Notes to the Consolidated Financial Statements continued AN UAL Report June 2022 Notes to the Consolidated Financial Statements 37 Noteholders have an option to redeem the notes at the end of 2 years at face value plus any accrued interest. Any convertible notes not converted will be redeemed on 17 September 2023 at the principal amount together with accrued but unpaid interest thereon. The notes carry interest at a coupon rate of 7.00% per annum (effective interest rate of 1.4% per month based on a 2-year amortisation period on estimated cashflow timing in line with the 2-year redemption option) which is payable annually in arrears in September. The fair value of the liability component was estimated at issuance date using an “Interest Rate Differential” methodology which discounts the convertible notes’ cash flows at a commercial discount (interest) rate to a present value. The residual amount is assigned as the equity component and is included in reserves. Subsequent to issue, 2,000,000 notes plus accrued interest were converted into 30,832,307 ordinary shares on 28 September, 29 September and 30 September 2021. The convertible notes issued and converted during the period have been split into liability and equity components as follows: Debt ($) Equity ($) Total Opening balance at 1 July 2021 - - - Nominal value of convertible notes issued on 17 September 2021 4,279,000 1,721,000 6,000,000 Notes converted during the period (1,426,333) (573,667) (2,000,000) Balance as at 30 June 2022 2,852,667 1,147,333 4,000,000 (a) Debt Component – Convertible Notes 2022 $ Opening balance at 1 July 2021 - Convertible notes issued on 17 September 2021 4,279,000 Notes converted 28, 29 & 30 September 2021 (1,426,333) Convertible notes on issue as at 30 September 2022 2,852,667 Accrued Interest at effective interest rate 380,235 Capitalised Borrowing Costs (228,251) Balance as at 30 June 2022 3,004,651 Accounting Policy The component of convertible notes that exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of transaction costs. The increase in liability due to passage of time is recognised as a finance cost. The remainder of the proceeds are included in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible notes based on the allocation of proceeds to the liability and equity components when the instruments are first recognised. The liability component of the convertible notes has been classified as a current liability in accordance with AASB 101 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-Current due to the Company not having a right to defer settlement for at least twelve months after the reporting period. 68 EQ Resources Limited Annual Report 2022
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