Brooge Energy (BROGF) Risk Analysis

The Company's Amended and Restated Memorandum and Articles of Association contain provisions that may discourage unsolicited takeover proposals that shareholders of the Company may consider to be in their best interests. Among other provisions, the ability of the Company's board of directors to issue preferred shares with preferences and voting rights determined by the board without shareholder approval may make it more difficult for the Company's shareholders to remove incumbent management and accordingly discourage transactions that otherwise could involve payment of a premium over prevailing market prices for the Company's securities. Other anti-takeover provisions in the Company's Amended and Restated Memorandum and Articles of Association include the indemnification of the Company's officers and directors, the requirement that directors may only be removed from the Company's board of directors for cause and the requirement for a Special Resolution to amend provisions therein that affect shareholder rights. These provisions could also make it difficult for the Company's shareholders to take certain actions and limit the price investors might be willing to pay for the Company's securities.

BPGIC commenced operations of Phase I in late Fourth Quarter 2017 and began operating it at full capacity on April 1, 2018. As a result, although the Company's Senior Management and site teams have up to 30 years of relevant international and industry experience, the Company has only limited operating results to demonstrate its ability to operate its business on which a potential investor may rely to evaluate the Company's business and prospects. Accordingly, the financial information included in this Report may be of limited use in assessing the Company's business. The Company is also subject to the business risks and uncertainties associated with any new business, including the risk that it will not achieve its operating objectives and business strategy. The Company's limited operating history increases the risks and uncertainties that potential investors face in making an investment in our securities and the lack of historic information may make it particularly difficult for a potential investor to evaluate the Company's financial performance and forecast reliable long-term trends.

The stock markets experience volatility that is often unrelated to operating performance. These broad market fluctuations may adversely affect the trading price of the Company's securities and, as a result, there may be significant volatility in the market price of the Company's securities. If the Company is unable to operate profitably as investors expect, the market price of the Company's securities will likely decline when it becomes apparent that the market expectations may not be realized. In addition to operating results, many economic and seasonal factors outside of the Company's control could have an adverse effect on the price of the Company's securities and increase fluctuations in its periodic earnings. These factors include certain of the risks discussed herein, operating results of other companies in the same industry, changes in financial estimates or recommendations of securities analysts, speculation in the press or investment community, negative media coverage or risk of proceedings or government investigation, the possible effects of war, terrorist and other hostilities, pandemics, adverse weather conditions, changes in general conditions in the economy or the financial markets or other developments affecting the oil and gas storage industry.

Prior to the consummation of the Business Combination, the Company was neither a publicly listed company, nor an affiliate or a consolidated subsidiary of, a publicly listed company, and it has had limited accounting personnel and other resources with which to address its internal controls and procedures. Effective internal control over financial reporting is necessary for the Company to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. In connection with the preparation and external audit of the Company's financial statements as of and for the years ended December 31, 2017, 2018, 2019 and 2020, the Company and our auditors, noted material weaknesses in the Company's internal control over financial reporting. The SEC defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's financial statements will not be prevented or detected on a timely basis. The material weaknesses identified were (i) a lack of sufficient skilled personnel with requisite IFRS and SEC reporting knowledge and experience and (ii) a lack of sufficient entity level and financial reporting policies and procedures that are commensurate with IFRS and SEC reporting requirements. During the year 2020, the Company took the steps below to minimize the effects of both these material weaknesses: - The Company appointed a new chief financial officer and other finance personnel with relevant public reporting experience and also conducted trainings for new employees with respect to IFRS and SEC reporting requirements; and - The Company appointed a third party consultant to prepare the processes of financial reporting and help the Company to implement them, and the consultant is in the final stages of finalizing the processes. In this regard, the Company has, and will need to continue to, dedicate internal resources, recruit more personnel with public reporting experience, potentially engage additional outside consultants and adopt a detailed work plan to assess and document the adequacy of its internal control over financial reporting. This has, and may continue to, include taking steps to improve control processes as appropriate, validating that controls are functioning as documented and implementing a continuous reporting and improvement process for internal control over financial reporting. The Company's auditors did not undertake an audit of the effectiveness of its internal control over financial reporting. The Company's independent registered public accounting firm will not be required to report on the effectiveness of the Company's internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act until the Company's first Annual Report on Form 20-F following the date on which it ceases to qualify as an "emerging growth company," which may be up to five full fiscal years following the date of the Company's initial sale of common equity pursuant to a registration statement declared effective under the Securities Act. The process of assessing the effectiveness of the Company's internal control over financial reporting may require the investment of substantial time and resources, including by members of the Company's senior management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete. In addition, the Company cannot predict the outcome of this determination and whether the Company will need to implement remedial actions in order to implement effective control over financial reporting. If in subsequent years the Company is unable to assert that the Company's internal control over financial reporting is effective, or if the Company's auditors express an opinion that the Company's internal control over financial reporting is ineffective, the Company could lose investor confidence in the accuracy and completeness of its financial reports, which could have a material adverse effect on the price of the Company's securities. For more information regarding our controls and procedures, see "Item 15. Controls and Procedures".

The Company is a holding company and does not directly own any operating assets other than its ownership of interests in BPGIC and BPGIC III. The Company depends on BPGIC and BPGIC III for distributions, loans and other payments to generate the funds necessary to meet its financial obligations, including its expenses as a publicly traded company and to pay any dividends. The earnings from, or other available assets of, BPGIC and BPGIC III may not be sufficient to make distributions or pay dividends, pay expenses or satisfy the Company's other financial obligations.

