. Investments - designated at fair value through profit or loss

The Group holds full or partial ownership interests in a number of unquoted Indian companies. Some of these companies invest in development property projects ("the Project Companies"). For the Project Companies, CB Richard Ellis ("CBRE") conducted an independent valuation (acting as external valuers) of the development properties owned by each of these companies as at 31 March 2011. Based on CBRE's valuation of the development properties, which were carried out in accordance with the valuation guidelines of The Royal Institution of Chartered Surveyors, the Directors valued the Group's interest in the equity interests held in each of the Project Companies. CBRE also carried out certain Agreed Upon Procedures to test these computations of the fair value of Group's interest in Project Companies. The Directors also valued the Group's ownership interests in the unquoted companies not owning property development projects.

For the Project Companies, the Directors' valuations are based (where appropriate) on a discounted cash flow methodology. The methodology uses the cash-flow data generated by CBRE (which in turn is partially based on company-generated cash flows) and observable market data on interest rates and equity returns. The discount rates used for valuing equity securities are determined based on historic equity returns for other entities operating in the same industry for which market returns are observable. Management uses models to adjust the observed equity returns to reflect the actual debt/equity financing structure of the investment. The discount rate applied varies from project to project to take account of the estimated risk and ranges between 16.00% and 26.42%.

The unlisted equity securities comprising non-development property holdings are valued using a mixture of discounted cash flow and price earnings multiples. At March 2011, the only investment in this category was Horizon Countrywide Logistics Limited, and the valuation was based on the present value of the put option held by the Group.

Listed equity securities are valued at the closing market price. At March 2011, there was only one holding of listed equity securities, DB Realty Limited.

Investments are recorded at fair value are as follows:

\* The valuation of the investment in Uppals IT Project Pvt Ltd has been prepared on the basis that relevant lease extensions will be obtained from the local government development authority. The Board believes that such extensions will be forthcoming (and the valuation of the investment has been prepared on this basis) but there is no guarantee that this will take place. If such extensions were not obtained then the value of this investment would be materially lower.

12. Share capital

The authorised share capital at 31 March 2010 and 31 March 2011 and the issued and fully paid share capital at the same dates was as follows:

The Deferred Shares rank pari passu with the Ordinary Shares save that the Deferred Shares have no right to dividends or voting rights or the right to receive notice of or attend any general meeting. On the return of capital in a winding-up of the Company or otherwise (other than re-purchases or redemptions of shares authorised by special resolution), the Deferred Shares have the right to return of par value paid up thereon in priority to the return of the par value paid up on the Ordinary Shares.

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor, and market confidence. In accordance with the new investment policy adopted by the Shareholders in March 2009, the Company's ordinary shares are trading at a price below the NAV per Ordinary Share the Company shall immediately effect a return of capital through a cash distribution to Shareholders. If the Company's Ordinary Shares are trading at a price above the NAV per ordinary share, the Board will selectively determine, on a periodic basis, whether or not to make new investments.

Group capital comprises share capital and reserves.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

13. Directors' remuneration

Details of Directors' remuneration during the year are as follows:

* From date of appointment

The Directors' Incentive Plan was approved at the EGM of the Shareholders on 29 November 2010, and provides for payments to Martin Adams, Pradeep Verma and Johns Chapman amounting to 0.75%, 0.375% and 0.175% respectively of the amounts distributed to shareholders. In addition, Pradeep Verma was entitled to a one-off lump sum payment of £250,000.

The fixed fee to Stephen Coe includes £15,000 per annum for acting as Chairman of the Audit Committee and Remuneration Committee.

14. Trade and other receivables

15. Trade and other payables

16. Disposals of investments

Realised gains/ (losses) on disposal of investments are as follows:

Ownership of Trinity Capital (Sixteen) Ltd., the holding vehicle for Sankalp was transferred to Trikona Advisers Limited as part of the settlement (see note 5). There were therefore no cash proceeds in respect of this disposal, but the proceeds shown above are the value deemed to have been transferred. This is based on the September 2010 valuation, as per the published half-year accounts.

The proceeds from the ITNL disposal, accounted for in the year-ended March 2010, were actually received in the year ended March 2011.

17. Net asset value (NAV)

The NAV per share is calculated by dividing the net assets attributable to the equity holders of the Company at the end of the year by the number of shares in issue as at 31 March 2011.

18. Cash and cash equivalents

19. Provision for future legal costs

The Company is engaged in a dispute, as described in note 21, with Immobilien Development Indien I GmbH & Co. KG ("Immobilien I") and Immobilien Development Indien II GmbH & Co. KG ("Immobilien II"), being limited partnerships incorporated in Germany, both sponsored by SachsenFonds Holding GmbH. A provision was established in March 2010 for the amount of the estimated legal costs yet to be incurred in the litigation. As stated in note 24, subsequent to the year-end the Supreme Court in Mauritius set aside the claim lodged by Immobilien I and II, but Immobilien I and II have appealed against that decision. A provision of £2 million is retained for the estimate of future legal costs associated with the dispute.

The movement in the provision is as follows:

There can of course be no certainty as to the accuracy of these provisions. The actual amount may differ significantly, and will depend on the duration and complexity of the litigation, and the success or otherwise in reaching settlement with the other parties.

20. Commitments

There were no outstanding contractual commitments at the year end.

