Note 23 – Variable Interest Entities (VIEs)

As at June 30, 2018, we leased two semi-submersible rigs, and one jack-up rig from Ship Finance VIEs under capital leases. Each of the units had been sold by us to single purpose subsidiaries of Ship Finance and simultaneously leased back by us on bareboat charter contracts for a term of 15 years. We have several options to repurchase the units during the charter periods, and obligations to purchase the assets at the end of the 15-year lease period.

The following table gives a summary of the sale and leaseback arrangements, as at June 30, 2018:

Unit

Effective
from

Sale value
(In $ millions)

First
repurchase
option
(In $ millions)

Month of first
repurchase
option

Last
repurchase
option
(In $ millions)

Month of last
repurchase
Option*

West Taurus

Nov 2008

850

418

Feb 2015

149

⁽¹⁾

Nov 2023

West Hercules

Oct 2008

850

580

Aug 2011

135

⁽¹⁾

Aug 2023

West Linus

June 2013

600

370

June 2018

170

⁽²⁾

June 2028

⁽¹⁾	Purchase obligations at the end of the 15-year lease period

⁽²⁾	Ship Finance has a right to require us to purchase the West Linus rig on the 15^th anniversary for $100 million if we do not exercise the final repurchase option

We determine that the Ship Finance subsidiaries, which own the units, are VIEs, and that we are the primary beneficiary of the risks and rewards connected with the ownership of the units and the charter contracts. Accordingly, these VIEs are fully consolidated in our consolidated financial statements. We did not record any gains from the sale of the units, as they continued to be reported as assets at their original cost in our consolidated balance sheet at the time of each transaction. The equity attributable to Ship Finance in the VIEs is included in non-controlling interests in our consolidated financial statements. At June 30, 2018 and at December 31, 2017 the units are reported under drilling units in our consolidated balance sheet.

The bareboat charter rates are set on the basis of a base LIBOR interest rate for each bareboat charter contract, and thereafter are adjusted for differences between the LIBOR fixing each month and the base LIBOR interest rate for each contract. A summary of the bareboat charter rates per day for each unit is given below.


	(In $ thousands)
Unit	2018		2019		2020		2021		2022		2023
West Taurus		112		103		101		97		96		181
West Hercules		118		101		100		96		96		184
West Linus		158		122		99		99		93		189

The assets and liabilities in the financial statements of the VIEs as at June 30, 2018 and as at December 31, 2017 are as follows:


	As at June 30, 2018						As at December 31, 2017
(In $ millions)	SFL Deepwater Limited		SFL Hercules Limited		SFL Linus Limited		SFL Deepwater Limited		SFL Hercules Limited		SFL Linus Limited
Name of unit	West Taurus		West Hercules		West Linus		West Taurus		West Hercules		West Linus
Investment in finance lease		326		316		414		335		326		431
Amount due from related parties		3		4		—		4		4		—
Other assets		6		6		7		6		6		8

Total assets of the VIEs		335		326		421		345		336		439

Short-term interest bearing debt		19		28		45		226		27		48
Long-term interest bearing debt		196		210		240		—		224		261
Other liabilities		10		10		—		3		2		—
Short-term amounts due to related parties		—		—		12		—		—		4
Long-term debt due to related parties		106		73		115		113		80		121

Total liabilities of the VIEs		331		321		412		342		333		434

Equity of the VIEs		4		5		9		3		3		5

Book value of units in the Company’s consolidated financial statements		373		525		504		385		508		515

We present balances due to/from Ship Finance on a net basis, due to the fact there is a right of offset established in the long-term loan agreements, and the balances are intended to be settled on a net basis. As at June 30, 2018, we presented receivable balances (current assets) of $7 million related to SFL Deepwater Ltd, $7 million related to SFL Hercules Ltd, and $6 million related to SFL Linus Ltd against “Long-term debt due to related parties” within “Non-current liabilities” in the consolidated balance sheet. As at December 31, 2017, we had no receivable balances presented against “Long-term debt due to related parties” within “Non-current liabilities” in the Consolidated Balance Sheets.

In the period ended June 30, 2018 the VIEs declared no dividends (June 30, 2017: $14 million).