The Company operates in a capital-intensive industry that requires a substantial amount of capital and other long-term expenditures, including those relating to the expansion of existing terminal facilities and the development and acquisition of new terminal facilities. The Company has several plans for expansion beyond Phase II, including Phase III, that may require significant capital investment. For example, the Company plans to establish an external connection to the local power grid in due course, which would provide the BPGIC Terminal with an additional source of power if necessary. In addition, as discussed further in "Item 4B Business Overview - Strategy", in 2020, BPGIC entered into the Phase III Land Lease to lease the Phase III Land on which it would build a new oil storage facility, and novated the Phase III Land Lease to BPGIC III. The Company has engaged MUC, the same advisor that designed the BPGIC Terminal, to create several proposals for the design of Phase III. If the Company decides to construct a new facility, it would require substantial capital investment, and the Company may not have sufficient capital to make the capital expenditures and other investments as it deems necessary or desirable. To meet the financing requirements for such capital investments, the Company may have to utilize a combination of internally generated cash and external borrowings, including banking and capital markets transactions. The Company may also seek, in the event that further material expansion opportunities arise in the future, to obtain additional funding from the capital markets to further enhance its funding position. The Company's ability to arrange external financing and the cost of such financing is dependent on numerous factors, including its future financial condition, the terms of any restrictive covenants under then existing credit facilities, general economic and capital market conditions, interest rates, credit availability from banks or other lenders, investor confidence in the Company, applicable provisions of tax and securities laws and political and economic conditions in any relevant jurisdiction. Moreover, the decline in global credit markets and reduced liquidity may affect the Company's ability to secure financing on commercially reasonable terms, if at all. The Company cannot provide any assurance that it will be able to arrange any such external financing on commercially reasonable terms, if at all, and it may be required to secure any such financing with a lien over its assets or agree to contractual limitations on its business. If the Company is unable to generate or obtain funds sufficient to make necessary or desirable capital expenditure and other investments, it may be unable to grow its business, which may have a material adverse effect on its business, financial condition and results of operations. Beyond Phase II, the aforementioned projects and the projects described herein, the Company may consider additional projects in the future, which would be subject to the same risks mentioned above.

BPGIC entered into the Bond Financing Facility of $200.00 million to repay the Phase I Financing Facilities, fund capital projects for Phase II, repay the promissory note payable to Early Bird Capital, pre-fund the Liquidity Account and for general corporate purposes. The proceeds of the bonds were drawn down during November 2020 and outstanding term loans were fully settled. The Bond Financing Facility contains covenants limiting BPGIC's ability to incur indebtedness, grant liens, engage in transactions with affiliates and make distributions on or redeem or repurchase ordinary shares. The Bond Financing Facility contains covenants requiring BPGIC (including its subsidiaries) and the Company to maintain the following covenants: 1. Financial Covenants i. Minimum Liquidity: Maintain $8.5 million in the Liquidity Account.         ii. Leverage Ratio: Not to exceed: (A) 5.5x at December 31, 2020; (B) 3.5x at December 31, 2021; and (C) 3.0x anytime thereafter.         iii. Working Capital: Maintain a positive working capital.         iv. Brooge Energy Limited to maintain a minimum equity ratio of 25%. 2. Account Maintenance Covenants i. BPGIC to maintain a Construction Funding Account.         ii. BPGIC to maintain Debt Service Retention Account.         iii. BPGIC to maintain Liquidity Account. 3. Other Covenants i. BPGIC is subject to the following restrictions on distributions:             a. no distributions for one year from the Phase II facility completion date.             b. distributions cannot exceed in the aggregate 50% of BPGIC's net profit after tax based on the audited annual financial statements for the previous financial year.             c. any distribution shall only be released out of BPGIC and its subsidiaries in the form of a group company loan to the Phase III company.             d. BPGIC must be in compliance with the financial covenants (on the last reporting date).             e. no event of default is continuing or would arise from such distribution.             ii. BPGIC (including its subsidiaries) cannot invest and/or undertake any capital expenditure obligation that exceeds an aggregate of $10.0 million during the term of the Bond Financing Facility, except for the remaining capital expenditure obligation under the construction contract for Phase II, any maintenance capital expenditure and/or enhancements relating to Phase I and/or Phase II in its ordinary course of business.           iii. BPGIC, during construction of Phase II, upon the occurrence of a cost overrun:             a. must give written notice thereof to the Bond Trustee promptly after becoming aware of the cost overrun, and             b. promptly, and no later than 20 business days after becoming aware of the cost overrun, obtain additional cash funding in an amount not less than the amount of the cost overrun, in the form of new equity capital, intercompany loans or subordinated loans. BPGIC's ability to comply with these restrictions and covenants may be affected by events beyond its control, including prevailing economic, financial and industry conditions. If BPGIC is unable to comply with these restrictions and covenants, a significant portion of the indebtedness under the Bond Financing Facility may become immediately due and payable. BPGIC might not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, BPGIC's obligations under the Bond Financing Facility are secured by substantially all of BPGIC's assets, and if BPGIC is unable to repay the indebtedness under the Bond Financing Facility, the Bond Trustee, on behalf of the bondholders, could seek to foreclose on such assets, which would adversely affect BPGIC's business, financial condition and results of operations. The Bond Financing Facility also has cross-default provisions that apply to any other material indebtedness that BPGIC may have. For more information regarding the Bond Financing Facility, see "- Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Debt Sources of Liquidity".