21. Contingent Liabilities

On 12 January 2010 the Company received a notification of claim from Immobilien Development Indien I GmbH & Co. KG ("Immobilien I") and Immobilien Development Indien II GmbH & Co. KG ("Immobilien II"), being limited partnerships incorporated in Germany, both sponsored by SachsenFonds GmbH. In addition to the Company, the notification was also addressed to Trinity Capital Mauritius Ltd. ("TCML"), Trikona Advisers Ltd. ("TAL", the former investment adviser of the Company), private persons who together controlled TAL, and TSF Advisers Mauritius Limited (a joint venture between TAL and SachsenFonds Asset Management GmbH). On 13 July 2011, the Supreme Court in Mauritius dismissed those claims. On 26 July 2011, the Civil Court of appeal in Mauritius was served with a notice of appeal.

By way of background, in November 2007 and May 2008 Immobilien I and Immobilien II purchased from TCML interests in various Mauritian companies (the "Mauritian TC Companies") which in turn owned equity stakes in Indian investment vehicles (the "Indian Companies") which held certain of the Company's development projects in India (the "Transactions"). Accordingly, Immobilien I and/or Immobilien II are partners with TCML in various Mauritian companies in respect of five development projects in India. One Mauritian TC Company was sold in its entirety to Immobilien I and Immobilien II. In aggregate, Immobilien I and Immobilien II paid £86.4 million for investments in which the Company had invested £41.8 million. The contracts included legal provisions in the relevant documentation whereby the Group would be obliged to make good to the acquirer the economic loss which would arise upon the non fulfilment of certain conditions in the contractual arrangements.

The amount claimed by Immobilien I and Immobilien II in the original pleading was their original cost of the investments, being nearly €116 million, plus amounts to compensate for prejudice, trouble, annoyance, interest and costs.

The Board is fully committed to defending the claims made by Immobilien I and Immobilien IIThe Directors do not consider it necessary to provide for the claims in the financial statements, but the Company has retained a provision of £2,000,000 for future legal costs in defending the actions, as described in note 19. 

22. Financial risk management

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, market price risk and interest rate risk), credit risk and liquidity risk.

Risk management is carried out by the Board of Directors, with assistance from the Investment Manager to the extent possible and as appropriate.

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Indian Rupee. Foreign exchange risk arises from future commercial transactions, recognised monetary assets and liabilities and net investments in foreign operations.

Net assets denominated in Indian Rupee at the year end amounted to £104,888,000 (2010: £266,236,000).

At 31 March 2011, had the exchange rate between the Indian Rupee and Sterling increased or decreased by 5% with all other variables held constant, the increase or decrease respectively in net assets would amount to approximately £5,244,000 (2010: £13,312,000).

The Group does not hedge against foreign exchange movements, except from time to time for short term receivables or payables with a known settlement date.

(ii) Market price risk

The Group is exposed to market price risk arising from its investment in unlisted and listed equity investments. All these securities present a risk of capital loss. The Board and the Investment Manager are responsible for the selection of investments and monitoring exposure to market risk. All investments are in Indian companies.

If the value of the Group's investment portfolio had increased by 5%, the Group's net assets would have increased by £5,244,000 (2010: £13,312,000). A decrease of 5% would have resulted in equal and opposite decrease in net assets.

The Group is exposed to property price risk, property rentals risk and the normal risks of property development through its investment in Indian real estate companies.

(iii) Cash flow and fair value interest rate risk

The Group's cash and cash equivalents are invested at short term market interest rates.

The table below summarises the Group's exposure to interest rate risks. It includes the Groups' financial assets and liabilities at the earlier of contractual re-pricing or maturity date, measured by the carrying values of assets and liabilities.

Credit risk arises on investments, cash balances and debtor balances. The amount of credit risk is equal to the amounts stated in the statement of financial position for each of these assets. Cash balances are limited to high-credit-quality financial institutions. There are no impairment provisions as at 31 March 2011 (2010: nil).

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Company aims to maintain flexibility in funding.

Residual undiscounted contractual maturities of financial liabilities:

23. Related party transactions

Philip Scales is a Director of the Company and of the Administrator. He received no directors' fee from the Company during the year (2010: nil). The fees paid by the Company to the Administrator for the year amounted to £192,467 (2010: £188,000).

24. Subsequent events

On 4 July Trinity Capital Three Limited, a subsidiary of the Company, disposed of its interest in Kapstone Constructions Private Limited for net proceeds of £12.6 million, generating a realised profit/loss for the Group of £2 million.

On 8 July, the Company announced a dividend of six pence per ordinary share, amounting to £12,626,000 in total, payable on 1 August 2011.

On 13 July, as referred to in note 21, the Supreme Court in Mauritius ruled in the Company's favour in the claim lodged by Immobilien I and Immobilien II, and set aside the claim. On 26 July, Immobilien I and Immobilien II filed an appeal in the Court of Civil Appeal in Mauritius. 

On 18 July Trinity Capital Fifteen Limited, an associate of the Company, disposed of its interest in Rustomjee Constructions Private Limited. Trinity Capital Fifteen Limited put into effect a return of capital on 28 July, which generated net proceeds for the Group of £2.0 million, equal to the valuation applied at 31 March 2011. This crystallised a gain of £0.4 million.